Term
| Journal Entries are made... |
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Definition
At the end of every accounting period, after the financial statements have been prepared.
Must close temporary accounts |
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Term
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Definition
| Accounts used to record activity unique to this accounting period. Balances should not carry over to the new accounting period. |
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Term
| The Closing Entry Process |
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Definition
1. Close all revenue accounts
2. Close all expense accounts
3. Close the Income Summary Account
4. Close the drawings account |
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Term
| Closing all Revenue Accounts (Step 1) |
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Definition
Since revenue accounts have credit balances you must debit them to close them. and credit income summary.
Each Revenue Account $$
Income Summary $$ |
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Term
| Closing all Expense Accounts (Step 2) |
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Definition
Since expense accounts have debit balances to close them you must credit them and debit income summary
Income Summary , $$
Expense Accounts, $$ |
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Term
| Close Income Summary (Step 3) |
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Definition
Income summary must equal net income or loss
If there is a net income, Income summary has a debit balance
Income Summary $Net Income
Owners Name, Capital $Net Income
If there is a net loss income summary has a credit balance
Owners Name, Capital $Net Loss
Income Summary $Net Loss |
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Term
| Close the Drawings Account (Step 4) |
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Definition
Since the drawings account has a debit balance you must credit it to close it and debit the capital account
Owners Name, Capital $$
Owners Name, Drawings $$ |
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Term
| Post Closing the Trial Balance |
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Definition
There should be no revenue accounts
no expense accounts
no owner's drawings
A new balance in the Capital Account (Increased by net income or decreased by net loss) and decreased by owners drawings |
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Term
| Accounts left in the Post Closing Trial Balance |
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Definition
Assets
Liabilities
Owner's capital |
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Term
| Steps in the Accounting Cycle 1-4 (journalizing) |
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Definition
1. Record all transactions with entries in the journal
2. Post all journal debits and credits to ledger account
3. Prepare Unadjusted Trial Balance
4. Record all necessary adjusting Entries in the journal |
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Term
| Steps 5-7 (Financial Statements) |
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Definition
5. Post all adjusting entry debits and credits to the appropriate ledger accounts
6. Prepare adjusted trial balance
7. Prepare Financial statements |
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Term
| Steps 8-9 Closing entries |
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Definition
8. Record all closing entries in the journal
9. Post all closing entry debits and credits to the appropriate ledger accounts
10. Prepare the post closing trial balance |
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Term
| Classified Balance Sheet (4 types of assets) |
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Definition
Current Assets
Long Term Investments
Property, Plant and Equipment
Intangible Assets |
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Term
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Definition
| Cash plus assets which within one year are expected to be converted into cash (receivables, inventory, short term investments) or consumed/used prepaid expenses |
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Term
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Definition
| Stocks/ bonds etc. Not in use (Long term assets) |
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Term
| Property Plant and Equipment |
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Definition
Machinery
Equipment
Vehicles
Buildings
Land- In use |
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Term
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Definition
Patents (ex, drug patents)
Copyrights (ex, musical/artistic/literary)
Trademarks and Tradenames |
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Term
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Definition
| Due to be paid within one year + the current portion of long term debt (ex, mortgage payments) |
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Term
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Definition
| Due beyond the current year (Full length of mortgage payments) |
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