Accounting Principles and
Financial Statements
Financial Statements and the Closing Process:
Chapter Review
LO1: Prepare Financial Statements with the Aid of a Work
Sheet
The work sheet is used as an aid in preparing: 1. Adjusting entries 2.
Financial statements 3. Closing entries
The following classifications are used for accounts reported on the balance
sheet:
Current Assets: Cash and assets that will be converted into cash or
consumed within either one year or the normal operating cycle of the
business, whichever is longer. An operating cycle is the time required to
purchase supplies and services and convert them back into cash.
Property, Plant, and Equipment (Long-Term Assets): Assets that are
expected to serve the business for many years. Also called plant assets or
long-term assets.
Current Liabilities: Liabilities that are due within either one year or the
normal operating cycle of the business, whichever is longer, and that are to
be paid out of current assets.
Long-Term Liabilities (Long-Term Debt): Obligations that are not
expected to be paid within a year and do not require the use of current
assets.
LO2: Journalize and Post Closing Entries
The steps in the closing process are: 1. Close revenue accounts to Income
Summary. 2. Close expense accounts to Income Summary. 3. Close Income
Summary to the owner's capital account. 4. Close Drawing to the owner's
capital account.
LO3: Prepare a Post-Closing Trial Balance
After posting the closing entries, a post-closing trial balance should be
prepared to prove the equality of the debit and credit balances in the
general ledger accounts. The accounts shown in the post-closing trial
balance are the permanent accounts.
