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Week 6 - Completing the accounting cycle (10 column worksheets (Adjusted…
Week 6 - Completing the accounting cycle
Closing the books
Temporary accounts (relate to only GIVEN accounting period)
Expenses
Dividends/ Drawings
Revenues
Permanent accounts (are carried forward to future accounting period)
Liabilities
Equity
Assets
The closing process
Close all expense accounts to P or L summary
Cr Profit or Loss Summary
Dr Expense
Close P or L summary to Retained Earnings
If it is a
profit
: Dr Profit or Loss Summary and Cr Retained Earnings
If it is a
loss
: Dr Retained Earnings and Cr P or L Summary
Close all income accounts to P or L summary
Dr Profit of Loss Summary
Cr Revenue
Close Dividends/ Drawings to Retained Earnings
Dr Retained Earnings
Cr Dividends/ Drawings
10 column worksheets
Adjusted Trial Balance
Income Statement
Adjustments
Balance Sheet
Trial Balance
Reversing Entries
Are prepared at the beginning of the next period (i.e: 1st of July)
4 types of BDAs that may be reversed
Accrued Revenue
Prepaid Expense initially recorded as an expense
Accrued Expense
Prepaid Revenue initially recorded as a revenue
For example (must see the ppt for more details)
On 30/6/2017: Dr Accrued Interest Revenue $1,000 and Cr Interest Revenue $1,000
On 1/7/2017: Dr Interest Revenue $1,000 and Cr Accrued Interest Revenue $1,000
On 4/7/2017: Dr Cash at Bank $1,000 and Cr Interest Revenue $1,000 =>
Interest Revenue are canceled out (it is necessary to do that because interest revenue come from the previous accounting period and it is a temporary account)
Reporting Entity
SAC 1: Factors that help determine whether dependent users are likely to exist
Economic or political importance/ influence
Financial characteristics (read more from the book)
Separation of management from economic interest
Definition: an entity will be a reporting entity if it has
dependent user
Draw a table with 4 columns
Need (do they need the information?)
Power (do they have the power to obtain the information? If it not => they are dependent)
User
Conclusion