Ch. 4 Completing the Accounting Cycle

Book: Financial Accounting, 8th edition, Weygandt, Kimmel, and Kieso (Wiley) Instructor: Linda Acevedo University of Texas Pan-American
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Terms in this set (...)

temporary
Closing entries are necessary for this type of accounts only:
debit Income Summary, credit the Retained Earnings
Income Summary has a credit balance of $12,000 after closing revenues and expenses. The entry to close Income Summary is:
Classified balance sheet
A balance sheet that contains standard classifications or sections.
Closing entries
Entries made at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders' equity account, Retained Earnings
Correcting entries
Entries to correct errors made in recording transactions.
Current assets
Assets that a company expects to convert to cash or use up within one year.
Current liabilities
Obligations that a company expects to pay within the coming year.
Income Summary
A temporary account used in closing revenue and expense accounts.
Intangible assets
Noncurrent assets that do not have physical substance.
Liquidity
The ability of a company to pay obligations expected to be due within the next year.
Long-term investments
Generally, (1) investments in stocks and bonds of other companies that companies normally hold for many years, and (2) long-term assets, such as land and buildings, not currently being used in operations.
Long-term liabilities
Obligations that a company expects to pay after one year.
Operating cycle
The average time that it takes to purchase inventory, sell it on account, and then collect cash from customers.
Permanent (real) accounts
Accounts that relate to one or more accounting periods. Consist of all balance sheet accounts. Balances are carried forward to next accounting period.
Post-closing trial balance
A list of permanent accounts and their balances after a company has journalized and posted closing entries.
Property, plant, and equipment
Assets with relatively long useful lives and currently being used in operations.
Reversing entry
An entry, made at the beginning of the next accounting period, that is the exact opposite of the adjusting entry made in the previous period.
Stockholders' equity
The combination of common stock and retained earnings accounts. Often referred to as the ownership claim of shareholders on total assets. It is to a corporation what owner's equity is to a proprietorship.
Temporary (nominal) accounts
Accounts that relate only to a given accounting period. Consist of all income statement accounts and the dividends account. All temporary accounts are closed at end of the accounting period.
Worksheet
A multiple-column form that may be used in making adjusting entries and in preparing financial statements.
STEPS IN THE ACCOUNTING CYCLE
1. Identify Business Transaction
2. Record Journal entry (general journal)
3. Post to general ledger
4. Trial Balance
5. Journalize and post Adjusting entries
6. Adjusted trial balance
7. Prepare financial statements
8.Closing entries (record, jounilize, and post)
9. Post Closing trial balance
1
What step in the accounting process is Identify?
2
What step in the accounting process is Record Journal entry (general journal)?
3
What step in the accounting process is Post to general ledger?
4
What step in the accounting process is Trial Balance?
5
What step in the accounting process is Journalize and post Adjusting entries?
6
What step in the accounting process is Adjusted trial balance?
7
What step in the accounting process is Prepare financial statements?
8
What step in the accounting process is Closing entries (record, jounilize, and post)?
9
What step in the accounting process is Post Closing trial balance?