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ACCOUNTING CYCLE

Steps that occur at the end of the fiscal year

6. Record adjusting journal entries and post to the ledger accounts.

7. Prepare an adjusted trial balance.

8. Prepare financial statements.

9. Close the temporary accounts to retained earnings.

10. Prepare a post-closing trial balance.

Some organizations prepare adjusting entries multiple times throughout the year, such as at the end
of each quarter.

ADJUSTING ENTRIES

 refer to internal journal entries made to account for timing differences in the flow of
cash and the recognition of the accrual-basis revenue and expenses.

 are required by the matching concept in the FASB conceptual framework.

Accrued Revenues
Accrued Expenses

ADJUSTING
ENTRIES
Deferred Revenues Uncollectible Accounts
Prepaid Expenses Depreciation
 Accruals:
Revenues or expenses that have not been recorded, and have not been received or
paid.

 Deferrals:
Revenues or expenses that have been recorded but not yet earned or used.

 Non-cash:
These adjusting entries record non-cash items such as depreciation expense, allowance
for doubtful debts etc.

ADJUSTED TRIAL BALANCE

 An adjusted trial balance is prepared after adjusting entries are made and posted to the
ledger.

 This is the second trial balance prepared in the accounting cycle. Its purpose is to test
the equality between debits and credits after adjusting entries are entered into the
books of the company.

General-Purpose Financial Statement

Financial Statement includes:

 Statement of Financial Position

 Statement of Comprehensive Income

 Statement of Changes in Shareholders’ Equity

 Statement of Cash Flows

 Notes to the Financial Statement


Statement of Financial Position

 Shows the financial position of an organization at a specific point in time.

 It contains:

 Assets (in order of liquidity)

 Liabilities (most current due dates first)

 Equity (comes from the Statement of Changes in Shareholders’ Equity)


Statement of Comprehensive Income

 Provides information regarding the financial performance of the entity for the reporting period.

 It reports:

 Revenues

 Expenses

 Other comprehensive Income


Statement of Changes in Shareholders’ Equity

 Reports changes in capital stock and retained earnings account for the same period of time as
the income statement.

 Net income increases R.E.

 Net losses and declaration of dividends decrease R.E.

 Issuance of new shares increases capital stock.


Statement of Cash Flows

 Reports inflows and outflows of cash for a specified period of time.

 Categories: operating, investing, and financing.

 Methods: direct or indirect method.


Closing Entries

 Closing entries, also called closing journal entries, are entries made at the end of an accounting
period to zero out all temporary accounts and transfer their balances to permanent accounts.

Post-closing Trial Balance

 The post closing trial balance is a list of accounts or permanent accounts that still have balances
after the closing entries have been made.

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