COMPLETION
Accounting Cycle
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WORKSHEET
The 10 column Worksheet
• The worksheet is a columnar device
to facilitate the preparation of the
financial statements by making it
easier to transfer data from the trial
balance to the financial statements.
Contents of the Worksheet
• Heading, which consists of three lines:
a. Name of the company,
b. Title – Worksheet, and
c. Period covered
• Column for account titles, and ten money columns
arranged in five pairs of debit and credit columns.
• The figures which have been lifted from the
accounting records of the company.
Example of Worksheet
FINANCIAL STATEMENTS
Preparation of Financial Statements
• After the completion of the worksheet, the financial
statements are prepared in the following order:
a. Statement of Comprehensive Income (Income
Statement)
b. Statement of Changes in Equity
c. Statement of Financial Position (Balance Sheet)
d. Statement of Cash Flows
• Financial Statements are normally issued together
with another document, such as an annual report of
a company.
Statement of Comprehensive Income
(Income Statement)
• The statement of comprehensive income
presents two types of information:
– Income, expenses and the performance of
the company, which is either net income or
loss
– Components of other comprehensive
income
Elements of FS included in Income
Statement
• Income – represents the result of the profit-directed
activities of the business which increases owner’s
equity
• Expenses – represent decreases in the owner’s
equity caused by the revenue-generating activities
of the business
Profit – represents excess of total revenues over total
expenses. When the expenses exceed the
revenues, the net income becomes a net loss. If
equal, it is called breakeven.
Example of Income Statement
Statement of Changes in Equity (Capital
Statement)
• A business shall present a statement which shows
how the entity’s equity has changed during the
period. For a sole proprietorship, the statement of
changes in equity discloses the ff. info:
–
–
–
–
–
Beginning balance of equity
Any additional investments made by the proprietor
The profit or loss for the period
Withdrawals by the owner during the period
Ending balance of equity
Example of Capital Statement
Statement of Financial Position (Balance
Sheet)
• A Statement of Financial Position is a formal
statement of the assets, liabilities and owner’s
equity of the business as of a given date.
• Formats of Balance Sheet
– Report form – simply list the assets, liabilities and the
capital in a downward sequence.
– Account form – List the assets on the left side while
the liabilities and capital on the right side.
Example of Balance Sheet
Statement of Cash Flows
• Cash inflows or outflows are classified into the ff.
categories:
– Operating activities – principal revenue producing
activities of the enterprise.
– Investing activities – acquisition and disposal of long
term assets and other investments
– Financing activities – are activities that result in
changes in the size and composition of owner’s equity
and liabilities of the enterprise.
Example of Cash Flow Statement
JOURNALIZING AND
POSTING ADJUSTING
ENTRIES
Journalizing and Posting Adjusting
Entries
• After the financial statements are
prepared, the adjusting entries are
recorded in the general journal and
posted to the general ledger. The
adjusting entries can be taken directly
from the adjustments columns of the
worksheet
Example of Posting Adjusting Entries
CLOSING ENTRIES
Closing Entries
• Elements of Financial Statements
– Assets
– Liabilities
– Capital/Owner’s Equity
– Income
– Expenses
Closing Entries
• Separate
accounts
for
income,
expenses and drawings are set up only
to facilitate the preparation of the
income statement for a particular
accounting period. At the end of each
accounting period, these accounts have
served their purpose and will be closed
to the equity account.
Closing Entries
• Real Accounts – are balance sheet accounts
(assets, liabilities, and capital) which are not
reduced to zero at the end of every accounting
period.
• Nominal accounts – Income, Expense and Drawing,
they are temporary in nature and are reduced to
zero at the end of every accounting period.
Procedures in closing the nominal
accounts
• A summary account called Income Summary is
used to close all revenue and expense accounts.
• Close all revenue accounts by debiting the amount
of the credit balances and crediting the Income
Summary account.
• Close all expense accounts by debiting the Income
Summary account and crediting the amounts of the
debit balances
• Close the balance of the Income Summary account
to the owner’s equity account
• Close the drawing account to the owner’s equity
account.
POST CLOSING TRIAL
BALANCE
Preparation of the Post Closing Trial
Balance
• The final step to complete the end of period work is
the preparation of the post closing trial balance. The
purpose of the post closing trial balance is to check
the equality of debits and credits in the ledger after
the adjusting and closing entries are recorded and
posted.
• At this point, the only accounts with balances are
the assets, contra assets, liabilities and capital or
the balance sheet accounts.