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A comprehensive overview of the key concepts and learning objectives covered in chapter 6 of the principles of accounting i course at the ultimate medical academy. It covers the preparation of financial statements using a work sheet, the journalization and posting of closing entries, the preparation of a post-closing trial balance, and the steps involved in the accounting cycle. Detailed explanations of important terms and concepts, as well as self-study test questions and checkpoint exercises to reinforce the learning objectives. This resource would be highly valuable for university students enrolled in an introductory accounting course, as it offers a structured and thorough review of the essential topics in financial accounting.
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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.
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.
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.
Account Form of Balance Sheet : A balance sheet in which the assets are on the left and the liabilities and the owner's equity sections are on the right. Accounting Cycle : The steps involved in accounting for all of the business activities during an accounting period. Classified Balance Sheet : A balance sheet with separate categories for current assets; property, plant, and equipment; current liabilities; and long-term liabilities. Closing Process : The process of giving zero balances to the temporary accounts so that they can accumulate information for the next accounting period. Income Summary : A temporary account used in the closing process to summarize the effects of all revenue and expense accounts. Operating Cycle : The period of time required to purchase supplies and services and convert them back into cash. Permanent Accounts : Accounts that accumulate information across accounting periods; all accounts reported on the balance sheet. Post-Closing Trial Balance : Prepared after posting the closing entries to prove the equality of the debit and credit balances in the general ledger accounts. Report Form of Balance Sheet : A balance sheet in which the liabilities and the owner's equity sections are shown below the assets section. Temporary Accounts : Accounts that do not accumulate information across accounting periods but are closed, such as the drawing account and all income statement accounts.