Learning Objectives Learning Objectives Child Development Stages
Learning Objectives
48
C4 - 1 Learning Objectives Power Notes Completing the Accounting Cycle Completing the Accounting Cycle 1. Work Sheet 2. Financial Statements 3. Adjusting and Closing Entries 4. Fiscal Year 5. Accounting Cycle 6. Financial Analysis and Interpretation Chapter 4 C4
description
Power Notes. Chapter 4. Completing the Accounting Cycle. 1.Work Sheet 2.Financial Statements 3.Adjusting and Closing Entries 4.Fiscal Year 5.Accounting Cycle 6.Financial Analysis and Interpretation. Learning Objectives. C4. Power Notes. Chapter 4. - PowerPoint PPT Presentation
Transcript of Learning Objectives
C4 - 1
Learning Objectives
Power Notes Completing the Accounting Cycle Completing the Accounting Cycle
1. Work Sheet
2. Financial Statements
3. Adjusting and Closing Entries
4. Fiscal Year
5. Accounting Cycle
6. Financial Analysis and Interpretation
Chapter 4
C4
C4 - 2
• The Work Sheet• Financial Statements• The Closing Process• Post-Closing Trial Balance• Accounting Cycles• Working Capital and
Current Ratio
Slide # Power Note Topics
31822283143
Note: To select a topic, type the slide # and press Enter.
Power NotesChapter 4
Completing the Accounting Cycle Completing the Accounting Cycle
C4 - 3
The Work SheetThe Work Sheet
Trial Balance
Accounts Dr Cr Dr Cr Dr Cr
Adjustments Adjusted TB
Prepared from general ledger. Accounts are listed in order: A, L, OE, R, E
C4 - 4
The Work SheetThe Work Sheet
Adjustments are entered here. Two possibilities:
1. Deferrals – Existing balances are changed.2. Accruals – New information is entered.
Trial Balance
Accounts Dr Cr Dr Cr Dr Cr
Adjustments Adjusted TB
C4 - 5
The Work SheetThe Work Sheet
Adjustments are combined with the trial balance.Account balances are now adjusted.
Trial Balance
Accounts Dr Cr Dr Cr Dr Cr
Adjustments Adjusted TB
C4 - 6
Trial Balance Adjustments Adj. Trial BalanceNetSolutions - Work Sheet - Two Months Ended 12/31/02
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,06512Accounts Receivable 2,220 (e) 500 2,72014 Supplies 2,000 (a) 1,240 76015Prepaid Insurance 2,400 (b) 100 2,30017 Land 20,000 20,00018 Office Equipment 1,800 1,80019Accumulated Depr. 0 (f) 50 5021 Accounts Payable 900 90022 Wages Payable 0 (d) 250 25023 Unearned Rent 360 (c) 120 24031Chris Clark, Capital 25,000 25,00032Chris Clark, Drawing 4,000 4,00041 Fees Earned 16,340 (e) 500 16,84042 Rent Revenue 0 (c) 120 12051 Wages Expense 4,275 (d) 250 4,52552 Rent Expense 1,600 1,60053Depreciation Expense 0 (f) 50 5054 Utilities Expense 985 98555 Supplies Expense 800 (a) 1,240 2,04056Insurance Expense 0 (b) 100 10059 Misc. Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
C4 - 7
Trial Balance Adjustments Adj. Trial BalanceNetSolutions - Work Sheet - Two Months Ended 12/31/02
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,06512Accounts Receivable 2,220 (e) 500 2,7201414 SuppliesSupplies 2,0002,000 (a) 1,240(a) 1,240 76076015Prepaid Insurance 2,400 (b) 100 2,30017 Land 20,000 20,00018 Office Equipment 1,800 1,80019Accumulated Depr. 0 (f) 50 5021 Accounts Payable 900 90022 Wages Payable 0 (d) 250 25023 Unearned Rent 360 (c) 120 24031Chris Clark, Capital 25,000 25,00032Chris Clark, Drawing 4,000 4,00041 Fees Earned 16,340 (e) 500 16,84042 Rent Revenue 0 (c) 120 12051 Wages Expense 4,275 (d) 250 4,52552 Rent Expense 1,600 1,60053Depreciation Expense 0 (f) 50 5054 Utilities Expense 985 9855555 Supplies ExpenseSupplies Expense 800800 (a) 1,240(a) 1,240 2,0402,04056Insurance Expense 0 (b) 100 10059 Misc. Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
C4 - 8
Trial Balance Adjustments Adj. Trial BalanceNetSolutions - Work Sheet - Two Months Ended 12/31/02
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,06512Accounts Receivable 2,220 (e) 500 2,72014 Supplies 2,000 (a) 1,240 76015Prepaid Insurance 2,400 (b) 100 2,30017 Land 20,000 20,00018 Office Equipment 1,800 1,80019Accumulated Depr. 0 (f) 50 5021 Accounts Payable 900 90022 Wages Payable 0 (d) 250 25023 Unearned Rent 360 (c) 120 24031Chris Clark, Capital 25,000 25,00032Chris Clark, Drawing 4,000 4,00041 Fees Earned 16,340 (e) 500 16,84042 Rent Revenue 0 (c) 120 12051 Wages Expense 4,275 (d) 250 4,52552 Rent Expense 1,600 1,60053Depreciation Expense 0 (f) 50 5054 Utilities Expense 985 98555 Supplies Expense 800 (a) 1,240 2,04056Insurance Expense 0 (b) 100 10059 Misc. Expense 455 455
42,600 32,600 2,260 2,260 43,400 43,400
C4 - 9
Trial Balance Adjustments Adj. Trial BalanceNetSolutions - Work Sheet - Two Months Ended 12/31/02
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,06512Accounts Receivable 2,220 (e) 500 2,72014 Supplies 2,000 (a) 1,240 76015Prepaid Insurance 2,400 (b) 100 2,30017 Land 20,000 20,00018 Office Equipment 1,800 1,80019Accumulated Depr. 0 (f) 50 5021 Accounts Payable 900 90022 Wages Payable 0 (d) 250 25023 Unearned Rent 360 (c) 120 24031Chris Clark, Capital 25,000 25,00032Chris Clark, Drawing 4,000 4,00041 Fees Earned 16,340 (e) 500 16,84042 Rent Revenue 0 (c) 120 12051 Wages Expense 4,275 (d) 250 4,52552 Rent Expense 1,600 1,60053Depreciation Expense 0 (f) 50 5054 Utilities Expense 985 98555 Supplies Expense 800 (a) 1,240 2,04056Insurance Expense 0 (b) 100 10059 Misc. Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
C4 - 10
Trial Balance Adjustments Adj. Trial BalanceNetSolutions - Work Sheet - Two Months Ended 12/31/02
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,06512Accounts Receivable 2,220 (e) 500 2,72014 Supplies 2,000 (a) 1,240 76015Prepaid Insurance 2,400 (b) 100 2,30017 Land 20,000 20,00018 Office Equipment 1,800 1,80019Accumulated Depr. 0 (f) 50 5021 Accounts Payable 900 90022 Wages Payable 0 (d) 250 25023 Unearned Rent 360 (c) 120 24031Chris Clark, Capital 25,000 25,00032Chris Clark, Drawing 4,000 4,00041 Fees Earned 16,340 (e) 500 16,84042 Rent Revenue 0 (c) 120 12051 Wages Expense 4,275 (d) 250 4,52552 Rent Expense 1,600 1,60053Depreciation Expense 0 (f) 50 5054 Utilities Expense 985 98555 Supplies Expense 800 (a) 1,240 2,04056Insurance Expense 0 (b) 100 10059 Misc. Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
C4 - 11
Trial Balance Adjustments Adj. Trial BalanceNetSolutions - Work Sheet - Two Months Ended 12/31/02
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,06512Accounts Receivable 2,220 (e) 500 2,72014 Supplies 2,000 (a) 1,240 76015Prepaid Insurance 2,400 (b) 100 2,30017 Land 20,000 20,00018 Office Equipment 1,800 1,80019Accumulated Depr. 0 (f) 50 5021 Accounts Payable 900 90022 Wages Payable 0 (d) 250 25023 Unearned Rent 360 (c) 120 24031Chris Clark, Capital 25,000 25,00032Chris Clark, Drawing 4,000 4,00041 Fees Earned 16,340 (e) 500 16,84042 Rent Revenue 0 (c) 120 12051 Wages Expense 4,275 (d) 250 4,52552 Rent Expense 1,600 1,60053Depreciation Expense 0 (f) 50 5054 Utilities Expense 985 98555 Supplies Expense 800 (a) 1,240 2,04056Insurance Expense 0 (b) 100 10059 Misc. Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
C4 - 12
Trial Balance Adjustments Adj. Trial BalanceNetSolutions - Work Sheet - Two Months Ended 12/31/02
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,06512Accounts Receivable 2,220 (e) 500 2,72014 Supplies 2,000 (a) 1,240 76015Prepaid Insurance 2,400 (b) 100 2,30017 Land 20,000 20,00018 Office Equipment 1,800 1,80019Accumulated Depr. 0 (f) 50 5021 Accounts Payable 900 90022 Wages Payable 0 (d) 250 25023 Unearned Rent 360 (c) 120 24031Chris Clark, Capital 25,000 25,00032Chris Clark, Drawing 4,000 4,00041 Fees Earned 16,340 (e) 500 16,84042 Rent Revenue 0 (c) 120 12051 Wages Expense 4,275 (d) 250 4,52552 Rent Expense 1,600 1,60053Depreciation Expense 0 (f) 50 5054 Utilities Expense 985 98555 Supplies Expense 800 (a) 1,240 2,04056Insurance Expense 0 (b) 100 10059 Misc. Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
C4 - 13
11 Cash 2,065 2,06512Accounts Receivable 2,220 (e) 500 2,72014 Supplies 2,000 (a) 1,240 76015Prepaid Insurance 2,400 (b) 100 2,30017 Land 20,000 20,00018 Office Equipment 1,800 1,80019Accumulated Depr. 0 (f) 50 5021 Accounts Payable 900 90022 Wages Payable 0 (d) 250 25023 Unearned Rent 360 (c) 120 24031Chris Clark, Capital 25,000 25,00032Chris Clark, Drawing 4,000 4,00041 Fees Earned 16,340 (e) 500 16,84042 Rent Revenue 0 (c) 120 12051 Wages Expense 4,275 (d) 250 4,52552 Rent Expense 1,600 1,60053Depreciation Expense 0 (f) 50 5054 Utilities Expense 985 98555 Supplies Expense 800 (a) 1,240 2,04056Insurance Expense 0 (b) 100 10059 Misc. Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
Trial Balance Adjustments Adj. Trial BalanceNetSolutions - Work Sheet - Two Months Ended 12/31/02
Account Debit Credit Debit Credit Debit Credit
C4 - 14
11 Cash 2,065 2,06512Accounts Receivable 2,220 (e) 500 2,72014 Supplies 2,000 (a) 1,240 76015Prepaid Insurance 2,400 (b) 100 2,30017 Land 20,000 20,00018 Office Equipment 1,800 1,80019Accumulated Depr. 0 (f) 50 5021 Accounts Payable 900 90022 Wages Payable 0 (d) 250 25023 Unearned Rent 360 (c) 120 24031Chris Clark, Capital 25,000 25,00032Chris Clark, Drawing 4,000 4,00041 Fees Earned 16,340 (e) 500 16,84042 Rent Revenue 0 (c) 120 12051 Wages Expense 4,275 (d) 250 4,52552 Rent Expense 1,600 1,60053Depreciation Expense 0 (f) 50 5054 Utilities Expense 985 98555 Supplies Expense 800 (a) 1,240 2,04056Insurance Expense 0 (b) 100 10059 Misc. Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
Trial Balance Adjustments Adj. Trial BalanceNetSolutions - Work Sheet - Two Months Ended 12/31/02
Account Debit Credit Debit Credit Debit Credit
C4 - 15
Adj. Trial Balance Income Statement Balance SheetNetSolutions - Work Sheet - Two Months Ended 12/31/02
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,06512Accounts Receivable 2,720 2,72014 Supplies 760 76015Prepaid Insurance 2,300 2,30017 Land 20,000 20,00018 Office Equipment 1,800 1,80019Accumulated Depr. 50 5021 Accounts Payable 900 90022 Wages Payable 250 25023 Unearned Rent 240 24031Chris Clark, Capital 25,000 25,00032Chris Clark, Drawing 4,000 4,00041 Fees Earned 16,840 16,84042 Rent Revenue 120 12051 Wages Expense 4,525 4,52552 Rent Expense 1,600 1,60053Depreciation Expense 50 5054 Utilities Expense 985 98555 Supplies Expense 2,040 2,04056Insurance Expense 100 10059 Misc. Expense 455 455
43,400 43,400 9,755 16,960 43,645 16,440Net Income 7,205 7,205
16,960 16,960 43,645 43,645
C4 - 16
Adj. Trial Balance Income Statement Balance SheetNetSolutions - Work Sheet - Two Months Ended 12/31/02
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,06512Accounts Receivable 2,720 2,72014 Supplies 760 76015Prepaid Insurance 2,300 2,30017 Land 20,000 20,00018 Office Equipment 1,800 1,80019Accumulated Depr. 50 5021 Accounts Payable 900 90022 Wages Payable 250 25023 Unearned Rent 240 24031Chris Clark, Capital 25,000 25,00032Chris Clark, Drawing 4,000 4,00041 Fees Earned 16,840 16,84042 Rent Revenue 120 12051 Wages Expense 4,525 4,52552 Rent Expense 1,600 1,60053Depreciation Expense 50 5054 Utilities Expense 985 98555 Supplies Expense 2,040 2,04056Insurance Expense 100 10059 Misc. Expense 455 455
43,400 43,400 9,755 16,960 43,645 16,440Net Income 7,205 7,205
16,960 16,960 43,645 43,645
C4 - 17
Adj. Trial Balance Income Statement Balance SheetNetSolutions - Work Sheet - Two Months Ended 12/31/02
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,06512Accounts Receivable 2,720 2,72014 Supplies 760 76015Prepaid Insurance 2,300 2,30017 Land 20,000 20,00018 Office Equipment 1,800 1,80019Accumulated Depr. 50 5021 Accounts Payable 900 90022 Wages Payable 250 25023 Unearned Rent 240 24031Chris Clark, Capital 25,000 25,00032Chris Clark, Drawing 4,000 4,00041 Fees Earned 16,840 16,84042 Rent Income 120 12051 Wages Expense 4,525 4,52552 Rent Expense 1,600 1,60053Depreciation Expense 50 5054 Utilities Expense 985 98555 Supplies Expense 2,040 2,04056Insurance Expense 100 10059 Misc. Expense 455 455
43,400 43,400 9,755 16,960 43,645 16,440Net Income 7,205 7,205
16,960 16,960 43,645 43,645
C4 - 18
NetSolutions Income Statement
For Two Months Ended December 31, 2002
Fees earned $16,840Rent revenue 120
Total revenues $16,960Expenses:
Wages expense $ 4,525Supplies expense 2,040Rent expense 1,600Utilities expense 985Insurance expense 100Depreciation expense 50Miscellaneous expense 455
Total expenses 9,755Net income $ 7,205
C4 - 19
NetSolutions Statement of Owner’s Equity
For Two Months Ended December 31, 2002
Chris Clark, capital, November 1, 2002 $ 0
Investment on November 1, 2002 $25,000
Net income for November and December 7,205
$32,205
Less withdrawals 4,000
Increase in owner’s equity 28,205
Chris Clark, capital, December 31, 2002 $28,205
C4 - 20
NetSolutions Balance Sheet
December 31, 2002
ASSETSCurrent assets:
Cash $ 2,065 Accounts receivable 2,720 Supplies 760 Prepaid insurance 2,300
Total current assets $ 7,845Property, plant, andequipment:
Land $20,000 Office equipment 1,800 Less accum. depr. (50)
Total property, plant,and equipment $21,750
Total assets $29,595
C4 - 21
NetSolutions Balance Sheet
December 31, 2002
LIABILITIESCurrent liabilities:
Accounts payable $ 900Wages payable 250Unearned rent 240
Total liabilities $ 1,390
OWNER’S EQUITYChris Clark, capital 28,205Total liabilities and owner’s equity $29,595
C4 - 22
Wages ExpenseBal.
4,525Rent Expense
Bal.1,600
Depreciation ExpenseBal.
50Utilities Expense
Bal.985Supplies Expense
Bal.2,040Insurance Expense
Bal.100
Miscellaneous Expense
Bal.455
Fees Earned
Bal.16,840
Rent Revenue
Bal.120
Chris Clark, Capital
Bal.25,000
Chris Clark, Drawing
Bal.4,000
Income Summary
Note: Note: The balances shown are adjusted balances before closing. The following sequence demonstrates the closing process.
The Closing ProcessThe Closing Process
C4 - 23
Wages ExpenseBal.
4,525Rent Expense
Bal.1,600
Depreciation ExpenseBal.
50Utilities Expense
Bal.985Supplies Expense
Bal.2,040Insurance Expense
Bal.100
Miscellaneous ExpenseBal.
455
Fees Earned
Bal.16,840
Rent Revenue
Bal.120
16,84016,840
120120
Income Summary
16,96016,960
Chris Clark, Capital Close RevenuesClose Revenues
Bal.25,000
Chris Clark, Drawing
Bal.4,000
TotalRevenues
The Closing ProcessThe Closing Process
C4 - 24
Wages ExpenseBal.
4,525Rent Expense
Bal.1,600
Depreciation ExpenseBal.
50Utilities Expense
Bal.985Supplies Expense
Bal.2,040Insurance Expense
Bal.100
Miscellaneous ExpenseBal.
455
4,5254,525
1,6001,600
5050
985985
2,0402,040
100100
455455
Fees Earned
Bal.16,840
Rent Revenue
Bal.120
16,84016,840
120120
Income Summary
16,96016,9609,7559,755
Chris Clark, Capital Close RevenuesClose Revenues
Bal.25,000
Chris Clark, Drawing
Bal.4,000
Close ExpensesClose Expenses
TotalExpenses
TotalRevenues
The Closing ProcessThe Closing Process
C4 - 25
Wages ExpenseBal.
4,525Rent Expense
Bal.1,600
Depreciation ExpenseBal.
50Utilities Expense
Bal.985Supplies Expense
Bal.2,040Insurance Expense
Bal.100
Miscellaneous ExpenseBal.
455
4,5254,525
1,6001,600
5050
985985
2,0402,040
100100
455455
Fees Earned
Bal.16,840
Rent Income
Bal.120
16,84016,840
120120
Income Summary
16,96016,9609,7559,755
Chris Clark, Capital Close RevenuesClose Revenues
Bal.25,000
Chris Clark, Drawing
Bal.4,000
Close ExpensesClose Expenses
The Closing ProcessThe Closing Process
7,2057,205
7,2057,205
Close Income SummaryClose Income SummaryNet Income
Closed
C4 - 26
Wages ExpenseBal.
4,525Rent Expense
Bal.1,600
Depreciation ExpenseBal.
50Utilities Expense
Bal.985Supplies Expense
Bal.2,040Insurance Expense
Bal.100
Miscellaneous ExpenseBal.
455
4,5254,525
1,6001,600
5050
985985
2,0402,040
100100
455455
Fees Earned
Bal.16,840
Rent Income
Bal.120
16,84016,840
120120
Income Summary
16,96016,9609,7559,755
Chris Clark, Capital Close RevenuesClose Revenues
Bal.25,000
Chris Clark, DrawingBal.
4,000
Close ExpensesClose Expenses
The Closing ProcessThe Closing Process
7,2057,205
7,2057,205
Close Income SummaryClose Income SummaryNet Income
4,0004,000
4,0004,000
Close DrawingClose Drawing
Drawing
Closed
Closed
C4 - 27
Wages Expense
Rent Expense
Depreciation Expense
Utilities Expense
Supplies Expense
Insurance Expense
Miscellaneous Expense
Fees Earned
Rent Income
Income Summary
Chris Clark, Capital
Bal.25,000
Chris Clark, Drawing
Net IncomeNet Income
DrawingDrawing
Bal.28,205 All temporary accounts
now have zero balances and are ready for the next accounting period.
7,2057,205
4,0004,000
The Closing ProcessThe Closing Process
C4 - 28
NetSolutionsPost-Closing Trial Balance
December 31, 2002
11 Cash 2,06512 Accounts Receivable 2,72014 Supplies 76015 Prepaid Insurance 2,30017 Land 20,00018 Office Equipment 1,80019 Accum. Depreciation 5021 Accounts Payable 90022 Wages Payable 25023 Unearned Rent 24031 Chris Clark, Capital 28,205
29,645 29,645
AssetsAssets
C4 - 29
NetSolutionsPost-Closing Trial Balance
December 31, 2002
11 Cash 2,06512 Accounts Receivable 2,72014 Supplies 76015 Prepaid Insurance 2,30017 Land 20,00018 Office Equipment 1,80019 Accum. Depreciation 5021 Accounts Payable 90022 Wages Payable 25023 Unearned Rent 24031 Chris Clark, Capital 28,205
29,645 29,645
LiabilitiesLiabilities
C4 - 30
NetSolutionsPost-Closing Trial Balance
December 31, 2002
11 Cash 2,06512 Accounts Receivable 2,72014 Supplies 76015 Prepaid Insurance 2,30017 Land 20,00018 Office Equipment 1,80019 Accum. Depreciation 5021 Accounts Payable 90022 Wages Payable 25023 Unearned Rent 24031 Chris Clark, Capital 28,205
29,645 29,645
Owner’sOwner’sEquityEquity
C4 - 31
Manual Accounting CycleManual Accounting Cycle
1. Transactions are analyzed and recorded in journal.
Documents Journal
C4 - 32
Manual Accounting CycleManual Accounting Cycle
1. Transactions are analyzed and recorded in journal.
Documents Journal
2. Transactions are posted from journal to ledger.
Journal Ledger
C4 - 33
Manual Accounting CycleManual Accounting Cycle
1. Transactions are analyzed and recorded in journal.
Documents Journal
2. Transactions are posted from journal to ledger.
Journal Ledger
3. Trial balance is prepared,adjustment data is organized,work sheet is completed.
Work Sheet
C4 - 34
Manual Accounting CycleManual Accounting Cycle
1. Transactions are analyzed and recorded in journal.
Documents Journal
2. Transactions are posted from journal to ledger.
Journal Ledger
3. Trial balance is prepared,adjustment data is organized,work sheet is completed.
Work Sheet
4. Financial statements areprepared and distributed.
Financial Statements
IS SOE BS SCF
C4 - 35
5. Adjusting entries arejournalized and postedto ledger. Journal Ledger
Manual Accounting CycleManual Accounting Cycle
C4 - 36
5. Adjusting entries arejournalized and postedto ledger. Journal
6. Closing entries arejournalized and postedto ledger. Journal
Ledger
Ledger
Manual Accounting CycleManual Accounting Cycle
C4 - 37
5. Adjusting entries arejournalized and postedto ledger.
7. Post-closing trial balanceis prepared.
Journal
6. Closing entries arejournalized and postedto ledger. Journal
Post-closingTrial Balance
AssetsLiabilitiesOwner’s Equity
Ledger
Ledger
Manual Accounting CycleManual Accounting Cycle
C4 - 38
5. Adjusting entries arejournalized and postedto ledger.
7. Post-closing trial balanceis prepared.
Journal
6. Closing entries arejournalized and postedto ledger. Journal
Post-closingTrial Balance
8. Reports are analyzed andinterpreted for decision-making purposes.
AssetsLiabilitiesOwner’s Equity
?
Ledger
Ledger
Manual Accounting CycleManual Accounting Cycle
C4 - 39
Computer Accounting CycleComputer Accounting Cycle
1. Transactions are analyzed and entered in the computer.
DocumentsComputer
C4 - 40
Computer Accounting CycleComputer Accounting Cycle
1. Transactions are analyzed and entered in the computer.
DocumentsComputer
2. Preliminary reports are analyzed, adjustments areprepared and entered in thecomputer.
ComputerReports Computer
C4 - 41
Computer Accounting CycleComputer Accounting Cycle
1. Transactions are analyzed and entered in the computer.
DocumentsComputer
2. Preliminary reports are analyzed, adjustments areprepared and entered in thecomputer.
ComputerReports
3. Financial statements areprinted and distributed.
Financial Statements
IS SOE BS SCF
Computer
C4 - 42
Computer Accounting CycleComputer Accounting Cycle
1. Transactions are analyzed and entered in the computer.
DocumentsComputer
2. Preliminary reports are analyzed, adjustments areprepared and entered in thecomputer.
ComputerReports
3. Financial statements areprinted and distributed.
Financial Statements
IS SOE BS SCF
Computer
4. Reports are analyzed andinterpreted for decision-making purposes.
?
C4 - 43
Solvency AnalysisSolvency Analysis
Solvency is the ability of a business to meet its financial obligations (debts) as they are due.
Solvency analysis focuses on the ability of a business to pay or otherwise satisfy its current and noncurrent liabilities.
This ability is normally assessed by examining balance sheet relationships.
C4 - 44
Solvency Measures — The Short-Term CreditorSolvency Measures — The Short-Term Creditor
Current assets $550,000 $533,000Current liabilities 210,000 243,000
Working Capital and Current RatioWorking Capital and Current RatioWorking Capital and Current RatioWorking Capital and Current Ratio
2003 2002
C4 - 45
Solvency Measures — The Short-Term CreditorSolvency Measures — The Short-Term Creditor
Working Capital and Current RatioWorking Capital and Current RatioWorking Capital and Current RatioWorking Capital and Current Ratio
Use: To indicate the ability to meet currently maturing obligations
Use: To indicate the ability to meet currently maturing obligations
2003 2002Current assets $550,000 $533,000Current liabilities 210,000 243,000Working capitalWorking capital $340,000$340,000 $290,000$290,000
C4 - 46
Solvency Measures — The Short-Term CreditorSolvency Measures — The Short-Term Creditor
Current assets $550,000 $533,000Current liabilities 210,000 243,000Working capital $340,000 $290,000
Current ratioCurrent ratio 2.6 to 12.6 to 1 2.2 to 12.2 to 1
Working Capital and Current RatioWorking Capital and Current RatioWorking Capital and Current RatioWorking Capital and Current Ratio
Use: To indicate the ability to meet currently maturing obligations
Use: To indicate the ability to meet currently maturing obligations
2003 2002
Divide current
assets by current
liabilities
Divide current
assets by current
liabilities
C4 - 47
Working Capital and Current RatioWorking Capital and Current RatioWorking Capital and Current RatioWorking Capital and Current Ratio
Working Capital (WC)Working Capital (WC)
Objective: Analyze and interpret the financial solvency of a business by computing the working capital and the current ratio.
Current Assets minusCurrent Liabilities
NetSolutions
ExampleExample
WC = $7,845 - $1,390 = $6,455
Current Ratio (CR)Current Ratio (CR)
Current Liabilities
Current Assets
CR = $7,845 / $1,390 = 5.6
C4 - 48
Note: To see the topic slide, type 2 and press Enter.
This is the last slide in Chapter 4. This is the last slide in Chapter 4.
Power Notes Completing the Accounting Cycle Completing the Accounting Cycle
Chapter 4
