Complete All Steps In The
Accounting Cycle
Principles of Cost Analysis and
Management
© Dale R. Geiger 2011
1
Lacy’s Statement of Financial Position
Assets:
Cash
Other Assets
Total:
$130
79
$209
Liabilities & Financial Position:
Liabilities:
$ 3
Financial Position:
206
Total:
$209
Financial Position
(-)
(+)
200
© Dale R. Geiger 2011
Why doesn’t the Ledger
Account agree with the
Statement of Financial
Position?
2
Terminal Learning Objective
• Task: Complete All Steps In The Accounting Cycle
For A Time Period
• Condition: You are a cost advisor technician with
access to all regulations/course handouts, and
awareness of Operational Environment
(OE)/Contemporary Operational Environment
(COE) variables and actors.
• Standard: with at least 80% accuracy:
• Describe the purpose of closing transactions
• Record closing transactions in tabular format
© Dale R. Geiger 2011
3
The Accounting Cycle
Record
Post-Closing Transactions
Post to
Trial Balance
Ledger
Close
Accounts
Prepare
Trial
Balance
Prepare
Statements
Adjusted
Trial Balance
Adjust
Accounts
© Dale R. Geiger 2011
4
Purpose of Closing Transactions
• Zero out the Revenue and Expense accounts
• Allows them to start the new period with a clean
slate
• Transfer revenue and expense information to
the Financial Position account
• Ending balance in Financial Position ledger
account will agree with Statement of Financial
Position
© Dale R. Geiger 2011
5
Zeroing the Accounts
If I want to know how
much rain falls in the
next 24 hours, I must
empty the rain gauge
of all rain collected in
the past.
© Dale R. Geiger 2011
6
Transferring to Financial Position
© Dale R. Geiger 2011
7
Check on Learning
• What are the two purposes for closing
transactions?
© Dale R. Geiger 2011
8
Lacy’s Ledger
Cash
Other Assets
(+)
200
15
5
50
(-)
20
10
5
65
40
-------------- ---------------130
Financial Position
(-)
(+)
200
85
Liabilities
(+)
(-)
20
5
65
60
20
1
40
-------------- --------------79
(+)
40
3
---------------- --------------3
Revenues
Expenses
(-)
(+)
15
20
50
--------------- --------------85
85
© Dale R. Geiger 2011
(-)
40
(+)
10
5
60
1
3
--------------79
(-)
9
Lacy’s Ledger
Cash
Other Assets
(+)
200
15
5
50
(-)
20
10
5
65
40
-------------- ---------------130
Financial Position
(-)
79
(+)
200
85
Liabilities
(+)
(-)
20
5
65
60
20
1
40
-------------- --------------79
(+)
40
3
---------------- --------------3
Revenues
Expenses
(-)
(+)
15
20
50
--------------- --------------85
85
© Dale R. Geiger 2011
(-)
40
(+)
10
5
60
1
3
--------------79
(-)
-------------79
10
Lacy’s Ledger
Cash
(+)
200
15
5
50
(-)
20
10
5
65
40
-------------- ---------------130
Financial Position
(-)
79
---------------
(+)
200
85
-------------206
Other Assets
Liabilities
(+)
(-)
20
5
65
60
20
1
40
-------------- --------------79
(+)
40
3
---------------- --------------3
Revenues
Expenses
(-)
(+)
15
20
50
--------------- --------------85
85
© Dale R. Geiger 2011
(-)
40
(+)
10
5
60
1
3
--------------79
(-)
-------------79
11
Recording Closing Transactions
Transaction
Description
Balance Forward
Cash
+
130 +
Other
Assets
=
79 =
+
Financial
+
Position
3 +
200 +
Liab
Rev
–
85 -
Exp
79
Close Revenues
New Balance
Close Expenses
New Balance
© Dale R. Geiger 2011
12
Recording Closing Transactions
Transaction
Description
Balance Forward
Close Revenues
New Balance
Close Expenses
New Balance
Cash
+
Other
Assets
=
Liab
+
Financial
+
Position
Rev
–
Exp
130 +
79 =
3 +
200 +
85 -
+
=
+
+85 +
-85 -
130 +
79 =
3 +
285 +
0 -
79
+
=
+
-79 +
-
-79
130 +
79 =
3 +
206 +
0 -
0
© Dale R. Geiger 2011
79
13
Recording Closing Transactions
Transaction
Description
Balance Forward
Close Revenues
New Balance
Close Expenses
New Balance
Cash
+
Other
Assets
=
Liab
+
Financial
+
Position
Rev
–
Exp
130 +
79 =
3 +
200 +
85 -
+
=
+
+85 +
-85 -
130 +
79 =
3 +
285 +
0 -
79
+
=
+
-79 +
-
-79
130 +
79 =
3 +
206 +
0 -
0
209
79
209
© Dale R. Geiger 2011
14
Post-Closing Trial Balance
• The post-closing or after-closing trial balance
is a list of all of the accounts and their
balances, omitting the accounts with a zero
balance.
• Therefore, there will be no revenues or
expenses on the post-closing trial balance,
because the balance in each of those accounts
is zero after the closing process.
© Dale R. Geiger 2011
15
Lacy‘s Post-Closing
Trial Balance
Account Title
dr.
Cash
cr.
$130
Other Assets
79
Liabilities
$ 3
Financial Position
206
Totals
$209
© Dale R. Geiger 2011
$209
16
Check on Learning
• When the Expense account is closed, what is
the effect on the Financial Position account?
• What accounts should be included on the
Post-Closing Trial Balance?
© Dale R. Geiger 2011
17
Accounting Cycle Spreadsheet
Statement of
Activity shows
ending balance in
Financial Position
Lacy’s
© Dale R. Geiger 2011
18
Accounting Cycle Spreadsheet
Total Assets
equal
Total Liabilities and
Equity
Lacy’s
© Dale R. Geiger 2011
19
Accounting Cycle Spreadsheet
After Closing, the
Revenue and
Expense accounts
have zero balances
© Dale R. Geiger 2011
20
Accounting Cycle Spreadsheet
After Closing, the
Financial Position
balance agrees with
the Statement of
Activities
© Dale R. Geiger 2011
21
Accounting Cycle Spreadsheet
The Post-closing Trial Balance
includes only Assets, Liabilities
and Financial Position
© Dale R. Geiger 2011
22
Practical Exercise
© Dale R. Geiger 2011
23