Reporting and  Preparing Financial Statements UAA – ACCT 201  Principles of Financial Accounting  Dr. Fred Barbee Chapter 3
ACCOUNTING IS FUN! ACCT 201  ACCT 201  ACCT 201
Chapter 3 - Day 2 - Agenda P2A 126-127 A2, A3 Decision Analysis E8, E9 123-126 C6 Classified Balance Sheet QS8, QS9, E7 11...
The Closing Process ACCT 201  ACCT 201  ACCT 201
Learning  Objective <ul><ul><li>Describe and prepare closing entries. </li></ul></ul>P4 Procedural
Learning  Objective <ul><ul><li>Explain why temporary accounts are closed each period. </li></ul></ul>C4 Conceptual
Temporary and Permanent Accounts Temporary Accounts Revenues Income Summary Expenses Dividends Permanent Accounts Assets L...
Real  (Permanent)  Accounts vs. Nominal (Temporary)  Accounts Credit Debit Credit Debit Post. Ref. Item Date Balance Accou...
Real  Accounts Credit Debit Credit Debit Post. Ref. Item Date Balance Account No. ###  Account Title
Real Accounts . . . <ul><li>Accounts that are  not closed  to a zero balance at the end of each accounting period. </li></...
Assets Liabilities Owner’s Equity 2001 Assets Liabilities Owner’s Equity 2002 ACCT 201  ACCT 201  ACCT 201
Nominal  Accounts Credit Debit Credit Debit Post. Ref. Item Date Balance Account No. ###  Account Title
Nominal Accounts . . . <ul><li>Accounts that  are closed  to a zero balance at the end of each accounting period. </li></u...
Revenues Expenses 2002 -0- -0- Revenues Expenses 2001 $ $ ACCT 201  ACCT 201  ACCT 201
What are closing entries? ACCT 201  ACCT 201  ACCT 201
Closing Entries . . . <ul><li>Journal entries made at the end of an accounting period. </li></ul><ul><ul><li>They clear al...
Purpose of Closing Entries <ul><li>Closing entries bring the income statement accounts back to a zero balance, making them...
Purpose of Closing Entries . <ul><li>The closing entry process transfers the net income or net loss for the accounting per...
Is there a set procedure? ACCT 201  ACCT 201  ACCT 201
Steps in the Closing Process
Income Summary Credit Debit Credit Debit Post. Ref. Item Date Balance Account No. ###  Account Title Introducing a new acc...
Step One  Close the revenue Accounts
Step Two  Close the Expense Accounts
Step Three  Close the Income Summary Account
Step Four  Close the Dividend Account
Overview of the Closing Process
Using the adjusted trial balance, let’s prepare the closing entries for FastForward.
Step #1: Close  Revenue Accounts  to Income Summary
<ul><li>Close Revenue Accounts to  Income Summary </li></ul>Now, let’s look at the ledger accounts after posting this clos...
<ul><li>Close Revenue Accounts to  Income Summary </li></ul>
Step #2: Close  Expense Accounts  to Income Summary
<ul><li>Close Expense Accounts to  Income Summary </li></ul>Now, let’s look at the ledger accounts after posting this clos...
<ul><li>Close Expense Accounts to  Income Summary </li></ul>Net Income
Step #3: Close  Income Summary  to Retained Earnings
<ul><li>Close Income Summary to  Retained Earnings </li></ul>Now, let’s look at the ledger accounts after posting this clo...
<ul><li>Close Income Summary to  Retained Earnings </li></ul>
Learning  Objective <ul><ul><li>Explain and prepare a post-closing trial balance. </li></ul></ul>P5 Procedural
Post-Closing Trial Balance <ul><li>List of permanent accounts and their balances after posting closing entries. </li></ul>...
ACCT 201  ACCT 201  ACCT 201
Review the Accounting Cycle ACCT 201  ACCT 201  ACCT 201
Learning  Objective <ul><ul><li>Identify steps in the accounting cycle. </li></ul></ul>C5 Conceptual
1. Analyze Transactions 2. Journalize 3. Post 4.  Prepare Unadjusted Trial Balance 5. Adjust 6. Prepare Adjusted Trial Bal...
Classified Balance Sheet ACCT 201  ACCT 201  ACCT 201
Learning  Objective <ul><ul><li>Explain and prepare a classified balance sheet. </li></ul></ul>C6 Conceptual
Classified Balance Sheet
Current Assets/Liabilities <ul><li>Current items are those expected to come due (either collected or owed) within one year...
Operating Cycle – Service Company – Exhibit 3-31 Cash  Available Cash paid for employee work Services sold to customers Cu...
Operating Cycle – Merchandising Company Cash  Available Cash paid for products Products sold to customers Customers pay fo...
Classified Balance Sheet Let’s look at the  asset  section of a classified balance sheet. ACCT 201  ACCT 201  ACCT 201
 
Current assets are assets that will be turned into cash or expire (be used up) within the longer of one year or the operat...
Property, plant and equipment  includes assets with useful lives of more than one year acquired for use in the business ra...
Other assets and intangible assets include items such as patents, goodwill, copyrights, etc.
Classified Balance Sheet Let’s look at the liability section of a classified balance sheet. ACCT 201  ACCT 201  ACCT 201
 
Current liabilities are obligations that will be paid with current assets, normally within one year.
Long-term liabilities are debts that have maturity dates extending beyond one year from the balance sheet date.
Let’s look at the stockholders’ equity section of a classified balance sheet. ACCT 201  ACCT 201  ACCT 201
 
<ul><li>Contributed capital is often shown in two separate accounts . . . </li></ul><ul><li>Common stock </li></ul><ul><li...
Comprehensive income includes gains and losses not included in the computation of net income.
Retained earnings is the accumulated earnings of the company less the accumulated dividends declared.
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Day Two

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  • Introduction and Review We have covered a lot of ground in the last few class sessions. Your head is probably swimming with all of the new information we have been trying to stuff in.
  • Step 1: Analyze Transactions The first step in the accounting cycle is to analyze transactions and the business documents. The business or “source” documents are used as the basis for recording accounting entries.
  • The T-Account The simplest, most fundamental format of an account is in the configuration of the letter T, and is called a T-Account. A T-account is a simplified depiction of an account in the form of a letter T, showing increases on one side of the account and decreases on the other side of the vertical line of the T.
  • Step 1: Analyze Transactions The first step in the accounting cycle is to analyze transactions and the business documents. The business or “source” documents are used as the basis for recording accounting entries.
  • Step 1: Analyze Transactions The first step in the accounting cycle is to analyze transactions and the business documents. The business or “source” documents are used as the basis for recording accounting entries.
  • Step 1: Analyze Transactions The first step in the accounting cycle is to analyze transactions and the business documents. The business or “source” documents are used as the basis for recording accounting entries.
  • Step 1: Analyze Transactions The first step in the accounting cycle is to analyze transactions and the business documents. The business or “source” documents are used as the basis for recording accounting entries.
  • Introduction and Review We have covered a lot of ground in the last few class sessions. Your head is probably swimming with all of the new information we have been trying to stuff in.
  • Introduction and Review We have covered a lot of ground in the last few class sessions. Your head is probably swimming with all of the new information we have been trying to stuff in.
  • Day Two

    1. 1. Reporting and Preparing Financial Statements UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 3
    2. 2. ACCOUNTING IS FUN! ACCT 201 ACCT 201 ACCT 201
    3. 3. Chapter 3 - Day 2 - Agenda P2A 126-127 A2, A3 Decision Analysis E8, E9 123-126 C6 Classified Balance Sheet QS8, QS9, E7 118-123 C4, C5 P4, P5 Closing Process HW Read LO Topic
    4. 4. The Closing Process ACCT 201 ACCT 201 ACCT 201
    5. 5. Learning Objective <ul><ul><li>Describe and prepare closing entries. </li></ul></ul>P4 Procedural
    6. 6. Learning Objective <ul><ul><li>Explain why temporary accounts are closed each period. </li></ul></ul>C4 Conceptual
    7. 7. Temporary and Permanent Accounts Temporary Accounts Revenues Income Summary Expenses Dividends Permanent Accounts Assets Liabilities Retained Earnings
    8. 8. Real (Permanent) Accounts vs. Nominal (Temporary) Accounts Credit Debit Credit Debit Post. Ref. Item Date Balance Account No. ### Account Title Credit Debit Credit Debit Post. Ref. Item Date Balance Account No. ### Account Title ACCT 201 ACCT 201 ACCT 201
    9. 9. Real Accounts Credit Debit Credit Debit Post. Ref. Item Date Balance Account No. ### Account Title
    10. 10. Real Accounts . . . <ul><li>Accounts that are not closed to a zero balance at the end of each accounting period. </li></ul><ul><li>Permanent accounts appearing on the Balance Sheet. </li></ul>
    11. 11. Assets Liabilities Owner’s Equity 2001 Assets Liabilities Owner’s Equity 2002 ACCT 201 ACCT 201 ACCT 201
    12. 12. Nominal Accounts Credit Debit Credit Debit Post. Ref. Item Date Balance Account No. ### Account Title
    13. 13. Nominal Accounts . . . <ul><li>Accounts that are closed to a zero balance at the end of each accounting period. </li></ul><ul><li>Temporary accounts generally appearing on the Income Statement. </li></ul>
    14. 14. Revenues Expenses 2002 -0- -0- Revenues Expenses 2001 $ $ ACCT 201 ACCT 201 ACCT 201
    15. 15. What are closing entries? ACCT 201 ACCT 201 ACCT 201
    16. 16. Closing Entries . . . <ul><li>Journal entries made at the end of an accounting period. </li></ul><ul><ul><li>They clear all nominal accounts and prepare them to receive transactions in the new accounting period. </li></ul></ul><ul><ul><li>They summarize a period’s revenues and expenses. </li></ul></ul>
    17. 17. Purpose of Closing Entries <ul><li>Closing entries bring the income statement accounts back to a zero balance, making them ready for a new set of transactions. </li></ul>
    18. 18. Purpose of Closing Entries . <ul><li>The closing entry process transfers the net income or net loss for the accounting period to the owner’s equity and </li></ul><ul><li>Reduces owner’s equity for any distributions to owners. </li></ul>
    19. 19. Is there a set procedure? ACCT 201 ACCT 201 ACCT 201
    20. 20. Steps in the Closing Process
    21. 21. Income Summary Credit Debit Credit Debit Post. Ref. Item Date Balance Account No. ### Account Title Introducing a new account!
    22. 22. Step One Close the revenue Accounts
    23. 23. Step Two Close the Expense Accounts
    24. 24. Step Three Close the Income Summary Account
    25. 25. Step Four Close the Dividend Account
    26. 26. Overview of the Closing Process
    27. 27. Using the adjusted trial balance, let’s prepare the closing entries for FastForward.
    28. 28. Step #1: Close Revenue Accounts to Income Summary
    29. 29. <ul><li>Close Revenue Accounts to Income Summary </li></ul>Now, let’s look at the ledger accounts after posting this closing entry.
    30. 30. <ul><li>Close Revenue Accounts to Income Summary </li></ul>
    31. 31. Step #2: Close Expense Accounts to Income Summary
    32. 32. <ul><li>Close Expense Accounts to Income Summary </li></ul>Now, let’s look at the ledger accounts after posting this closing entry.
    33. 33. <ul><li>Close Expense Accounts to Income Summary </li></ul>Net Income
    34. 34. Step #3: Close Income Summary to Retained Earnings
    35. 35. <ul><li>Close Income Summary to Retained Earnings </li></ul>Now, let’s look at the ledger accounts after posting this closing entry.
    36. 36. <ul><li>Close Income Summary to Retained Earnings </li></ul>
    37. 37. Learning Objective <ul><ul><li>Explain and prepare a post-closing trial balance. </li></ul></ul>P5 Procedural
    38. 38. Post-Closing Trial Balance <ul><li>List of permanent accounts and their balances after posting closing entries. </li></ul><ul><li>Total debits and credits must be equal. </li></ul>
    39. 39. ACCT 201 ACCT 201 ACCT 201
    40. 40. Review the Accounting Cycle ACCT 201 ACCT 201 ACCT 201
    41. 41. Learning Objective <ul><ul><li>Identify steps in the accounting cycle. </li></ul></ul>C5 Conceptual
    42. 42. 1. Analyze Transactions 2. Journalize 3. Post 4. Prepare Unadjusted Trial Balance 5. Adjust 6. Prepare Adjusted Trial Balance 7. Prepare Statements 8. Close 9. Prepare Post-Closing Trial balance 10. Reverse (Optional) The Accounting Cycle
    43. 43. Classified Balance Sheet ACCT 201 ACCT 201 ACCT 201
    44. 44. Learning Objective <ul><ul><li>Explain and prepare a classified balance sheet. </li></ul></ul>C6 Conceptual
    45. 45. Classified Balance Sheet
    46. 46. Current Assets/Liabilities <ul><li>Current items are those expected to come due (either collected or owed) within one year or the company’s operating cycle, whichever is longer. </li></ul>
    47. 47. Operating Cycle – Service Company – Exhibit 3-31 Cash Available Cash paid for employee work Services sold to customers Customers pay for services
    48. 48. Operating Cycle – Merchandising Company Cash Available Cash paid for products Products sold to customers Customers pay for products
    49. 49. Classified Balance Sheet Let’s look at the asset section of a classified balance sheet. ACCT 201 ACCT 201 ACCT 201
    50. 51. Current assets are assets that will be turned into cash or expire (be used up) within the longer of one year or the operating cycle.
    51. 52. Property, plant and equipment includes assets with useful lives of more than one year acquired for use in the business rather than for resale.
    52. 53. Other assets and intangible assets include items such as patents, goodwill, copyrights, etc.
    53. 54. Classified Balance Sheet Let’s look at the liability section of a classified balance sheet. ACCT 201 ACCT 201 ACCT 201
    54. 56. Current liabilities are obligations that will be paid with current assets, normally within one year.
    55. 57. Long-term liabilities are debts that have maturity dates extending beyond one year from the balance sheet date.
    56. 58. Let’s look at the stockholders’ equity section of a classified balance sheet. ACCT 201 ACCT 201 ACCT 201
    57. 60. <ul><li>Contributed capital is often shown in two separate accounts . . . </li></ul><ul><li>Common stock </li></ul><ul><li>Paid-in capital </li></ul>
    58. 61. Comprehensive income includes gains and losses not included in the computation of net income.
    59. 62. Retained earnings is the accumulated earnings of the company less the accumulated dividends declared.

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