Professional Documents
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Completing the
Chapter 4 Accounting Cycle
Learning Objectives
After studying this chapter, you should be able to:
1. Prepare a worksheet.
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Preview of Chapter 4
Financial Accounting
IFRS Second Edition
Weygandt Kimmel Kieso
4-3
Using a Worksheet
Preparing a Worksheet
Multiple-column form used in preparing financial
statements.
Adjusting
Journal
Entries
(Chapter 3)
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LO 1 Prepare a worksheet.
Steps in Preparing a Worksheet
2. Enter the Adjustments in the Adjustments Columns
Adjusted Income Statement of
Trial Balance Adjustments Trial Balance Statement Financial Position
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200
Supplies 2,500 (a) 1,500
Prepaid Insurance 600 (b) 50
Equipment 5,000
Adjustments Key:
Notes Payable 5,000 (a) Supplies Used.
Accounts Payable 2,500
Unearned Revenue 1,200 (d) 400 (b) Insurance Expired.
Share Capital-Ordinary 10,000
(c) Depreciation Expensed.
Dividends 500
Service Revenue 10,000 (d) 400 (d) Service Revenue Earned.
(e) 200
Salaries and Wages Exp. 4,000 (g) 1,200
(e) Service Revenue Accrued.
Rent Expense 900 (f) Interest Accrued.
Totals 28,700 28,700
Supplies Expense (a) 1,500 (g) Salaries Accrued.
Insurance Expense (b) 50
Accumulated Depreciation (c) 40
Depreciation Expense (c) 40
(e)
Accounts Receivable 200 Enter adjustment amounts, total
(f)
Interest Expense 50
Interest Payable (f) 50 adjustments columns,
(g)
Salaries and Wages Payable 1,200 and check for equality.
Totals 3,440 3,440
Review Question
Net income is shown on a worksheet in the:
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Using a Worksheet
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Closing the Books
Note:
Dividends are closed directly Illustration 4-6
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Closing the Books
Closing
Entries
Illustrated
Illustration 4-7
Closing entries
journalized
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Closing the Books
Posting
Closing
Entries
Illustration 4-8
4-23 LO 2
The worksheet for Hancock Company shows the following in the
financial statement columns:
Dividends €15,000
Share Capital-ordinary €42,000
Net income €18,000
Prepare the closing entries at December 31 that affect equity.
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LO 1
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Preparing a Post-Closing Trial Balance
Purpose is to prove the equality of the permanent account
balances after journalizing and posting of closing entries.
Illustration 4-9
4-26 LO 3
Summary of the Accounting Cycle
Illustration 4-12
7. Prepare financial
4. Prepare a trial balance
statements
Illustration (Case 1): On May 10, Mercato Co. journalized and posted
a $50 cash collection on account from a customer as a debit to Cash
$50 and a credit to Service Revenue $50. The company discovered the
error on May 20, when the customer paid the remaining balance in full.
Incorrect Cash 50
entry
Service revenue 50
Correct Cash 50
entry
Accounts receivable 50
Incorrect Equipment 45
entry
Accounts payable 45
Correct Equipment 450
entry
Accounts payable 450
Standard Classifications
Illustration 4-17
Illustration
4-18
4-33 LO 6
The Classified Statement of Financial Position
Illustration
4-18
4-34 LO 6
The Classified Statement of Financial Position
Intangible Assets
Assets that do not have physical substance.
Illustration 4-19
Question
Patents and copyrights are
a. Current assets.
b. Intangible assets.
c. Long-term investments.
Long-Term Investments
Investments in ordinary shares and bonds of other
companies.
Investments in non-current assets such as land or buildings
that a company is not using in its operating activities.
Illustration 4-21
Current Assets
Assets that a company expects to convert to cash or
use up within one year or the operating cycle, whichever
is longer.
Current Assets
Illustration 4-22
Usually listed in the reverse order they expect to convert them into cash.
Question
Assets that a company expects to convert to cash or use up
within one year or its operating cycle, whichever is longer
are called:
a. Current assets.
b. Intangible assets.
c. Long-term investments.
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LO 6
The Classified Statement of Financial Position
Equity
Proprietorship - one capital account.
Illustration 4-23
Non-Current Liabilities
Obligations a company expects to pay after one year.
Illustration 4-24
Current Liabilities
Obligations company is to pay within the coming year or
its operating cycle, whichever is longer.
Current Liabilities
Illustration 4-25
4-50 LO 6
APPENDIX 4A REVERSING ENTRIES
Reversing Entries
It is often helpful to reverse some of the adjusting entries
before recording the regular transactions of the next period.
Illustration 4A-1
With Reversing Entries
(per appendix)
Adjusting Entry
Oct. 31 Same entry
Closing Entry
Oct. 31 Same entry
Reversing Entry
Nov. 1 Salaries payable 1,200
Salaries and Wages expense 1,200
Illustration 4A-2
Postings with
reversing
entries
Key Points
IFRS officially uses the term statement of financial position in its
literature, while in the United States it is often referred to as the balance
sheet.
IFRS requires that specific items be reported on the statement of
financial position, whereas no such general standard exists in GAAP.
However, under GAAP, public companies must follow U.S. Securities
and Exchange Commission (SEC) regulations, which require specific
line items as well. In addition, specific GAAP standards mandate certain
forms of reporting statement of financial position information. The SEC
guidelines are more detailed than IFRS.
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Another Perspective
Key Points
While IFRS companies often report non-current assets before current
assets in their statements of financial position, this is never seen under
GAAP. Also, some IFRS companies report the subtotal “net assets,”
which equals total assets minus total liabilities. This practice is also not
seen under GAAP.
In general, GAAP follows the similar guidelines as this textbook for
presenting items in the current asset section, except that under GAAP
items are listed in order of liquidity, while under IFRS they are often
listed in reverse order of liquidity. For example, under GAAP cash is
listed first, but under IFRS it is listed last.
A key difference in valuation is that under IFRS, companies, under
certain conditions, can report property, plant, and equipment at cost or at
fair value, whereas under GAAP this practice is not allowed.
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Another Perspective
Key Points
Both IFRS and GAAP require disclosures about (1) accounting policies
followed, (2) judgments that management has made in the process of
applying the entity’s accounting policies, and (3) the key assumptions and
estimation uncertainty that could result in a material adjustment to the
carrying amounts of assets and liabilities within the next financial year.
Comparative prior-period information must be presented and financial
statements must be prepared annually.
GAAP has many differences in terminology from what are shown in your
textbook. For example, in the sample balance sheet (statement of
financial position) illustrated below, notice in the investment category that
shares are called stock. Also note that Share Capital—Ordinary is referred
to as Common Stock. In addition, the format used for statement of
financial position presentation is often different between GAAP and IFRS.
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Another Perspective
Key Points
Both GAAP and IFRS are increasing the use of fair value to report assets.
However, at this point IFRS has adopted it more broadly. As examples,
under IFRS companies can apply fair value to property, plant, and
equipment; natural resources; and in some cases intangible assets
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Another Perspective
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Another Perspective
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Another Perspective
a) by importance.
c) by order of liquidity.
d) alphabetically.
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Another Perspective
a) may report all their assets on their balance sheets at fair value.
b) often offset assets against liabilities and show net assets and
net liabilities on their balance sheets, rather than the
underlying detailed line items.
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