1. COMPLETING THE
ACCOUNTING CYCLE
1

2.  Explain the importance of periodic reporting
and the time period principle
 Identify the types of adjustments and their
purpose
 Prepare and explain adjusting entries
 Explain and prepare an adjusted trial balance
 Prepare financial statements from an
adjusted trial balance
 Statements of Comprehensive Income
 Statements of Changes in Equity
 Statements of Financial Position
 Describe and prepare closing entries
 Explain and prepare a post-closing trial
balance
2

3. Annual
1 2
Semiannual
1 2 3 4
1 2 3 4 5 6 7 8 9 10 11 12
Monthly
Quarterly
Jan Feb Mar Apr Ma
y
Jun Jul Aug Sep Oct Nov Dec

4. Calendar year- reporting period of 12
months covering from 1 January to 31
December
 Fiscal year- reporting period consisting of
any 12 consecutive months, in which the
starting month is not necessarily
beginning from 1 January. Eg. 1 April 2005
to 31 March 2006

5. Source
Documents
5
Journal
Trial Balance Ledger
Financial
Statements
Adjusted
Trial Balance
Adjustments
Closing
Entries

6. revenue and expenses are
recognized at the time they
take place, and not at the
time they are actually paid.
6
Accrual
Cash-basis
revenue is recorded when cash
is received, and expenses are
recorded when cash is paid.

7. 7
REVENUE
RECOGNITION
PRINCIPLE
THE MATCHING
PRINCIPLE
revenue be recognized in the
accounting period in which it
is earned.
efforts (expenses) be matched
with accomplishments (revenues).

8. 1 Revenues to be recorded in the period in
which they are earned.
2 Expenses to be recognized in the period in
which they are incurred.
8

9. An adjusting entry is recorded to bring an asset or liability
account balance to its proper amount.
PREPAYMENTS- Paid (or
received) cash before
expense (or revenue)
recognized
ACCRUALS- Paid (or
received) cash after
expense (or revenue)
recognized
Prepaid
(Deferred)
expenses*
Unearned
(Deferred)
revenues
Accrued
expense
Accrued
revenues
Framework for Adjustments
*including depreciation

10. 10
Prepayments
Prepaid Expenses
Expenses paid in cash and
recorded as assets before
they are used or consumed
Unearned Revenues
Cash received and recorded as
liabilities before revenue
is earned

11. 11
Accruals
Accrued Revenues
Revenues earned but not yet
received in cash or recorded
Accrued Expenses
Expenses incurred but not yet
paid in cash or recorded

12. Here is the check
for my first
6 months’ rent.
Resources paid
for prior to
receiving the
actual benefits.

13. Prior to adjustment, assets are overstated and
13
expenses are understated.
The adjusting entry results in a debit to an expense
account and a credit to an asset account.

14. Asset Expense
Unadjusted
Balance
Credit
Adjustment
Debit
Adjustment
Dec 31 Expense Acc xx
Asset Acc xx
Journal:

15. Supplies
Insurance
Depreciation
15
Examples

16. An inventory count reveals that RM1,000 of RM2,500 of supplies
are still on hand as at 31st Dec 2010.
Dr. Office Supplies 2,500
Cr. Cash 2,500
Dr. Supplies Expense 1,500
Cr. Office Supplies 1,500
16
Entries when
the supplies is
purchased:
Adjusting
entries req at
end of the
prd:

17. 17
Office Supplies
Supplies Expense
Cash 2,500 Supp. Exp 1,500
Off. Supp. 1,500
Bal. 1,000
2,500 2,500
Bal. 1,000
Cash
Supplies 2,500

18. Insurance premium paid for one year amounting to
RM1,200; Expires every month RM100.
Dr. Insurance Expense 100
Cr. Prepaid Insurance 100
18
Entries when
the insurance is
purchased:
Adjusting
Entries req
at end of the
prd:
Dr. Prepaid Insurance 1,200
Cr. Cash 1,200

19. 19
Prepaid Insurance
Insurance Expense
Cash 1,200 Insur. Exp 100
Prpd Insur. 100
Bal. 1,100
1,200 1,200
Bal. 1,100
Cash
Prpd Insur 1,200

20. Depreciation is the allocation of the cost of an asset to
expense over its useful life in a rational and systematic
manner.
Depreciation is an estimate rather than a factual
measurement of the cost that has expired.
20

21. In recording depreciation, Depreciation Expense is
debited and a contra asset account, Accumulated
Depreciation, is credited
The difference between the cost of any depreciable
asset and its related accumulated depreciation is
referred to as the book value of the asset.
21

22. 22
Depreciation
Methods
1. Straight Line Method
2. Reducing Balance Method

23. Straight-line depreciation allocates equal amount of an
assets net cost to depreciation during the estimated
useful life.
Eg: A machine costing RM26,000, estimated to have a
useful life of 4 years and expected to be sold for
RM8,000 at the end of the 4th year.
23
Formula: Cost - Scrap Value
Estimated useful life

24. 24
Calculation: RM26,000 - RM8,000
4 years
= RM4,500 per year
Adjusting
Entries to
record
depn exp:
Dr. Depreciation Expense 4,500
Cr. Accumulated Depn.
(Machine) 4,500
Depn Exp:

25. Depreciation Expense Accum. Depn. (Machine)
25
Accum
Deprec
(Machine) 4,500
Depreciation.
Expense. 4,500
Contra
Account
Statement of Financial
Position
Machine 26,000
Less: Accum deprecn (4,500)
Machine 21,500

26. SYKT. BATIK
PARTIAL BALANCE SHEET
AS AT 31 DECEMBER 2006
Non-current assets
Equipment $ 26,000
Acc Dep-Equipment 4,500 21,500
Current assets
Cash $ -
Total Assets $ 21,500
Equipment is
shown net of
accumulated
depreciation.
RM

27. 27
Reducing Balance depreciation :
Eg: Equipment costing RM35,000, accumulated depreciation
RM5,250. The depreciation rate is 15% on book value.
Formula:
Net Book Value x Depreciation rate
(Cost - Accumulated Depn) x Depreciation rate

28. Calculation: (RM35,000 - RM5,250) x 15%
28
= RM4,463 per year
Adjusting
entries:
Dr. Depreciation Expense 4,463
Cr. Accumulated Depn. 4,463

29. Buy your season tickets for
all home basketball games NOW!
Cash received in
advance of providing
products or services.
Liability Revenue
Unadjusted
Balance
Credit
Adjustment
Debit
Adjustment

30.  Prior to adjustment, liabilities are overstated and
30
revenues are understated.
 The adjusting entry results in a debit to a liability account
and a credit to a revenue account.
 Examples of unearned revenues include rent, magazine
subscriptions, and customer deposits for future services.

31. RM2,000 subscription fees has been earned, out of
RM5,000 unearned subscription fees that has been
received last month.
Dr. Cash 5,000
Subscription Fees 5,000
31
Cr. Unearned
Dr. Unearned
Subscription Fees 2,000
Cr. Subscription Fees 2,000
Entries
when cash
received in
advanced:
Adjusting
Entries req
at end of
the prd:

32. 32
Cash
Unearned
Subscription
Fees 5,000
Unearned Subcrptn Fees
Subscription Fees
Subcrptn Cash 5,000
Fees 2,000
Unearned
Subcrptn 2,000
Bal. 3,000
5,000 5,000
Bal. 3,000

33. Yes, I’ve completed your
tax return, but have not had
time to bill you yet.
Revenues
earned in a
period that
are both
unrecorded and
not yet
receAivsesde.t Revenue
Credit
Adjustment
Debit
Adjustment

34.  Accrued revenues may accumulate with the passing of time
or through services performed but not billed or collected.
 Prior to adjustment, assets and revenues are understated.
 The adjusting entry requires a debit to an asset account
34
and a credit to a revenue account.

35. 35
Asset Revenue
Debit
Adjustment
Credit
Adjustment

36. The company has completely performed the audit
service but has not bill the customer yet, RM7,000.
Dr. Account Receivable 7,000
Cr. Audit Fees 7,000
36
Adjusting
entries:

37. Account
Receivable 7,000
37
Audit Fees
Account Receivable
Audit Fees 7,000

38. We’re about one-half
done with this job and
want to be paid for
our work!
Costs incurred in a
period that are
both unpaid and
unrecorded.
Expense Liability
Credit
Adjustment
Debit
Adjustment

39.  Prior to adjustment, liabilities and expenses
39
are understated.
 The adjusting entry results in a debit to an expense
account and a credit to a liability account.

40. 40
Expense Liability
Debit
Adjustment
Credit
Adjustment

41. Salaries accrued (not paid)at the end of the month
RM4,000.
Dr. Salary Expense 4,000
Cr. Salary Payable 4,000
41
Adjusting
entries:

42. Salary Exp. 4,000
42
Salary Payable
Salary Expense
Salary Payable 4,000

43. Types of Accounts Before AdjustingEntries
Adjustments Adjustments
43
Prepaid
Expenses
Assets overstated
Expenses understated
Dr. Expense
Cr. Asset
Unearned
Revenues
Liabilities overstated
Revenues understated
Dr. Liability
Cr. Revenue
Accrued
Revenues
Dr. Asset
Cr. Revenue
Dr. Expense
Cr. Liability
Assets understated
Revenues understated
Accrued
Expenses
Liabilities understated
Expenses understated

44. The Accounting Cycle
Source
Documents
Journal
Financial
Statements
Adjusted
Trial Balance
Closing
Entries
Adjustments Trial Balance Ledger

45.  List of accounts and balances prepared after
adjusting entries have been recorded and
posted to the ledger.

46.  An Adjusted Trial Balance is prepared after all
adjusting entries have been journalized and posted.
 Its purpose is to prove the equality of the total debit
and credit balances in the ledger after all adjustments
have been made.
 Financial statements can be prepared directly from
46
the adjusted trial balance.

47. • The Statement of Comprehensive Income (summary) is
prepared from the revenue and expense accounts.
• The Statement of Changes Equity is derived from the owner’s
capital and drawing accounts and the net income (or net loss)
from the Statement of Comprehensive Income.
• The Statement of Financial Position is then prepared
from the asset and liability accounts and the ending
owner’s capital balance as reported in the owner’s
equity statement.
47

48. Categories of a Classified Balance Sheet
Assets Liabilities and Equity
Current Assets Current Liabilities
Noncurrent Assets Noncurrent Liabilities
Long-Term Investments Equity
Fixed Assets
Intangible Assets
Current items are those expected to come due (both
collected and owed) within the longer of one year or the
company’s normal operating cycle.

49. SNOWBOARDING COMPONENTS
STATEMENT OF FINANCIAL POSITION
AS AT 31 JANUARY 2006
Non-current assets
Store equipment $33,200
Less accumulated depreciation 8,000 $25,200
Buildings 170,000
Less accumulated depreciation 45,000 125,000
Land 73,200
$ 223,400
Current assets are expected to be
sold, collected, or used within one
year or the company’s operating
cycle.
Long-term investments
Notes receivable 1,500
Investments in stocks and bonds 18,000
Land held for future expansion 48,000
Total investments 67,500
Intangible assets 10,000
Total non-current assets $ 300,900
Cash $6,500
Short-term investments 2,100
Accounts receivable 4,400
Merchandise inventory 27,500
Prepaid expenses 2,400
$42,900
Current Assets

50. SNOWBOARDING COMPONENTS
STATEMENT OF FINANCIAL POSITION
31 JANUARY 2006
Non-current assets
Store equipment $33,200
Less accumulated depreciation 8,000 $25,200
Buildings 170,000
Less accumulated depreciation 45,000 125,000
Land 73,200
$223,400
Long-term investments
Notes receivable 1,500
Investments in stocks and bonds 18,000
Land held for future expansion 48,000
Total investments 67,500
Intangible assets 10,000
Total assets $300,900
Long-term investments are expected to
be held for the longer of one year or the
operating cycle.
Current Assets
Cash 6,500
Short-term investments 2,100
Accounts receivable 4,400
Merchandise inventory 27,500

51. SNOWBOARDING COMPONENTS
STATEMENT OF FINANCIAL POSITION
31 JANUARY 2006
Non-current assets
Store equipment $33,200
Less accumulated depreciation 8,000 $25,200
Buildings 170,000
Less accumulated depreciation 45,000 125,000
Land 73,200
$223,400
Non-current assets are tangible
long-lived assets used to produce
or sell products and services.
Long-term investments
Notes receivable 1,500
Investments in stocks and bonds 18,000
Land held for future expansion 48,000
Total investments 67,500
Intangible assets 10,000
$300,900
Current assets
Cash $6,500
Short-term investments 2,100
Accounts receivable 4,400

52. Intangible assets 10,000
$300,900
Current Assets
Cash 6,500
Short-term investments 2,100
Accounts receivable 4,400
Merchandise inventory 27,500
Prepaid expenses 2,400
Total current assets $ 42,900
LIABILITIES Intangible assets are long-term
resources used to produce or sell
products and services and that
lack physical form.
Current liabilities
Accounts payable $ 15,300
Wages payable 3,200
Notes payable 3,000
Current portion of long-term liabilities 7,500
Total current liabilities $ 29,000
Long-term liabilities:
Notes payable (net of current portion) 150,000

53. Current liabilities
Accounts payable $ 15,300
Wages payable 3,200
Notes payable 3,000
Current portion of long-term liabilities 7,500
Total current liabilities $29,000
Current liabilities are obligations due
within the longer of one year or the
company’s operating cycle.

54. STATEMENT OF FINANCIAL POSITION
AS AT 31 JANUARY 2006
Equity and liabilities
T.Hawk, Capital $164,800
Non-current liabilities
Notes payable (net of current portion) $150,000
NonC-ucrruenrt lriaebilnitiets liabilities are obligations
not due within the longer of one year
or the company’s operating cycle.

55. The Accounting Cycle
Source
Documents
Journal
Financial
Statements
Adjusted
Trial Balance
Closing
Entries
Adjustments Trial Balance Ledger

56.  Resets revenue,
expense and
withdrawal account
balances to zero at
the end of the
period.
 Helps summarize a
period’s revenues and
expenses in the
Income Summary
account.
Identify accounts for closing.
Record and post closing
entries.
Prepare post-closing trial
balance.

57. 57
Temporary /
Nominal Accounts
Permanent /
Real Accounts
All Revenue accounts
All Expense accounts
Owner’s Drawings
All Asset accounts
All Liability accounts
Owner’s Equity account
CLOSED
‘0’
A/C Balance
A=L+E
Balance
Sheet

58. Let’s see how the
closing process
works!
Close Revenue accounts
to Income Summary.
Close Expense accounts
to Income Summary.
Close Income Summary
account to Owner’s
Capital.
Close Withdrawals to
Owner’s Capital.

59. 59
Revenues
Expenses
Income
Summary
Drawings
Owner’s
Capital

60. 60
Revenues
Expenses
Dr. Revenue Account
Cr. Income Summary
Dr. Income Summary
Cr. Expense Account

61. Profit
Drawings Dr. Owner’s Capital
Cr. Drawings Account
61
Income
Summary
Loss
Dr. Income Summary
Cr. Owner’s Capital
Dr. Owner’s Capital
Cr. Income Summary

62. Income Summary
Balances before closing.
Owner's Capital
30,000
30,000
Revenue Accounts
25,000
25,000
Withdrawals Account
5,000
5,000
Expense Accounts
10,000
10,000

63. Close Revenue
accounts to
Income Summary.
Income Summary
25,000
25,000
Owner's Capital
30,000
30,000
Revenue Accounts
25,000 25,000
-
Withdrawals Account
5,000
5,000
Expense Accounts
10,000
10,000

64. Income Summary
10,000 25,000
Owner's Capital 15,000
30,000
30,000
Revenue Accounts
25,000 25,000
-
Withdrawals Account
5,000
5,000
Close Expense
accounts to
Income
Summary.
Expense Accounts
10,000 10,000
-
The balance in
Income Summary
equals profit for
the period

65. Owner's Capital
Owner's Capital
30,000
15,000
30,000
15,000
45,000
45,000
Withdrawals Account
5,000
5,000
Close Income
Summary to
Owner’s Capital.
Revenue Accounts
25,000 25,000
-
Expense Accounts
10,000 10,000
-
Income Summary
10,000 25,000
15,000
-

66. Owner's Capital
30,000
15,000
45,000
5,000 40,000
Revenue Accounts
25,000 25,000
Withdrawals Account
5,000
5,000
5,000
-
-
Expense Accounts
10,000 10,000
-
Income Summary
10,000 25,000
15,000
-
Close
Withdrawals
account to
Owner’s Capital.

67. FASTFORWARD
ADJUSTED TRIAL BALANCE
31 DECEMBER 2006
Cash $3,950
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation-Equip. $375
Accounts payable 6,200
Salaries payable 210
Unearned consulting revenue 2,750
C. Taylor, Capital 30,000
C. Taylor, Withdrawals 600
Consulting revenue 7,850
Rental revenue 300
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $47,685 $47,685
Using the
adjusted trial
balance, let’s
prepare the
closing
entries for
FastForward.

68. Close
Revenue
accounts to
Income
Summary.
FASTFORWARD
ADJUSTED TRIAL BALANCE
31 DECEMBER 2006
Cash $3,950
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation-Equip. $375
Accounts payable 6,200
Salaries payable 210
Unearned consulting revenue 2,750
C. Taylor, Capital 30,000
C. Taylor, Withdrawals 600
Consulting revenue 7,850
Rental revenue 300
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $47,685 $47,685

69. Dec. 31 Consulting revenue 7,850
Rental revenue 300
Income summary 8,150
Now, let’s look at the ledger accounts
after posting this closing entry.

70. Consulting Revenue
7,850 7,850
-
Rental Revenue
300 300
-
Income Summary
7,850
300

71. Close
Expense
accounts to
Income
Summary.
FASTFORWARD
ADJUSTED TRIAL BALNCE
31 DECEMBER 2006
Cash $3,950
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation-Equip. $375
Accounts payable 6,200
Salaries payable 210
Unearned consulting revenue 2,750
C. Taylor, Capital 30,000
C. Taylor, Withdrawals 600
Consulting revenue 7,850
Rental revenue 300
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $47,685 $47,685

72. Dec. 31 Income summary 4,365
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Now, let’s look at the ledger accounts
after posting this closing entry.

73.  Close Expense Accounts to
Income Summary
4,365 7,850
300
3,785
Rent Expense
1,000 1,000
-
Utilities Expense
230 230
-
Profit for the
period
Income Summary
Supplies Expense
1,050 1,050
-
Depreciation
Expense- Eq.
375 375
-
Salaries Expense
1,610 1,610
-
Insurance Expense
100 100
-

74. Close Income
Summary to
Owner’s
Capital.
FASTFORWARD
ADJUSTED TRIAL BALANCE
31 DECEMBER 2006
Cash $3,950
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation-Equip. $375
Accounts payable 6,200
Salaries payable 210
Unearned consulting revenue 2,750
C. Taylor, Capital 30000
C. Taylor, Withdrawals 600
Consulting revenue 7,850
Rental revenue 300
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $47,685 $47,685

75. Dec. 31 Income summary 3,785
C. Taylor, Capital 3,785
Now, let’s look at the ledger accounts
after posting this closing entry.

76.  Close Income Summary to
Owner’s Capital
C. Taylor, Capital
30,000
3,785
33,785
Income Summary
4,365 7,850
3,785 300
-

77. Close
Withdrawals to
Owner’s
Capital.
FASTFORWARD
ADJUSTED TRIAL BALANCE
31 DECEMBER 2006
Cash $3,950
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation-Equip. $375
Accounts payable 6,200
Salaries payable 210
Unearned consulting revenue 2,750
C. Taylor, Capital 30,000
C. Taylor, Withdrawals 600
Consulting revenue 7,850
Rental revenue 300
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $47,685 $47,685

78. Dec. 31 C. Taylor, Capital 600
C. Taylor, Withdrawals 600
Now, let’s look at the ledger accounts
after posting this closing entry.

79. C. Taylor, Capital
600 30,000
3,785
33,185
C. Taylor,
Withdrawals
600 600
-

80. Let’s look at
FastForward’s post-closing
trial balance.
 List of permanent
accounts and their
balances after posting
closing entries.
 Total debits and credits
must be equal.

81. FASTFORWARD
POST-CLOSING TRIAL BALANCE
31 DECEMBER 2006
Cash $3,950
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation-Equipment $375
Accounts payable 6,200
Salaries payable 210
Unearned consulting revenue 2,750
C.Taylor, Capital 33,185
Totals $42,720 $42,720

82. 82