Download CHAPTER 6

Copyright  2006 Pearson Education Canada Inc.
6-1
Outline
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The Financial Statement Worksheet
Preparing Formal Financial Statements: Step 6
Closing the Books: Step 7
Closing Entries 1-4
Closing Procedures Applicable to a Corporation
Reversing Entries: An Optional Procedure
Accounting Cycle Flowchart
Copyright  2006 Pearson Education Canada Inc.
6-2
The Financial Statement
Worksheet
A multi-column form which is used as a
“tool” in the preparation of financial
statements
It has five sets of Dr. and Cr. columns:
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Unadjusted trial balance
Adjustments
Adjusted trial balance
Income statement
Balance sheet
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Trial Balance
Account Name
Debits
Adj Trial Bal
Adjustments
Credits
Debits
Credits
Debits
Income Statement
Credits
Debits
Credits
Balance Sheet
Debits
Cash
100
100
100
Accounts Receivable
200
200
200
Notes Receivable
300
300
300
Food Inventory
110
(b)89
21
21
12
(a)7
5
5
220
220
Prepaid Insurance
Furniture and Equipment
220
Accumulated Depreciation
110
110
Accounts Payable
150
150
150
Notes Payable
100
100
100
Amy Neat, Capital
502
502
Amy Neat , Withdrawals
88
50
Sales
Other Income
Salaries & Wages
100
Interest Expense
20
Other Operating Expenses
48
1160
Insurance Expense
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Credits
300
300
20
20
20
(e)7
(d)5
107
107
25
25
48
48
1,160
(b)89
Depreciation Expense
50
300
(a)7
Cost of Food Sold
©22
Accrued Interest Payable
7
7
89
89
22
(d)5
22
5
Accrued Salaries Payable
(e)7
7
Interest Income
(f)18
18
Accrued Interest Receivable
(f) 18
148
5
7
18
18
148
NET INCOME
Copyright  2006
502
50
Neat Restaurant
F/S Worksheet
Pearson Education Canada
Inc.ended July 31, 2005
Year
1212
18
1,212
298
338
914
874
40
40
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The Financial Statement Worksheet
 Excellent tool for preparing adjusting entries, the
adjusted trial balance, financial statements, and closing
entries
 Does not replace journalizing adjusting entries in the
General Journal
 Does not replace posting adjusting entries from the
General Journal to the General Ledger
 Does not replace formal financial statements, but shows
all their data on one sheet.
Copyright  2006 Pearson Education Canada Inc.
6-5
Preparing Formal Financial
Statements: Step 6
 Income Statement
 Statement of Owner’s Equity (or
Statement of Retained Earnings)
 Balance Sheet
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6-6
Closing the Books: Step 7
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Entry # 1- Close revenue accounts
Entry # 2- Close expense accounts
Entry # 3- Close income summary account
Entry # 4- Close withdrawals or dividends
(if any) to appropriate owner’s equity
account
Copyright  2006 Pearson Education Canada Inc.
6-7
Closing entry #1 - Close
revenue accounts
Debit each of the revenue
accounts found on the
income statement
columns of the financial
statement worksheet
2005
July 31
Sales
Interest income
300
18
Other income
20
Income Summary
To close revenue accounts
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6-8
338
Closing entry #2 - Closing
expense accounts
2005
July 31 Income summary
298
Salaries & Wages
Interest Expense
Other operating exp.
Insurance expense
Cost of food sold
Depreciation expense
To close expense accounts
Copyright  2006 Pearson Education Canada Inc.
107
25
48
7
89
22
Credit each of the expense
accounts found on the
income statement debit
column of the financial
statement worksheet.
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Closing entry # 3-Closing the
Income Summary Account
To close income summary
debit the account for the net
income and credit the
appropriate owner’s equity
account
Copyright  2006 Pearson Education Canada Inc.
July 31
Income Summary 40
Amy Neat, Capital 40
To close the income summary account
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Closing entry # 4-Closing owner’s
withdrawals (or dividends)
July 31 Amy Neat, Capital
50
Amy Neat Withdrawals
To close the withdrawals account
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50
Close the withdrawals
account to the appropriate
Owner’s Equity account, or
Dividends account to
Retained Earnings
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Closing procedures applicable
to corporations
 Close revenue and expense accounts to income
summary, just as with other types of companies
 Close income summary to retained earnings
 Close dividends to retained earnings
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6-12
Reversing Entries: An Optional
Procedure
 Reversing accrual adjustments on the first day
of each accounting period
 Main purpose: simplify the recording of
payments and receipts of accruals
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6-13
Complete Accounting Cycle Flowchart
Step 1
Analysis of
Business Transactions
Step 6
Financial
Statements
Step 7
Closing the
Books
Copyright  2006 Pearson Education Canada Inc.
Step 2
Journalizing
Step 5
Adjusting
The Trial
Balance
Step 3
Posting
Step 4
Taking
The Trial
Balance
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