Task Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Ya !

sen Uni"e#si $

Lesson Notes Lesson 5 Completing the Accounting Cycle Learning objectives

%& Desc#i'e an( )#e)a#e a *o#kshee an( (esc#i'e i s usefulness& +& Desc#i'e he closin, )#ocess an( e-)lain *h$ em)o#a#$ accoun s a#e close( each )e#io(& .& /#e)a#e closin, en #ies&
Teaching hours S u(en s ma0o# in accoun in,1 2 hou#s O he#s1 + hou#s

Teaching contents:

Befo#e *e s a# his lesson, le #ecall *ha *e ha"e s u(ie(1 Anal$3in, #ansac ions 4ou#nali3in, he #ansac ions /os in, Una(0us e( #ial 'alance A(0us in, A(0us e( #ial 'alance What is worksheet ? A *o#kshee is a *o#kin, )a)e# use( '$ an accoun an o o#,ani3e accoun in, info#ma ion fo# )#e)a#in, he financial s a emen s an( a(0us in, en #ies& What the worksheet is use !or? The *o#kshee is use( o ,a he# info#ma ion on a(0us men s an( accoun 'alances f#om he financial s a emen s& This hel)s #e(uce he chance of e##o#, omission, (u)lica ion, an( assu#es ma hema ical accu#ac$ )#io# o he ac ual )#e)a#a ion of he fo#mal financial s a emen s& The *o#kshee is useful in )#e)a#in, in e#im financial s a emen s& The a(0us men s a#e #eflec e( on he *o#kshee onl$, an( no $e #eco#(e( in he 0ou#nal o# le(,e# accoun s& In e#im s a emen s can )#o"i(e useful mon hl$ o# 5ua# e#l$ (a a *i hou (is#u) in, he #ou ine #eco#( kee)in,& The *o#kshee facili a es he #eco#(in, of a(0us in, an( closin, en #ies& What oes the worksheet inclu e? No#mall$, a *o#kshee has 2 se s of (ou'le columns1 %& Una(0us e( #ial 'alance column1 he accoun s an( hei# 'alances a#e aken f#om he le(,e# an( en e#e( in hese columns6 +& A(0us men s1 a(0us in, en #ies a#e #eco#(e( in hese columns& The *o#kshee is no a 0ou#nal 'u a *o#kshee & I is use( onl$ fo# ,a he#in, he a(0us men (a a&

Task Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Ya !sen Uni"e#si $

The a(0us e( #ial 'alance is )#e)a#e( '$ com'inin, he a(0us men s *i h he una(0us e( 'alances& .& A(0us e( #ial 'alance1 he #esul s of com'inin, he una(0us e( #ial 'alance an( a(0us men s columns a#e en e#e( he#e& 7& Income s a emen 1 hose accoun s ha 'elon, on he income s a emen a#e e- en(e( f#om he a(0us e( #ial 'alance columns o he income s a emen columns& 2& Balance shee an( s a emen of o*ne#8s e5ui $ 1 hose accoun s ha 'elon, on hese financial s a emen s a#e e- en(e( f#om he a(0us e( #ial 'alance in o he las *o columns of he *o#kshee & "ow to prepare the worksheet? The )#oce(u#e fo# )#e)a#in, *o#kshee s is as follo*s& %& en e# he una(0us e( #ial 'alance an( asce# ain he e5uali $ of (e'i s an( c#e(i s& If he #ial 'alance is in 'alance, i su,,es s accu#ac$ in he accoun s, al hou,h his no a ,ua#an ee& +& En e# he necessa#$ a(0us men s in o he *o a(0us men s columns& Be su#e ha (e'i s e5ual c#e(i s fo# each a(0us men & I is common )#ac ice o use an i(en if$in, le e# o #ela e he (e'i o he c#e(i of each a(0us men & 9emem'e# ha he )u#)ose of a(0us in, en #ies is o '#in, he accoun s o hei# )#o)e# 'alances an( o ensu#e ha e-)enses a#e #eco#(e( in he )e#io( ha he$ a#e incu##e( an( #e"enues a#e #eco#(e( *hen he$ a#e ea#ne(& .& En e# he co##ec amoun s in he a(0us e( #ial 'alance columns '$ summin, he amoun s in he una(0us e( #ial 'alance columns *i h he amoun s in he a(0us men columns& The amoun s in he a(0us e( #ial 'alance a#e he same as hose in he accoun s of he financial s a emen s as a check, $ou shoul( foo he *o a(0us e( #ial 'alance columns an( ensu#e ha o al (e'i s s ill e5ual o al c#e(i s& 7& E- en he a(0us e( accoun s o he income s a emen o# 'alance shee columns& Fo# each i em, (eci(e if i is a 'alance shee accoun o# an income s a emen accoun & Then co)$ (e'i 'alances o he a))#o)#ia e (e'i column an( c#e(i 'alances o he a))#o)#ia e c#e(i column& 2& Foo in, of he income s a emen an( 'alance shee columns& The#e a#e h#ee (iffe#en si ua ions1 The income s a emen columns a#e e5ual, means ha #e"enues e5ual e-)enses an( he#e is no ne income o# ne loss& In his case he#e is no chan,e in o*ne#8s e5ui $& The income s a emen c#e(i column e-cee(s he (e'i column& he (iffe#ence #e)#esen s ne income fo# he )e#io(& The income s a emen (e'i column e-cee(s he c#e(i column , he

Task Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Ya !sen Uni"e#si $

(iffe#ence #e)#esen s a ne loss& The (iffe#ence 'e *een #e"enues an( e-)enses is a((e( (i#ec l$ o he s a emen of o*ne#8s e5ui $& Ne income is a((e( o he #e aine( ea#nin,s& "ow to use the worksheet !or preparing !inancial statements? The financial s a emen can 'e )#e)a#e( '$ #ea##an,in, he i ems on he *o#kshee & The income s a emen is $)icall$ )#e)a#e( fi#s an( hen he 'alance shee & No ice1 he *o#kshee (oes no elimina e he nee( o 0ou#nali3e an( )os he a(0us in, 0ou#nal en #ies& This mus s ill 'e (one in o#(e# fo# he info#ma ion o en e# he accoun in, s$s em &4ou#nali3in, an( )os in, he a(0us in, 0ou#nal en #ies *ill '#in, he le(,e# in o a,#eemen *i h he a(0us e( #ial 'alance amoun s sho*n on he *o#kshee & What is Temporary an #ermanent Accounts? Tem)o#a#$ accoun s a#e also calle( nominal accoun s& The$ a#e o)ene( a he 'e,innin, of a )e#io(, use( o #eco#( e"en s fo# ha )e#io( an( close( a he en( of he )e#io(& The$ accumula e (a a #ela e( o one accoun in, )e#io( onl$& /e#manen accoun s a#e hose accoun s ha hei# 'alances a#e ca##ie( fo#*a#( f#om one accoun in, )e#io( o he ne- & What is closing entries? Closin, en #ies a#e en #ies ha #ansfe# he 'alances in he em)o#a#$ accoun s o a 'alance shee e5ui $ accoun & The purpose o! closing entries$ An he en( of an accoun in, )e#io(, an income s a emen is )#e)a#e(& The #e"enue an( e-)ense accoun s ha"e se#"e( hei# )u#)ose in (e e#minin, he )e#io(8s ne income& Ne* #e"enue an( e-)ense accoun s *ill 'e nee(e( fo# he ne- accoun in, )e#io(& Closin, en #ies can ,i"e he em)o#a#$ accoun s a 3e#o 'alance& "ow to prepare the closing entries? Fi#s of all, *e nee( o se a closin, accoun calle( :Income Summa#$;& Then he #e"enues an( e-)enses a#e #ansfe##e( o o*ne#8s e5ui $ accoun h#ou,h he Income Summa#$ accoun & The 'alance in he Income Summa#$ accoun af e# closin, he #e"enues an( e-)enses mus e5ual he ne income o# ne loss, i is use( o confi#m ha #e"enues an( e-)enses ha"e 'een close( )#o)e#l$& Once he ne income o# loss has 'een )#o"e(, he 'alance in he Income Summa#$ is #ansfe##e( o he o*ne#8s e5ui $ accoun & Fou# $)ical closin, en #ies a#e1

Task Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Ya !sen Uni"e#si $

%& Close #e"enue o income summa#$ *hich *ill (e'i all #e"enue accoun s an( c#e(i income summa#$ accoun s6 +& Close e-)enses o income summa#$ *hich *ill (e'i income summa#$ accoun s an( c#e(i all e-)enses accoun s6 .& close income summa#$ o he o*ne#8s e5ui $ accoun *hich *ill (e'i income summa#$ < if he#e is a ne income= an( c#e(i he o*ne#8s e5ui $ accoun & O# (e'i o*ne#8s e5ui $ accoun < if he#e is a ne loss= an( c#e(i he income summa#$ accoun & Why post%closing trial balance is nee e ? /os !closin, #ial 'alance is nee(e( o ensu#e ha he 0ou#nali3in, an( )os in, of closin, en #ies ha"e 'een (one )#o)e#l$& Tha is o ensu#e ha o al (e'i s s ill e5ual o al c#e(i s in he #emainin, )e#manen accoun s& The income s a emen accoun s shoul( ha"e 3e#o 'alances 'ecause he$ ha"e 'een close(& Onl$ 'alance shee accoun s *ill a))ea# in he )os !closin, #ial 'alance&
&ey points '$ The un(e#s an(in, an( )#e)a#a ion of *o#kshee & ($ The Closin, )#ocess& )ea ing material %& /hili) E& Fess an( Ca#l S& >a##en, Accounting Principles, Sou h!>es e#n /u'lishin, Co&, %?@A&