ACCOUNTANT

4
Completing the Accounting Cycle
Principles of Financial Accounting with Conceptual

Emphasis on IFRS
Reeve Warren Duchac Wang
©2011 Cengage Learning

Completing the Accounting Cycle
After studying this chapter, you should be able to:
Describe the flow of accounting

1
information from the unadjusted trial
balance into the adjusted trial balance
and financial statements.
2 Prepare financial statements from

adjusted account balances.
3 Prepare closing entries.
After studying this

4 Describe the chapter, you should
accounting cycle. be able to:
4-2
Completing the Accounting Cycle (continued)
Illustrate the accounting cycle for one

5 period.
Explain what is meant by the fiscal year

6 and the natural business year.
4-3
1
Describe the flow of accounting

information from the unadjusted
trial balance into the adjusted
trial balance and financial
statements.
4-4
1
Exhibit 1 End-of-Period Spreadsheet (Work Sheet)
4-5
1
Flow of Accounting Information
Spreadsheet (Work Sheet)
Trial Balance Adjustments Adjusted TB

Accounts Dr Cr Dr Cr Dr Cr
Accounts are listed in the Trial Balance column using

the ending balance found in the general ledger.
4-6
1

Adjustments are entered here. Two possibilities:

1. Deferrals – Existing balances are changed—refer to items
that involve past cash transactions.
2. Accruals – New information is entered—refer to items that
4-7 involve future cash transactions.
1

Adjustments are combined with

the trial balance. Account
balances are now adjusted.
4-8
1
Statement of Statement of Financial

Adjusted TB Comprehensive Income Position
Revenue and expense balances in the Adjusted Trial Balance

column are extended to the Statement of Comprehensive
4-9 Income column.
1
Statement of Statement of Financial

Adjusted TB Comprehensive Income Position
Asset, liability, share capital—ordinary,

and dividends balances in the Adjusted
Trial Balance column are extended to the
Statement of Financial Position column.
4-10
1
Example Exercise 4-1
Flow of Accounts into Financial Statements

The balances for the accounts listed below appear in
the Adjusted Trial Balance columns of the end-of-
period spreadsheet (work sheet). Indicate whether
each balance should be extended to (a) a Statement of
Comprehensive Income column or (b) a Statement of
Financial Position column.
1. Dividends 5. Fees Earned
2. Utilities Expense 6. Accounts Payable
3. Accumulated 7. Rent Revenue
Depreciation—Equipment 8. Supplies
4. Unearned Rent
4-11
4-11
Example Exercise 4-1 (continued)
1
Follow My Example 4-1
1. Statement of Financial Position column

2. Statement of Comprehensive Income column
For Practice: PE 4-1A, PE 4-1B
4-12
4-12
2
Prepare financial
statements from
adjusted account
balances.
4-13
2
The statement of comprehensive

income is prepared directly from
the Statement of Comprehensive
Income or Adjusted Trial Balance
columns of the spreadsheet (work
sheet).
4-14
2
Exhibit 2 Financial Statements Prepared from Work Sheet
to statement of retained earnings

4-15
2
Determining the Net Income from End-of-Period

Spreadsheet
In the Statement of Financial Position columns of the

end-of-period spreadsheet (work sheet) for Dimple
Consulting Co. for the current year, the Debit column
total is $678,450, and the Credit column total is
$599,750 before the amount for net income or net loss
has been included. In preparing the statement of
comprehensive income from the end-of-period
spreadsheet (work sheet), what is the amount of net
income or net loss?
4-16
4-16
2
A net income of $78,700 ($678,450 - 2 $599,750) would be

reported. When the Debit column of the Statement of
Financial Position columns is more than the Credit
column, net income is reported. If the Credit column
exceeds the Debit column, a net loss is reported.
4-17
4-17
2
Statement of Retained
Earnings
The first item normally
presented on the statement of
retained earning is the
balance of the retained
earnings account at the
beginning of the period.
4-18
2
Financial Statements Prepared
Exhibit 2
from Work Sheet (continued)
from the statement of comprehensive
income
to the statement of financial position
4-19
2
Statement of Retained Earnings

Zack Gaddis owns and operates Gaddis
Employment Services. On January 1, 2009,
Retained Earnings had a balance of $186,000.
During the year, an additional $40,000 of share
capital—ordinary was issued for cash and
dividends of $25,000 were paid. For the year
ended December 31, 2009, Gaddis Employment
Services reported a net income of $18,750.
Prepare a statement of retained earning for the
year ended December 31, 2009.
4-20
4-20
2
GADDIS EMPLOYMENT SERVICES

STATEMENT OF RETAINED EARNINGS
For the Year Ended December 31, 2009
Retained earnings, January 1, 2009 $186,000
Dividends $ 25,000
Less net income 18,750
Decrease in retained earnings 6,250
Retained earnings, December 31, 2009 $179,750

4-21
4-21
2
The statement of financial

position is prepared directly
from the Statement of
Financial Position or Adjusted
Trial Balance columns of the
spreadsheet (or work sheet).
4-22
2
Statement of Financial Position
A classified statement of
financial position is a statement
of financial position that was
expanded by adding subsections
for current assets; property, plant,
and equipment; and current
liabilities.
4-23
2
Cash and other assets that are expected

to be converted into cash, sold or used
up usually within a year or less,
through the normal operations of the
business, are called current assets.
• Cash
• Accounts Receivable
• Supplies
4-24
2
Notes receivable are written

promises by the customer to pay
the amount of the note and
possibly interest at an agreed
rate.
4-25
2
Property, plant, and equipment (also

called fixed assets or plant assets)
include assets that depreciate over a
period of time. Land is an exception as
it is not subject to depreciation.
• Equipment
• Machinery
• Buildings
4-26
• Land
2
Liabilities that will be due within a

short time (usually one year or less)
and that are to be paid out of current
assets are called current liabilities.
• Accounts payable
• Wages payable
• Interest payable
• Unearned fees
4-27
2
Liabilities not due for a long

time (usually more than one
year) are long-term liabilities.
• Notes payable
• Mortgage payable
• Bond payable
4-28
2
Stockholders’ equity is the

stockholders’ right to the assets of
the business. The stockholders’
equity consists of share capital—
ordinary and retained earnings.
The stockholders’ equity is added
to the total liabilities, and the total
must be equal to the total assets.
4-29
2
Financial Statements Prepared
Exhibit 2 from Work Sheet (continued)
from the statement of retained earnings
4-30
2
Classified Statement of Financial Position

The following accounts appear in an adjusted trial balance of
Hindsight Consulting. Indicate whether each account would
be reported in the (a) current asset; (b) property, plant, and
equipment; (c) current liability; (d) long-term liability; or (e)
stockholders’ equity section of the December 31, 2009,
statement of financial position of Hindsight Consulting.
1. Share Capital—Ordinary5. Cash

2. Notes Receivable (due 6. Unearned Rent (3 months)
in 6 months) 7. Accumulated Depr.—
3. Notes Payable (due in Equipment
2011) 8. Accounts Payable
4. Land
4-31
4-31
2
1. Stockholders’ equity 5. Current asset

2. Current asset 6. Current liability
3. Long-term liability 7. Property, plant, and
4. Property, plant, and equipment
equipment 8. Current liability
4-32
4-32
3
Prepare closing entries.
4-33
3
Closing Entries
Accounts that are relatively
permanent from year to year are
called real accounts. Accounts that
report amounts for only one period
are called temporary accounts or
nominal accounts.
4-34
3
Closing Entries
To report amounts for only one period,
temporary accounts should have zero
balances at the beginning of the
period. At the end of the period the
revenue and expense account balances
are transferred to Income Summary.
4-35
3
Closing Entries
The balance of Income Summary is
then transferred to Retained
Earnings. The balance of the
Dividends account is also transferred
to Retained Earnings. The entries
that transfer these balances are called
closing entries.
4-36
3
Exhibit 3 The Closing Process
4-37
3
Flowchart of Closing Entries for NetSolutions
Exhibit 4 (continued)
Debit each revenue account

for the amount of its balance,
and credit Income Summary
for the total revenue.
Fees Earned
Income Summary 16,840 Bal. 16,840
16,960 Rent Revenue
120 Bal. 120
4-38
3
Flowchart of Closing Entries for
Exhibit 4 NetSolutions (continued)
Wages Expense
Bal. 4,525 4,525 Income Summary
Rent Expense 9,855 16,960
Bal. 1,600 1,600
Depreciation Expense
Bal. 50 50
Utilities Expense
Bal. 985 985
Supplies Expense Debit Income Summary
Bal. 2,040 2,040
for the total expenses and
Insurance Expense
credit each expense
Bal. 200 200
account for its balance.
Miscellaneous Expense
Bal. 455 455
4-39
3
Flowchart of Closing Entries
Exhibit 4
for NetSolutions (continued)
Income Summary
9,855 16,960
7,105
Debit Income
Retained Earnings Summary for the
Bal. 0 amount of its balance
7,105 (in this case, the net
income) and credit
Retained Earnings.
Dividends
Bal. 4,000
4-40
3
Exhibit 4
for NetSolutions (continued)
Retained Earnings
4,000 Bal. 25,000
7,105
Debit Retained
Earnings for the
balance of the
Dividends dividends account, and
Bal. 4,000 4,000 credit the dividends
account.
4-41
3
Exhibit 4
for NetSolutions (summary)
4-42
3
Exhibit 5 Closing Entries for NetSolutions
Step 1
Step 2
Step 3
Step 4
4-43
3
Closing Entries
After the closing entries

are posted, all of the
temporary accounts have
zero balances.
4-44
3
Exhibit 6 Ledger for NetSolutions (continued)
4-45
3
4-46
3
4-47
3
Exhibit 6 Ledger for NetSolutions (concluded)
4-48
3
Closing Entries
After the accounts have been adjusted at July 31, the end of
the fiscal year, the following balances are taken from the
ledger of Cabriolet Services Co.:
Retained Earnings $615,850
Dividends 25,000
Fees Earned 380,450
Wages Expense 250,000
Rent Expense 65,000
Supplies Expense 18,250
Miscellaneous Expense 6,200
Journalize the four entries required to close the accounts.
4-49
4-49
3
July 31 Fees Earned…………………………….. 380,450

Income Summary…………………. 380,450
31 Income Summary……………………… 339,450
Wages Expense…………………… 250,000
Rent Expense……………………… 65,000
Supplies Expense………………… 18,250
Miscellaneous Expense…………. 6,200
31 Income Summary………………………. 41,000
Retained Earnings…...…………… 41,000
31 Retained Earnings……………………… 25,000
Dividends……………….………….. 25,000
4-50
4-50
3
Post-Closing Trial
Balance
A post-closing trial balance is
prepared after the closing
entries have been posted. The
purpose of the PCTB is to
verify that the ledger is in
balance at the beginning of the
next period.
4-51
3
Exhibit 7 Post-Closing Trial Balance
4-52
4
Describe the accounting

cycle.
4-53
4
The accounting process that begins

with analyzing and journalizing
transactions and ends with preparing
the accounting records for the next
period’s transactions is called the
accounting cycle. There are ten steps
in the accounting cycle.
4-54
4
Accounting Cycle
1. Transactions are analyzed and recorded

in the journal.
2. Transactions are posted to the ledger.
3. An unadjusted trial balance is prepared.
4. Adjustment data are assembled and
analyzed.
5. An optional end-of-period spreadsheet
(work sheet) is prepared.
(continued)
4-55
4
Accounting Cycle (continued)
6. Adjusting entries are journalized and

posted to the ledger.
7. An adjusted trial balance is prepared.
8. Financial statements are prepared.
9. Closing entries are journalized and
posted to the ledger.
10. A post-closing trial balance is prepared.
4-56
4
Accounting Cycle
From the following list of steps in the accounting cycle,
identify what two steps are missing.
a. Transactions are analyzed and recorded in the journal.
b. Transactions are posted to the ledger.
c. Adjustment data are assembled and analyzed.
d. An optional end-of-period spreadsheet (work sheet) is
prepared.
e. Adjusting entries are journalized and posted to the
ledger.
f. Financial statements are prepared.
g. Closing entries are journalized and posted to the ledger.
h. A post-closing trial balance is prepared.
4-57
4-57
4
The following two steps are missing: (1) the

preparation of an unadjusted trial balance and
(2) the preparation of the adjusted trial
balance. The unadjusted trial balance should
be prepared after step (b). The adjusted trial
balance should be prepared after step (e).

4-58
4-58
5
Illustrate the
accounting cycle for
one period.
4-59
5
Exhibit 9
Journal
entries for
April, Kelly
Consulting,
P.C.
4-60
5
Exhibit 9
Journal
entries for
April, Kelly
Consulting,
P.C.
(concluded)
4-61
5
Exhibit 10 Unadjusted Trial Balance, Kelly Consulting
4-62
5
Exhibit 11 End-of-Period Spreadsheet (Work Sheet)
4-63
4-63
5
Exhibit 12
Adjusting
Entries,
Kelly
Consulting,
P.C.
4-64
5
Adjusted Trial Balance, Kelly
Exhibit 13
Consulting, P.C.
4-65
5
Financial Statements, Kelly
Exhibit 14
Consulting, P.C. (continued)
4-66
5
Exhibit 14
Consulting, P.C. (continued)
4-67
5
Exhibit 14
Consulting, P.C. (concluded)
4-68
5
Exhibit 15 Closing Entries, Kelly Consulting, P.C.
4-69
5
Post-Closing Trial Balance,
Exhibit 16
Kelly Consulting, P.C.
4-70
5
Exhibit 17 Ledger, Kelly Consulting, P.C.
4-71
5
Exhibit 17 Ledger, Kelly Consulting, P.C. (continued)
4-72
5
4-73
5
4-74
5
Exhibit 17 Ledger, Kelly Consulting, P.C. (concluded)
4-75
6
Explain what is meant

by the fiscal year and
the natural business
year.
4-76
6
Fiscal Year
The annual accounting period adopted
by a business is known as its fiscal
year. When a business adopts a fiscal
year that ends when business activities
have reached the lowest point in its
annual operation, such a fiscal year is
also called the natural year.
4-77
6
Financial History of a Business
4-78
Appendix 1:
End-of-Period
Spreadsheet (Work
Sheet)
4-79
Adjusted
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220
3 Supplies 2,000
4 Prepaid Insurance 2,400
5 Land 20,000
6 Office Equipment 1,800
7 Accumulated Depr.
8 Accounts Payable 900 The
9 Wages Payable
10 Unearned Rent 360 unadjusted
11 Share Capital—Ordinary 25,000 trial balance
12 Dividends 4,000
13 Fees Earned 16,340 is checked
14 Rent Revenue
15 Wages Expense 4,275 for equality.
16 Rent Expense 1,600
17 Depreciation Expense
18 Utilities Expense 985
19 Supplies Expense 800
20 Insurance Expense
21 Miscellaneous Exp. 455
22 42,600 42,600
23 4-80
24
25
Adjusted
1 Cash 2,065
2 Accounts Receivable 2,220 Supplies
3 Supplies 2,000
needs
5 Land 20,000 adjusting
7 Accumulated Depr.
8 Accounts Payable 900
9 Wages Payable
10 Unearned Rent 360
11 Share Capital—Ordinary 25,000
12 Dividends 4,000
13 Fees Earned 16,340
14 Rent Revenue
15 Wages Expense 4,275
19 Supplies Expense 800
22 42,600 42,600
23 4-81
4-81
24
25
Adjusted
1 Cash 2,065
3 Supplies 2,000 (a) 1,240
5 Land 20,000
7 Accumulated Depr. (a) Cost of
8 Accounts Payable 900 supplies on
9 Wages Payable hand at
10 Unearned Rent 360 December 31
12 Dividends 4,000 is $760.
14 Rent Revenue
19 Supplies Expense 800 (a) 1,240
22 42,600 42,600
23 4-82
4-82
24
25
Adjusted
1 Cash 2,065
3 Supplies 2,000 (a) 1,240
4 Prepaid Insurance 2,400 (b) 200
5 Land 20,000
7 Accumulated Depr. (b) The insurance
8 Accounts Payable 900 expense for
9 Wages Payable December is
10 Unearned Rent 360 $200 ($2,400 ÷
12 Dividends 4,000
12).
14 Rent Revenue
20 Insurance Expense (b) 200
22 42,600 42,600
23 4-83
4-83
24
25
Adjusted
1 Cash 2,065
3 Supplies 2,000 (a) 1,240
5 Land 20,000
7 Accumulated Depr. (c) Rent
8 Accounts Payable 900 revenue
9 Wages Payable earned
10 Unearned Rent 360 (c) 120 during
12 Dividends 4,000 December
13 Fees Earned 16,340 was $120.
14 Rent Revenue (c) 120
22 42,600 42,600
23 4-84
4-84
24
25
Adjusted
1 Cash 2,065
2 Accounts Receivable 2,220 (d) 500
3 Supplies 2,000 (a) 1,240
5 Land 20,000
7 Accumulated Depr. (d) Fees accrued
8 Accounts Payable 900 at the end of
9 Wages Payable December,
10 Unearned Rent 360 (c) 120 but not
12 Dividends 4,000 recorded,
13 Fees Earned 16,340 (d) 500 totaled $500.
22 42,600 42,600
23 4-85
4-85
24
25
Adjusted
1 Cash 2,065
3 Supplies 2,000 (a) 1,240
5 Land 20,000
7 Accumulated Depr. (e) Wages
8 Accounts Payable 900 accrued but
9 Wages Payable (e) 250 not paid at
10 Unearned Rent 360 (c) 120 the end of
12 Dividends 4,000 December
13 Fees Earned 16,340 (d) 500 totaled $250.
15 Wages Expense 4,275 (e) 250
22 42,600 42,600
23 4-86
4-86
24
25
Adjusted
1 Cash 2,065
3 Supplies 2,000 (a) 1,240
5 Land 20,000
7 Accumulated Depr. (f) 50 (f) Depreciation
8 Accounts Payable 900 of office
9 Wages Payable (e) 250
10 Unearned Rent 360 (c) 120 equipment is
11 Share Capital—Ordinary 25,000 $50 for
12 Dividends 4,000 December.
13 Fees Earned 16,340 (d) 500
17 Depreciation Expense (f) 50
22 42,600 42,600
23 4-87
4-87
24
25
Adjusted
1 Cash 2,065
3 Supplies 2,000 (a) 1,240
5 Land 20,000
7 Accumulated Depr. (f) 50
8 Accounts Payable 900
9 Wages Payable (e) 250
10 Unearned Rent 360 (c) 120
12 Dividends 4,000
13 Fees Earned 16,340 (d) 500
17 Depreciation Expense (f) 50
22 Summed
42,600 42,600 2,360 2,360
23 4-88
4-88 and ruled
24
25
The next step is to add or
subtract the adjustments from
(to) the amounts found in the
Unadjusted Trial Balance
columns and enter the results
in the Adjusted Trial Balance
columns.
4-89
Adjusted
1 Cash 2,065 2,065
2 Accounts Receivable 2,220 (d) 500 2,720
3 Supplies 2,000 (a) 1,240 760
4 Prepaid Insurance 2,400 (b) 200 2,200
5 Land 20,000 20,000
6 Office Equipment 1,800 1,800
7 Accumulated Depr. (f) 50 50
8 Accounts Payable 900 900
9 Wages Payable 250
10 Unearned Rent 360 (c) 120 240
11 Share Capital—Ordinary 25,000 25,000
12 Dividends 4,000 4,000
13 Fees Earned 16,340 (d) 500 16,840
14 Rent Revenue (c) 120 120
15 Wages Expense 4,275 (e) 250 4,525
16 Rent Expense 1,600 1,600
17 Depreciation Expense (f) 50 50
18 Utilities Expense 985 985
19 Supplies Expense 800 (a) 1,240 2,040
20 Insurance Expense (b) 200 200
21 Miscellaneous Exp. 455 455
22 42,600 42,600 2,360 2,360 43,400 43,400
23 4-90
4-90
24
25
Because of space constraints,
the Unadjusted Trial Balance
and the Adjustments
columns will not be shown
in the following slides.
4-91
The next step is to extend
amounts in the Adjusted Trial
Balance columns to the
Statement of Comprehensive
Income and Statement of
Financial Position columns.
4-92
Adjusted Statement of Statement of Financial
Trial Balance Comprehensive Income Position
1 Cash 2,065 2,065
2 Accounts Receivable 2,220 2,720
3 Supplies 2,000 760
4 Prepaid Insurance 2,400 2,200
5 Land 20,000 20,000
7 Accumulated Depr. 50
9 Wages Payable 250
10 Unearned Rent 360 240
12 Dividends 4,000 4,000
13 Fees Earned 16,340 16,840
14 Rent Revenue 120
15 Wages Expense 4,275 4,525
17 Depreciation Expense 50 50
19 Supplies Expense 800 2,040
20 Insurance Expense 200
22 42,600 42,600
23 4-93
4-93
24
25
1 Cash 2,065 2,065
5 Land 20,000 20,000
9 Wages Payable 250
12 Dividends 4,000 4,000
13 Fees Earned 16,340 16,840
14 Rent Revenue 120
22 42,600 42,600 9,855 16,960 33,545 26,440
23 4-94
4-94 The four columns are summed.
24
25
Statement of Statement of
Comprehensive Income Financial Position
9,855 16,960 33,545 26,440

7,105 7,105
16,960 16,960 33,545 33,545
Net Income
The difference between the Statement of

Comprehensive Income columns totals is the
net income (or net loss) for the period.
4-95
1 Cash 2,065 2,065
5 Land 20,000 20,000
9 Wages Payable 250
12 Dividends 4,000 4,000
13 Fees Earned 16,340 16,840
14 Rent Revenue 120
22 42,600 42,600 9,855 16,960 33,545 26,440
23 Net4-96
income 7,105 7,105
24 16,960 16,960 33,545 33,545
25 4-96
Spotlight on IFRS:
Preparation and
Presentation of Financial
Statements
4-97
97
IAS 1 (Revised)
• provides the basis for presentation of general
purpose financial statements.
• ensure comparability both with the entity’s
financial statements of previous periods and
with the financial statements of other entities.
4-98
98
A Complete Set of Financial
Statements
(1) a statement of financial position as of the end
of the period;
(2) a statement of comprehensive income for the
period;
(3) a statement of changes in equity for the
period;
(4) a statement of cash flows for the period;
4-99
99
Statements
(5) a statement of financial position as at the
beginning of the earliest comparative period
when an entity applies an accounting policy
retrospectively, or when it reclassifies items
in its financial statements; and
(6) notes, comprising a summary of significant
accounting policies and other explanatory
information.
4-100
100
Statements
• An explicit and unreserved statement of
compliance with IFRSs (as required by IAS 1)
in the notes if its financial statements comply
with IFRSs.
• In contrast, an entity should not describe
financial statements as complying with IFRSs
unless they comply with all the requirements
of IFRSs.
4-101
101
Requirements on the Presentation of
Financial Statements
• Classification of Items—financial
statements should present separately each
material class of similar items.
• Prohibition of Offsetting—assets and
liabilities or income and expenses cannot
offset, unless required or permitted by an
IFRS. For instance, deferred tax assets and
deferred tax liabilities are offset in
accordance
4-102
with IAS 12.
102
• Comparative Information—unless permitted
or required otherwise under IFRSs, an entity
should disclose comparative information about
the previous period for all amounts reported in
the current period’s financial statements.
4-103
103
• Change in Presentation or
Reclassification—when the entity changes the
presentation or classification of items in its
financial statements, the entity should
reclassify comparative amounts unless
reclassification is impracticable.
4-104
104
• Clear Identification of Financial
Statements—the financial statements should
be clearly identified and distinguished from
other information in the same published
document.
• Change in Owner Equity—all owner
changes in equity are required to be presented
in one statement of changes in equity.
4-105
105
• Change in Non-Owner equity—all non-
owner changes in equity (i.e.,
comprehensive income) are required to be
presented in one statement of
comprehensive income. Components of
comprehensive income are not permitted to
be presented in the statement of changes in
equity.
4-106
106
• Comprehensive Recognition of Income and
Expense—all items of income and expense should be
recognized in a period in profit or loss unless an IFRS
requires or permits otherwise.
4-107
107
Elements of a Note to Financial
Statements
(1) the information about the basis of preparation of
the financial statements and the specific accounting
policies used;
(2) the information required by IFRSs that is not
presented elsewhere in the financial statements;
and
(3) the information that is not presented elsewhere in
the financial statements, but is relevant to an
understanding of any of them.
4-108
108
Disclosure of Judgments and
Assumptions
• an entity should disclose,
– the judgments, apart from those involving estimations, that
management has made in the process of applying the entity’s
accounting and that have the most significant effect on the amounts
recognized in the financial statements;
– information about the assumptions it makes about the future, and
other major sources of estimation uncertainty at the end of the
reporting period, that have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities within the
next financial year.
4-109
109
Disclosure of Other Relevant
Information
• An entity should disclose information that
enables users of its financial statements to
evaluate the entity’s objectives, policies and
processes for managing capital.
• An entity should also provide additional
disclosures on puttable financial
instruments classified as equity instruments.
4-110
110
Statement of
Comprehensive Income
• Equivalent of Statement of Comprehensive Income under the
US GAAP.
• Primary differences from the current US GAAP:
(1) use of the title, “statement of comprehensive income,” to
replace “income statement”;
(2) inclusion of other comprehensive income.
(3) use of the term, “non-controlling interest,” to replace
“minority interest”;
(4) exclusion of extraordinary items—such items are not
permitted under IFRS.
4-111
111
Common Examples of Other
Comprehensive Income in IFRS
(1) Exchange differences on translating
foreign operations;
(2) Gains from available-for-sale financial
assets;
(3) Gains from cash flow hedges;
(4) Gains on property revaluation; and
(5) Actuarial gains on defined benefit pension
4-112 plans.
112
• Equivalent of Statement of Financial
Position under the US GAAP.
• Line items:
– Assets: (1) cash and cash equivalents; (2) trade
and other receivables; (3) inventories; (4)
investments under equity method; (5) financial
assets; (6) property, plant, and equipment; (7)
investment property; (8) intangible assets; (9)
biological assets; (10) assets held for sale and
disposal;
4-113
113
– Liabilities: (11) trade and other payables; (12)
provisions; (13) financial liabilities; (14) current
tax assets and liabilities; (15) deferred tax assets
and liabilities; (16) liabilities in held for sale
disposal groups;
– Equities: (17) non-controlling interests; (18) issued
capital and reserves.
4-114
114
• The Statement starts with assets, then stockholders’ equity
and ends with liabilities.
• Items in the asset category start with non-current assets and
end with current assets. The current assets start with the least
liquid item, inventories, and end with the most liquid item,
cash and cash equivalents.
• Equity starts with the most permanent item in the following
order: stock capital, reserves and then retained earnings.
• Liabilities start with non-current liabilities and ends with
current liabilities.
4-115
115
Statement of Cash Flows
• IAS 1 (revised) uses the title, Statement of Cash Flows, to
replace the title of IAS 7 Cash Flow Statements.
• Cash flows are classified into (1) cash flows from operating
activities, (2) cash flows form investing activities, and (3)
cash flows from financing activities;
• Cash flows from operating activities can be reported using
either (1) direct method or (2) indirect method. IAS 7
encourages the use of direct method.
4-116
116
Statement of Cash Flows
• Interest and dividends Classification—(1) interest paid, (2)
interest received, and (3) dividends received are classified
into either financing or operating activities, depending on the
reporting entity being a financial or non-financial institution.
– For a financial institution, the three items are classified as cash flows
from operating activities. For a non-financial institution, they may be
classified as either cash flows from operating activities or cash flows
from financing activities.
4-117
117
4-118

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4

Completing the Accounting Cycle

Principles of Financial Accounting with Conceptual

©2011 Cengage Learning

After studying this chapter, you should be able to:

Describe the flow of accounting

2 Prepare financial statements from

3 Prepare closing entries.

After studying this

Illustrate the accounting cycle for one

Explain what is meant by the fiscal year

Describe the flow of accounting

Spreadsheet (Work Sheet)

Trial Balance Adjustments Adjusted TB

Accounts are listed in the Trial Balance column using

Spreadsheet (Work Sheet)

Trial Balance Adjustments Adjusted TB

Adjustments are entered here. Two possibilities:

Spreadsheet (Work Sheet)

Trial Balance Adjustments Adjusted TB

Adjustments are combined with

Spreadsheet (Work Sheet)

Statement of Statement of Financial

Revenue and expense balances in the Adjusted Trial Balance

Spreadsheet (Work Sheet)

Statement of Statement of Financial

Asset, liability, share capital—ordinary,

Flow of Accounts into Financial Statements

1. Statement of Financial Position column

The statement of comprehensive

to statement of retained earnings

Determining the Net Income from End-of-Period

In the Statement of Financial Position columns of the

A net income of $78,700 ($678,450 - 2 $599,750) would be

For Practice: PE 4-2A, PE 4-2B

to the statement of financial position

Statement of Retained Earnings

GADDIS EMPLOYMENT SERVICES

For Practice: PE 4-3A, PE 4-3B

The statement of financial

Statement of Financial Position

Cash and other assets that are expected

Notes receivable are written

Property, plant, and equipment (also

Liabilities that will be due within a

Liabilities not due for a long

Stockholders’ equity is the

Classified Statement of Financial Position

1. Share Capital—Ordinary5. Cash

1. Stockholders’ equity 5. Current asset

For Practice: PE 4-4A, PE 4-4B

Prepare closing entries.

Debit each revenue account

After the closing entries

July 31 Fees Earned…………………………….. 380,450

For Practice: PE 4-5A, PE 4-5B

Describe the accounting

The accounting process that begins

1. Transactions are analyzed and recorded

6. Adjusting entries are journalized and

The following two steps are missing: (1) the

For Practice: PE 4-6A, PE 4-6B

Explain what is meant

Financial History of a Business