Week 1B - Fabm 1 - Completing The Accounting Cycle

Completing
the
Accounting
Cycle
F U N D M E N TA L S O F
A C C O U N TA N C Y,
BUSINESS, &
MANAGEMENT 1
Preparing Adjusted Trial
Balance
An adjusted trial balance is a listing of accounts after
adding or subtracting the adjustments made for the period.
Before adjusted trial balance is made, the adjustments made
for the period must be recorded in the adjustment column of
the worksheet.
Balance
To illustrate, assume the following information:
Balance
We will transfer this information to a worksheet. A
worksheet is a tool used to show the movements of
accounts after adjustments and the position of each accounts
in the financial statements.
Accounting Worksheet
Balance
How to transfer the above information to the worksheet?
Here’s how:
1. Transfer the accounts of the Trial

Balance and enter their balances to the
first two columns of the Work Sheet.
2. Post the adjusting entries to the

third and fourth column or the
Adjustments column.
Balance
3. Prepare the adjusted trial balance by forwarding
the balances of each account on the fifth and sixth
column or Adjusted trial balance column.
◦ Add the amount of each account under trial balance column and the
amount under adjustment column if they are both debit or both credits
and enter their sum under adjusted trial balance.
◦ Subtract the two if they are not the same debit or the same credit and
enter their difference under the adjusted trial balance column on the
side of the greater value .
Preparing the Financial
Statements
Financial statements are statement that shows the
information about the assets, liabilities, capital, revenue and
expenses of the business. These statements may help the
users to make economic decision.
Statements
The following are the five financial statements:
Statement of
Statement of
Comprehensive Statement of
Financial Position
Income or Income Changes in Equity
or Balance Sheet
Statement
Statement of Cash Notes to financial

Flows statements
Statements
A statement of comprehensive income or income
statement is a statement shows the company’s revenues and
expenses for the period.
We can illustrate the income statement directly from the
adjusted trial balance and the income statement itself.
The income statement directly from the adjusted trial
balance is done by transferring the amount of revenues and
expenses to seventh and eighth column of the worksheet.
Statements
The Statement of Changes in Equity is a reconciliation of
the beginning and ending balances in a company’s equity
during the accounting period. The net income and the
additional capital should be added to the initial capital while
withdrawals and net loss are deducted get the ending capital.
Based on the Worksheet…
Statements
The Statement of Financial Position or Balance Sheet is a
statement that shows the balances of the assets, liabilities
and owner’s equity accounts. We can also illustrate the
balance sheet using the work sheet.
There are two types of balance sheet, the account form and
report form.
Closing Entries
A closing entry are journal entries where nominal accounts
(revenues and expenses) and drawing account are closed and
transferred their amount in Income Summary account and
closed Income Summary to Capital account.
Closing Entries
The following are the four steps in preparing closing entries:
(Refer to the adjusted trial balance)
1. Close the revenue account and transfer to Income
Summary account.
2. Close all expense account and debit to Income Summary
account.
Closing Entries
3. Close the Income Summary account and credit the capital
account.
Closing Entries
Close the Income Summary account and credit the capital account.
◦ Note: To compute for the Income Summary balance, just get the
difference between P118,000 and P40,250 and you will get credit
Income Summary for 77,750 (Since credit amount is greater than
debit amount). To close it, you need to debit Income Summary and
credit Ms. Co, Capital.
Closing Entries
4. Close the Drawing account and credit the capital account.
Preparing Post-Closing Trial
Balance
A post-closing trial balance is the listing of real accounts
after preparing closing entries.
Post-closing trial balance is prepared by transferring the
balances of assets, liabilities and capital to the trial balance.
Preparing Post-Closing Trial
Balance
Prepare Reversing Journal
Entries
A reversing journal entry are journal entries that are
opposite of the adjusting entries made for prepayment under
the expense method, pre-collections under the revenue
method, accrued expenses and accrued income. They are
made at the beginning of the next accounting period.
Prepare Reversing Journal
Entries
◦ To illustrate, let’s go back to the adjusting entries of ABM
ACCOUNTING FIRM and we will find out which of the adjusting
entries need to prepare reversing entry.
The Accounting Cycle
1. Analyzing business transaction
2. Recording business transactions to the

journal
3. Posting the journal entries to the ledger
4. Preparing the trial balance
5. Journalizing and posting the adjusting entries

The Accounting Cycle
6. Preparing the adjusted trial balance
7. Preparing the financial statements
8. Journalizing and posting closing entries
9. Preparing post-closing trial balance
10.Preparing reversing journal entries

Any Questions?
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Week 1B - Fabm 1 - Completing The Accounting Cycle

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Week 1B - Fabm 1 - Completing The Accounting Cycle

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Completing

1. Transfer the accounts of the Trial

2. Post the adjusting entries to the

Statement of Cash Notes to financial

2. Recording business transactions to the

3. Posting the journal entries to the ledger

4. Preparing the trial balance

5. Journalizing and posting the adjusting entries

7. Preparing the financial statements

8. Journalizing and posting closing entries

9. Preparing post-closing trial balance

10.Preparing reversing journal entries

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