Professional Documents
Culture Documents
4-1
Closing the Books
4-2
Closing the Books
4-3
Closing the Books
Note:
Dividends are closed directly Illustration 4-6
4-4
Closing the Books -- Example
4-5
Closing the Books -- Example
Revenues 10,000
Income Summary 10,000
7,000 10,000
Income Summary
10,000
7,000
3,000
0 (balance)
4-7
Closing the Books -- Example
Retained Earnings
30,000 (beginning Balance)
3,000 (income summary)
(Dividends)1,000
32,000 (ending balance)
4-8
Summary of the Accounting Cycle
Illustration 4-12
7. Prepare financial
4. Prepare a trial balance
statements
4-9
Summary of the Accounting Cycle
4-10
Correcting EntriesAn Avoidable Step
Incorrect Cash 50
entry
Service revenue 50
Correct Cash 50
entry
Accounts receivable 50
4-11
Correcting EntriesAn Avoidable Step
Incorrect Cash 50
entry
Service revenue 50
Correct Cash 50
entry
Accounts receivable 50
Make Cash 50
4-12
Multi-step Income Statement (Ch.5)
4-13
Multi-step Income Statement (Ch.5)
Net Sales
Sales Revenues
- Sales Returns and Allowances / Discounts
- Cost of Goods Sold (COGS)
= Gross Profit
- Operating Expenses
Selling Expense
General & Administrative Expense
Etc.
= Income from Operations
Other Income and Expenses
= Income before Income Taxes
- Income Tax Expense
4-14
= Net Income
Multi-step Income Statement (Ch.5)
Revenues:
amounts of assets received or liabilities settled during
the period from delivering goods or providing services
to customers.
Gains:
increases in assets due to peripheral or incidental
transactions, such as selling equipment.
4-15
Multi-step Income Statement (Ch.5)
COGS:
(Direct) cost of products or services provided to customers
Operating Expense:
Costs of operating a business, other than COGS, such as
R&D Expense
Selling, General and Administrative Expense (SG&A)
Depreciation Expense
Other Expenses:
Non-operating expenses, such as Interest Expense
Loss:
Non-operating decreases in net assets that arise from peripheral
or incidental transactions, such as casualty loss from fires
4-16
Multi-step Income Statement (Ch.5)
Net Sales
Whirlpool sold 10 washers at the price of $500 each on account at
March 1st, 2013. Whirlpool provides 30 day free return warranty. 3
washers were returned by customers on March 7th, 2013.
4-17
Multi-step Income Statement (Ch.5)
Net Sales
Whirlpool provides an incentive to investors from prompt cash
payment, 2/10, n/30. Cash payment for 2 washers were made on
March 9th, 2013.
4-19
The Classified Statement of Financial Position
4-20
The Classified Statement of Financial Position
Illustration
4-18
4-21
The Classified Statement of Financial Position
Illustration
4-18
4-22
The Classified Statement of Financial Position
Intangible Assets
Assets that do not have physical substance.
4-23
The Classified Statement of Financial Position
4-24
The Classified Statement of Financial Position
4-25
The Classified Statement of Financial Position
Long-Term Investments
Investments in ordinary shares and bonds of other
companies.
Investments in non-current assets such as land or buildings
that a company is not using in its operating activities.
Illustration 4-21
4-26
The Classified Statement of Financial Position
Current Assets
Assets that a company expects to convert to cash or
use up within one year or the operating cycle, whichever
is longer.
4-27
The Classified Statement of Financial Position
Current Assets
Illustration 4-22
Usually listed in the reverse order that they are expected to convert into
cash.
4-28
The Classified Statement of Financial Position
Equity
Proprietorship - one capital account.
Illustration 4-23
4-29
The Classified Statement of Financial Position
Non-Current Liabilities
Obligations a company expects to pay after one year.
Illustration 4-24
4-30
The Classified Statement of Financial Position
Current Liabilities
Obligations company is to pay within the coming year or
its operating cycle, whichever is longer.
4-31
The Classified Statement of Financial Position
Current Liabilities
Illustration 4-25
4-32
The Classified Statement of Financial Position
Under U.S. GAAP, list in the order that they are expected to
convert into cash
4-33
Uses of Statement of Financial Position
Liquidity Measures
Measure a companys ability to pay its debts as they
come due
4-34
In-Depth Look at Statement of Cash Flows
4-35
In-Depth Look at Statement of Cash Flows
Example:
From the following list, identify each item as operating (O),
investing (I), financing (F), or not on the statement of cash
flows (N):
4-36
Practice Question