Financial Accounting Chapter 4 – Flashcards

-closing entries transfer net income/loss and dividends to RE -must journalize and post closing entries -temporary account (income summary) is used to close revenue and expense accounts

-closed -all revenue accounts, all expense accounts, dividends

-not closed -all assets, liabilities, SE

1) debit revenues for balance, credit income summary for total revenues 2) debit income summary for total expenses, credit each expense 3) debit (credit) income summary, credit (debit) RE for net income 4) debit RE for dividends, credit dividends for same amount

after closing entries posted: -temporary accounts have a balance of zero -balance in RE represents accumulated undistributed earnings at the end of the accounting period

-prepared after closing entries journalized and posted -proves equality of permanent account balances

1) analyze business transactions 2) journalize the transactions 3) post to ledger accounts 4) prepare a trial balance 5) journalize and post adjusting entries: prepayments/accruals 6) prepare an adjusted trial balance 7) prepare financial statements: income statement, RE statement, balance sheet 8) journalize and post closing entries 9) prepare a post-closing trial balance

-assets: current assets, long-term investments, P, P & E, intangible assets -liabilities and SE: current liabilities, long-term liabilities, SE

-cash and other resources expected to be realized in cash, sold, or consumed within a year of the date or within the company's operating cycle -listed on balance sheet in order of liquidity

-resources that can be converted to cash -conversion not expected within one year of operating cycle, whichever is longer

tangible resources of a relatively permanent nature used in business and not intended for sale

-non-current resources lacking physical substance -ex. patents, trademarks, copyrights

-obligations expected to be paid from existing current assets or by creation of another current liability -within one year or the operating cycle, whichever is longer -ex. A/P, interest payable, wages payable

-obligations expected to be paid after one year or the operating cycle, whichever is longer -ex. long term notes payable, bonds payable, mortgages payable, lease obligations

-corporation-common stock, RE -proprietorship-owners capital -partnership-partner one capital, partner two capital

-helps determine availability of assets to meet debts as they come due -helps determine the claims of short- and long-term creditors on total assets -often in report form-assets above liabilities and SE