Completing the

Accounting Cycle the

Accounting
Presented by
Team Goal Diggers
Cycle
Study Objectives

1 2 3 4 5
prepare a work sheet explain the process of describe the content state the required identify the sections
closing the books and purpose of steps in of a classified balance
a post-closing trial the accounting cycle sheet
balance

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PREVIEW

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 Using a
Worksheet
Steps in Preparation
Preparing Financial Statements
Preparing Adjusting Entries
Worksheet
Multiple-column form used for the adjustment process and preparing
financial statements
A working tool for the accountant
Not a permanent accounting record
The use of a worksheet is optional
Makes preparation of adjusting entries and financial statements easier

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When is worksheet
used?
–financial statements are prepared
from the work sheet
–adjustments are journalized and
posted from the work sheet after
financial statements.
– Thus, worksheets make it
possible to provide the financial
statements to management and
other interested parties at an earlier
date.
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Form and Procedure
for a Work sheet
Prepare a trial balance.
Enter Adjustment Data
Enter Adjusted Trial Balance
Extend Adjusted Trial Balance to
appropriate statement columns.
Total the statement columns,
Compute the net income(or
net loss), and complete work sheet.

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General Ledger

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1.Preparing Trial
Balance
•Here, At October 31,2012( End of an
accounting period), the trial balance is
prepared from general ledger of that
month. Debit and Credit balances are
recorded following DEALER method) .
Dividend
Expenses
Assets
Liability
Equity
Revenue

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1.Preparing Trial Balance (Cont...)

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2.Entering the Adjustments
When using a worksheet, enter all adjustments in the adjustments
columns.
 In entering the adjustments, use applicable trial balance accounts.
If additional accounts are needed, insert them on the lines immediately
below the trial balance totals.
Enter adjustment amounts in appropriate columns, and use letters to
cross reference the debit and credit adjustments.
 Companies do not journalize the adjustments until after they complete
the worksheet and prepare the financial statements.

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2.Entering the Adjustments(Cont..)
Adjustments:
a. October 31, an inventory count reveals that $1,000 of $2,500 of supplies are still on hand.
b. October 31, an analysis of the policy reveals that $50 of insurance expires each month.
c. October 31, depreciation on the office equipment is estimated to be $480 a year, or $40 per month.
d. October 31, analysis reveals that, of $1,200 in fees, $400 has been earned in October.
e. October 31, the agency earned $200 for advertising services that were not billed to clients before
October 31.
f. October 31, the portion of the interest to be accrued on a 3-month note payable is calculated to be
$50.
g. October 31, accrued salaries are calculated to be $1,200

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2.Entering the Adjustments(cont..)
1. Supplies Expense - Dr
Supplies - Cr
2.Insurance Expense - Dr
Prepaid Insurance- Cr
3. Depreciation - Dr
Accumulated Depreciation - Cr
4. Unearned Service Revenue - Dr
Service Revenue- Cr
5.Account Receivable - Dr
Service Revenue- Cr
6.Interest Expense- Dr
Interest Payable - Cr
7. Salary Expense- Dr
Salary Payable - Cr
8. Utilities Expense - Dr
Utilities Payable- Cr

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3. Entering Adjusted Trial Balance
Pioneer determines the adjusted balance of an account by combining
the amounts entered in the first four columns of the worksheet for each
account.

For each account, the amount in the adjusted trial balance

columns is the balance that will appear in the ledger after
journalizing and posting the adjusting entries.

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3. Entering Adjusted
Trial Balance(cont..)
For example, the Prepaid
Insurance account in the trial
balance columns has a $600
debit balance and a $50 credit
in the adjustments columns.

The result is a $550 debit

balance recorded in the
adjusted trial balance
columns.

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4. Extend Adjusted
Trial Balance
•Extend adjusted trial balance
amounts to
• Income statement and
• Balance sheet columns
•of the worksheet.

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4. Extend Adjusted Trial
Balance(cont..)
The company enters the expense and
revenue accounts such as Salaries
Expense and Service Revenue in the
appropriate income statement
columns.

Salaries Expense – Debit

Service Revenue – Credit
(According to DEALER method)

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 4. Extend
Adjusted Trial Balance(cont..)
 Pioneer enters balance sheet
accounts in the appropriate balance
sheet debit and credit columns.
 For instance, it enters Cash in the
balance sheet debit column, and
Notes Payable in the credit column.
 Pioneer extends Accumulated
Depreciation—Equipment to the
balance sheet credit column; the
reason is that accumulated
depreciation is a contra-asset
account with a credit balance
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5. Total the statement columns, Compute the net
income(or net loss), and complete work sheet.
 The company now must total each of the financial statement
columns.
 The net income or loss for the period is the difference between the
totals of the two income statement columns.
 If total credits exceed total debits, the result is net income.
 If total debits exceed total credits, the result is net loss.

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Preparing Adjusting
Entries
 The adjusting entries are prepared from
the adjustments columns of the
worksheet.
 The reference letters in the adjustments
columns and the explanations of the
adjustments at the bottom of the
worksheet help identify the adjusting
entries.

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Preparing Financial Statements from a
Worksheet
After a company has completed a worksheet, it has at hand all the data
required for preparation of financial statements.
The income statement is prepared from the income statement
columns.
The balance sheet and owner’s equity statement are prepared from
the balance sheet columns.

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Preparing Financial Statements from
a Worksheet(cont..)

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Preparing Financial Statements
from a Worksheet(cont..)

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Preparing Financial
Statements from a Worksheet(cont..)

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Closing The Book
 What is the meaning of
closing the books?
At the end of the accounting period,
the company makes the accounts
ready for the next period.
This is called closing the books.

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  Temporary accounts relate only to a
given accounting period.
 The company closes all temporary
accounts at the end of the period.

 Permanent accounts are not closed

from period to period.
 the company carries forward the
balances of permanent accounts into
the next accounting period.
Temporary vs
Permanent Account
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Closing Entries
Closing Entries:
Formally recognized in the ledger -the transfer of net income (or net loss) and
owner’s drawings to owner’s capital.
Closing entries also produce a zero balance in each temporary account.
The temporary accounts are then ready to accumulate data in the next accounting
period.

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Closing Entries(cont..)
Income Summary:
 A temporary account
 Used in closing revenue and expense accounts
 Minimizes the details in the permanent owner’s capital account

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Diagram of Closing Process

INCOME
SUMMARY

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Diagram of Closing Process(Cont..)

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Diagram of Closing Process(Cont..)

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Closing Entries Journalized

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Closing Entries Journalized(cont..)

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Closing Entries Journalized(cont..)

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Closing Entries Journalized(cont..)

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Cautions Related to Closing Entries
 Avoid doubling revenue and expense balances
 Owner’s Drawing does not move to the Income Summary account.
Owner’s drawing is not an expense and it is not a factor in
determining net income.

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Posting Closing
Entries
• All temporary accounts have zero
balances after posting the closing
entries.
• The balance in owner’s capital
(Owner’s Capital) represents the
total equity of the owner at the end
of the accounting period
• This balance is shown on the balance
sheet and is the ending capital
reported on the owner’s equity
statement

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Post-Closing Trial Balance
• After all closing entries have been journalized the post-closing trial
balance is prepared from the ledger.
• The purpose of this trial balance is to prove the equality of the
permanent account balances that are carried forward into the next
accounting period.

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 The General
Ledger for
Permanent Account

The permanent accounts for

Pioneer Advertising Agency
are shown here

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Post-Closing Trial Balance from General
Ledger

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 Summary of the
Accounting Cycle
Steps in Accounting
Cycle
Steps 1–3 may occur daily during
the accounting period.
Companies perform Steps 4–7 on a
periodic basis, such as monthly,
quarterly, or annually.
 Steps 8 and 9—closing entries,
and a post-closing trial balance
usually take place only at the end
of a company’s annual accounting
period.

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Classified Balance
Sheet
Standard Balance Sheet Classifications
• Financial statements become more useful when the elements are
classified into significant subgroups.
• A classified balance sheet generally has the following standard
classifications:

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 Current Assets
Current assets
• Cash and other resources that are reasonably expected
to be realized in cash or sold or consumed in the
business within one year of the balance sheet date or
the company’s operating cycle, whichever is longer
• Current assets are listed in the order of their liquidity
Operating cycle of a company
• The average time that it takes to purchase inventory,
sell it on account, and then collect cash from
customers.
Examples
• Inventory, accounts receivable and cash

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Long-term Investments
Long-term investments
–Resources which can be realized in cash
–Their conversion into cash is not expected
within one year or the operating cycle,
whichever is longer
Examples
(1) Investments in stocks and bonds of other
companies that are normally held for many years
(2) Long-term assets such as land or buildings
that a company is not currently using in its
operating activities.

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Property, plant and
equipment
Property, plant, and equipment
–Tangible(has physical
substance) resources, relatively
permanent nature, used in the business,
and not intended for sale.
Examples
–Land, buildings, and machinery

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Intangible Assets
Intangible assets
–Non-current resources that do not
have physical substance
Examples
– Includes patents, copyrights,
trademarks, or trade names, gives
the holder exclusive right of use for
a specified period of time.

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Current Liabilities
Current liabilities
–Obligations reasonably expected to be paid from existing current assets
within one year or the operating cycle, whichever is longer
Examples
–Accounts payable, wages payable, interest payable and current
maturities of long-term debt

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Liquidity
• Liquidity is the ability of a
company to pay obligations that
are expected to become due within
the next year or operating cycle.
• Liquidity is a company's ability to
convert assets to cash or acquire
cash
• Cash is considered the most liquid
asset

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Long Term Liabilities
Long-term liabilities
- Obligations expected to be paid after one year
Examples
–Long-term notes payable, bonds payable, mortgages payable, and lease
liabilities

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Owner's Equity
The content of the owner’s equity section
–Varies with the form of business organization
Proprietorship
– A single owner’s equity account called (Owner’s Name), Capital
Partnership
–Separate capital accounts for each partner
Corporation
–Called stockholders’ equity.

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Classified Balance Sheet in Account Form

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Classified Balance Sheet in Report Form

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Do it!
 The following accounts were taken from the financial Match each of the following accounts to its proper
statements of Callahan Company. balance sheet classification, shown below. If the
• Salaries and wages payable item would not appear on a balance sheet, use
• Service revenue “NA.”
• Interest payable • Current assets (CA)
• Goodwill • Long-term investments (LTI)
• Short-term investments • Property, plant, and equipment (PPE)
• Mortgage payable (due in 3 years)
• Intangible assets (IA)
• Investment in real estate
• Equipment
• Accumulated depreciation—equipment
• Depreciation expense • Current liabilities (CL)
• Owner’s capital • Long-term liabilities (LTL)
• Unearned service revenue • Owner’s equity (OE)
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 Solution
• __CL__ Salaries and wages payable • __LTI__ Investment in real estate
• __NA__ Service revenue • __PPE__ Equipment
• __CL__ Interest payable • __PPE__ Accumulated depreciation—
• __IA__ Goodwill equipment

• __CA__ Short-term investments • __NA__ Depreciation expense

• __OE__ Owner’s capital
• __LTL__ Mortgage payable (due in 3 years)
• __CL__ Unearned service revenue

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Do it yourself!
At the end of its first month of operations, Watson
Answering Service has the above mentioned
unadjusted trial balance.
Other data:
1. Insurance expires at the rate of $200 per month.
2. $1,000 of supplies are on hand at August 31.
3. Monthly depreciation on the equipment is $900.
4. Interest of $500 on the notes payable has
accrued during August.
Instructions
(a) Prepare a worksheet.
(b) Prepare a classified balance sheet assuming
$35,000 of the notes payable are long-term.
(c) Journalize the closing entries.

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 Meet our team members!

Iffat Ara Sanzida Ashraful Humaun Kabir Ahnaf Wasif Liton Chandro Md. Mahfuzur Md Sagor Islam
Manager Team Leader Nayem Executive Officer Executive Officer Rahman Khan Supervisor
Assistant Manager HR Manager

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References
• Weygandt-Kimmel-Kieso .(1987). Accounting Principles. (10th edition). John Wiley & Sons, Inc.
• https://youtube.com/playlist?list=PLhzn3ud-chTLW2bunRNVC5Gr6S6s3dfsM
• https://www.youtube.com/watch?v=CXiKLtb7tqI&t=35s
• https://www.youtube.com/watch?v=eIjCaeNm-Vk&list=PLKbmcnUUQMlkG0hLUJ97hNk002YilQPzc&ind
ex=9

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Thank you!
Any Questions?

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