1、Chapter 4Completing the Accounting CycleAlbrecht, Stice, Stice, Swain1Periodic ReportingFiscal Year12-month accounting period.Calendar YearWhen an entity closes its books on December 31.Beginning of YearEnd of Year2Accrual AccountingWhat do we do when transactions span more than one period?Accrual A

2、ccounting!Revenues and expenses are recorded as they are earned and incurred, not necessarily when cash is received or paid.Better measures a firms performance than does cash flow data.3Revenue RecognitionRecognize revenue when:The earning process is substantially complete.Cash has either been colle

3、cted or collection is reasonably assured.1.2.4The Matching PrincipleAll costs and expenses incurred in generating revenues must be recognized in the same reporting period as the related revenues.If revenues are recognized.Related costs and expenses should be recognized.5Example: Accrual- vs. Cash-Ba

4、sis Accounting Bond ConsultingReported Income for 2009During 2009, Bond Consulting billed its client for $48,000. On December 31, 2009, it had received $41,000, with the remaining $7,000 to be received in 2010. Total expenses during 2009 were $31,000 with $3,000 of these costs not yet paid at Decemb

5、er 31. Determine net income under both methods.Accrual-Basis AccountingRevenues earned $48,000 Expenses incurred 31,000 Income $17,000Cash-Basis AccountingCash receipts$41,000Cash disbursement 28,000 Income$13,0006Adjusting EntriesEntries required at the end of each accounting period to adjust the a

6、ccounts to their proper amounts.Unrecorded receivables.Unrecorded liabilities.Prepaid expenses.Unearned revenues.Each adjusting entry involves at least one income statement account and one balance sheet account.7Precision Management earns rent revenue of $500 in 2009 but will not receive the payment

7、 until January 10, 2010. An adjustment will be needed. What is the adjusting entry?Example: Unrecorded Receivables Original entry nonenone Correct balances 500500Rent ReceivableRent Revenue12/31/09 Rent Receivable 500 Rent Revenue 5008 Original entry none none Correct balances 1,000 1,000Protege Inc

8、. is assessed property taxes of $1,000 for 2009, but will not make this payment until January 5, 2010. An adjustment will be needed. What is the adjusting entry?Property TaxExpenseProperty Tax PayableExample: Unrecorded Liabilities12/31/09 Property Tax Expense 1,000 Property Tax Payable 1,0009Exampl

9、e: Prepaid Expenses12/31/09 Rent Expense 1,800 Prepaid Rent 1,800Rent ExpensePrepaid RentOriginal entry 3,600 3,600 Adjusting entry 1,800 1,800Correct balances 1,800 1,800CashOn July 1, 2009, Apex Inc. pays $3,600 for one years rent in advance (covering July 1, 2009, to June 30, 2010). On December 3

10、1, 2009, an adjustment will be needed. What is the adjusting entry?10Unearned RentRent RevenueOriginal entry 3,600 3,600Adjusting entry 1,800 1,800Correct balances 1,800 1,800 Example: Unearned Revenues12/31/09 Unearned Rent 1,800 Rent Revenue 1,800On July 1, 2009, Dahl House Co. received $3,600 for

11、 one years rent in advance (covering July 1, 2009, to June 30, 2010). On December 31, 2009, an adjustment will be needed. What is the adjusting entry?Cash11Preparing Financial StatementsFour step process using the trial balance:Identify all revenue and expense accounts and prepare the income stateme

12、nt.Compute net income.Compute the ending retained earnings balance.Prepare a balance sheet using the balance sheet accounts and the ending retained earnings balance computed from step 3.12The Notes and the AuditNotesList assumptions and methods used in preparing the financial statements.Give more de

13、tail about specific items.Augment the summarized numerical information.The AuditCheck financial statements for conformity with GAAP.Review Adjustments, sample selected accounts, and review accounting systems.Attaches audit report and distributes it with the financial statements. 13Real vs. Nominal A

14、ccountsReal AccountsPermanentNot closed at year end.Balance Sheet accountsBalances are carried forward to next period.Nominal AccountsTemporaryClosed (brought to a zero balance) at year end.Income Statement accounts and dividendsBalance are NOT carried forward to next period.14The Closing ProcessThe

15、 Closing ProcessRecord entries that reduce all nominal accounts to a zero balance at the end of the accounting period.Nominal accounts are closed to retained earnings.RevenuesBal. xxxxxxBeg. Bal. xxxRetained Earnings RevenuesExpensesBal. xxxExpensesxxx15Closing EntriesStep 1: Close all revenue accou

16、nts by debiting them.Step 2: Close all expense accounts by crediting them.Step 3: The difference between revenues and expenses (net income) should be credited to retained earnings.Revenues . . . . . . . . . . . . . . . . . . . . . . . XXXCost of Goods Sold . . . . . . . . . XXXOther Expenses . . . .

17、 . . . . . . . . XXXRetained Earnings . . . . . . . . . . XXX16DividendsNominal account but NOT an expense.Distribution to shareholders.Closed by crediting dividends and debiting retained earnings (reduces retained earnings).When dividends are first declared: Dividends . . . . . . . . . . . . . . .

18、. . . . . . . . XXXDividends Payable . . . . . . . . . .XXXWhen dividends are paid:Dividends Payable . . . . . . . . . . . . . . . . XXXCash . . . . . . . . . . . . . . . . . . . . . .XXXTo close dividends at year end:Retained Earnings. . . . . . . . . . . . . . . . XXXDividends . . . . . . . . . . . . . . . . . XXX17Preparing a Post-Closing Trial BalanceList of all real accounts.A check of whether total debits equal total credits for all real accounts prior to beginning new accounting cycle.