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Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
4-1
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
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The accounting cycle is the process by which accountants prepare financial statements for an entity for a specific period of time.
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
4-3
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
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Balance Sheet
Income Statement
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
4-6
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
4-8
Trial Balance Dr. Cr. 12,100 1,350 250 15,500 7,500 1,200 1,100 1,500 7,200 1,000 23,700 12,000
Accounting, 5/E
Horngren/Harrison/Bamber
4-9
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
4 - 10
Adjusted Trial Balance Dr. Cr. 12,100 3,050 150 15,500 7,700 1,200 1,100 1,500 7,200 1,000 25,400 12,000 100 200 44,100 44,100
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Horngren/Harrison/Bamber
Adjusted Trial Balance Dr. Cr. 12,10 0 3,050 150 15,50 7,700 0 1,200 1,100 1,500 7,200 25,400 1,000
Balance Sheet Dr. Cr. 12,10 0 3,050 150 15,50 7,700 0 1,200 1,100 1,500 7,200 1,000
18,700
Horngren/Harrison/Bamber
31,80 0
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Adjusted Trial Balance Dr. Cr. 12,10 0 3,050 150 15,50 7,700 0 1,200 1,100 1,500 7,200 25,400 1,000
Balance Sheet Dr. Cr. 12,10 0 3,050 150 15,50 7,700 0 1,200 1,100 1,500 7,200 1,000
12,00 0 44,100 25,400 18,700 100 200 31,80 Business44,10 Publishing Accounting, 5/E Horngren/Harrison/Bamber 4 - 13 0
Adjusted Trial Balance Dr. Cr. 12,10 0 3,050 150 15,50 7,700 0 1,200 1,100 1,500 7,200 25,400 1,000
Balance Sheet Dr. Cr. 12,10 0 3,050 150 15,50 7,700 0 1,200 1,100 1,500 7,200 1,000
12,00 0 44,100 25,400 18,700 100 13,100 200 25,400 31,80 31,800 Business44,10 Publishing Accounting, 5/E Horngren/Harrison/Bamber 4 - 14 0
Objective 2
Use the work sheet to complete the accounting cycle.
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
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Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
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Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
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Objective 3
Close the revenue, expense, and withdrawal accounts.
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
4 - 18
Closing the accounts is the end of period process that prepares the accounts for recording transactions during the next period.
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
4 - 19
Business Publishing
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
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Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
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Income Summary (Close Expense 4,450 28,500 Accounts) 24,050 (Close Income Summary) Capital Account 24,050 2,500 (Close Withdrawals Withdrawals Account) 2,500 2,500
Accounting, 5/E Horngren/Harrison/Bamber 4 - 23
Business Publishing
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
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Permanent Accounts
What accounts never close? Assets Liabilities Owners equity Balances of permanent accounts carry over to the next period.
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
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Objective 4
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
4 - 26
Liquidity
This is a measure of how quickly an item can be converted into cash. On the balance sheet, assets and liabilities are classified as either current or long-term to indicate their relative liquidity.
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
4 - 27
Current Assets
Current assets are cash, or will be converted to cash, in one year or within the normal business operating cycle. What are some other examples? short-term receivables inventory prepaid expenses
Current Liabilities
Current liabilities are debts or obligations due within one year or within the operating cycle. What are some examples? accounts and salary payables short-term notes payable unearned revenue
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
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Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
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Liabilities Current liabilities: Accounts payable Salary payable Unearned revenue Total liabilities Owners equity Capital Total liabilities and owners equity
23,100
Business Publishing
23,100
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Accounting, 5/E
Horngren/Harrison/Bamber
Business Publishing
Accounting, 5/E
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Objective 5
Use the current and debt ratios to evaluate a business.
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
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Business Publishing
Accounting, 5/E
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Current Ratio
This measures the ability of a business to pay its current liabilities with its current assets.
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
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Debt Ratio
It indicates the proportion of a businesss assets that are financed with debt. It measures their ability to pay both current and long-term debt.
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
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Trend Analysis
Business Publishing
Accounting, 5/E
Horngren/Harrison/Bamber
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End of Chapter 4
Business Publishing
Accounting, 5/E
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