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Analyzing Accounting Transactions Guide

This document covers the principles of accounting, specifically focusing on analyzing transactions, preparing classified financial statements, and closing entries. It outlines the flow of accounting information into financial statements and describes the accounting cycle, including the treatment of temporary and permanent accounts. Additionally, it details the steps for closing entries and the purpose of the post-closing trial balance.

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20 views16 pages

Analyzing Accounting Transactions Guide

This document covers the principles of accounting, specifically focusing on analyzing transactions, preparing classified financial statements, and closing entries. It outlines the flow of accounting information into financial statements and describes the accounting cycle, including the treatment of temporary and permanent accounts. Additionally, it details the steps for closing entries and the purpose of the post-closing trial balance.

Uploaded by

Thảo Nguyên
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd

PRINCIPLES OF ACCOUNTING 2

CHAPTER 4
ANALYSIZING TRANSACTIONS

PHAM MINH VAN ANH


LEARNING OBJECTIVES
1. Describe the flow of accounting information from the unadjusted
trial balance into the adjusted trial balance and financial statements.
2. Prepare financial statements from adjusted account balances.
3. Prepare closing entries.
4. Describe the accounting cycle.
5. The fiscal year and the natural business year.
CONTENTS

01 Preparing Classified Financial Statements

02 Closing the Accounts

03 The Accounting Cycle

04 Reporting using a Fiscal year


01
Preparing Classified Financial Statements
01 Preparing Classified Financial Statements
FLOW OF ACCOUNTING INFORMATION
01 Preparing Classified Financial Statements
FLOW OF ACCOUNTING INFORMATION
1. The revenue and expense accounts (spreadsheet
lines 20–28) flow into the income statement.
01 Preparing Classified Financial Statements
FLOW OF ACCOUNTING INFORMATION
2. The dividends account (spreadsheet line 19) flows
into the retained earnings statement. The net
income of $7,105 also flows into the retained
earnings statement from the income statement.
01 Preparing Classified Financial Statements
FLOW OF ACCOUNTING INFORMATION
3. The asset, liability, and
common stock accounts
(spreadsheet lines 8–18)
flow into the balance
sheet.
The end-of-the-period
retained earnings of
$3,105 also flows into the
balance sheet from the
retained earnings
statement
02
Closing Entries
02 Closing Entries
• The adjusting entries are recorded in the journal at the end of the
accounting period.
• Permanent Account (Real Account): the Temporary Account (Nominal
balances of the accounts reported on Account): the balances of the
the balance sheet are carried forward accounts reported on the income
from year to year. statement are not carried forward
• Cash, Accounts Receivable, from year to year.
Equipment, Accumulated • Fee earned, wage expense,
Depreciation, Accounts Payable, …
Common Stock, and Retained
Earnings
02 Closing Entries

• At the beginning of the next period, temporary accounts should have


zero balances
→ Temporary account balances are transferred to permanent accounts at
the end of accounting period.
02 Closing Entries
02 Closing Entries
Step 1. Revenue account balances are transferred to an Income Summary account.
→ Dr Revenue, Cr Income Summary
Step 2. Expense account balances are transferred to Income Summary account.
→ Dr Income Summary, Cr Expense
Step 3. The balance of Income Summary (net income or net loss) is transferred to
the retained earnings account.
→ Net Income: Dr Income summary, Cr Retained earning
Net Loss: Dr Retained Earning, Cr Income Summary
Step 4. The balance of the dividends account is transferred to the retained earnings
account.
→ Dr Retained earning, Cr Dividend
03
Post-Closing Trial Balance
02 Closing Entries

• The purpose of the post-closing (after closing) trial balance is to verify


that the ledger is in balance at the beginning of the next period.
02 Closing Entries

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