What is a Worksheet?
Multiple-column form used in preparing financial statements, though not a permanent accounting record and a voluntary task.
5 Steps in Preparing a Worksheet
- Prepare a Trial Balance on the Worksheet
- Enter the Adjustments in the Adjustments Columns
- Complete the Adjusted Trial Balance Columns
- Extend Amounts to Financial Statement Columns
- Total Columns, Compute Net Income (Loss)
What are temporary and permanent accounts?
Temporary: Revenues, Expenses and Dividends
Permanent: Assets, Liabilities and Equity
Preparing Closing Entries
Closing entries formally recognize, in the general ledger, the transfer of net income (or net loss) and dividends
to retained earnings.
Where to close the Dividend Account?
Dividends are closed directly to retained earnings and not to Income Summary because dividends are not an expense.
Summarize the accounting cycle
- Analyze business transactions
- Journalize the transactions
- Post to ledger accounts
- Prepare a trial balance
- Journalize and post adjusting entries
- Prepare an adjusted trial balance
- Prepare financial statements
- Journalize and post closing entries
- Prepare a post-closing trial balance
(Step 8 &9 only at the end of the fiscal year)
3 things to know about Correcting Entries
Unnecessary if the records are error-free.
Made whenever an error is discovered.
Must be posted before closing entries.
If a not significant error accrues after closing the books, what is to do under IFRS and German GAPP?
German GAPP: will be corrected one year later
IFRS: report the correct numbers and correct the previous balance sheet so the error does not affect the current statement.
What are Standard classifications of positions in the financial statement?
Assets: - intangible assets - property plant and equipment - long term investments - current assets Equity and Liability: - Equity - Non-current liabilities - current liabilities
Why do companies group similar
assets and similar liabilities together?
To improve understanding
Define intangible assets and name examples
Assets that do not have physical substance.
- Capitalized development costs (IAS 38)
- Goodwill (IFRS 3)
- other intangible assets (IAS 38)
Differente between Depreciation and Accumulated depreciation
Depreciation allocating the cost of assets to a number of years.
Accumulated depreciation is the total amount of depreciation expensed thus far in the asset’s life.
Define Long-Term Investments
- Investments in ordinary shares and bonds of other companies.
- Investments in non-current assets such as land or buildings that a company is not using in its operating activities.
Define Current Assets
Assets that a company expects to convert to cash or use up within one year or the operating cycle, whichever is longer.
Define Operating cycle
Operating cycle is the average time it takes from the purchase of inventory to the collection of cash from customers.
Examples current assets accounts
- Inventories
- Trade and other receivables
- Derivativ financial instruments
- current tax assets
- short-term investments
- Cash and cash equivalents
(Usually listed in the reverse order they expect to convert them into cash)
How do the legal form effect the Equity account/s?
- Proprietorship - one capital account.
- Partnership - capital account for each partner.
- Corporation – Share Capital and Retained Earnings.
Examples of Equity accounts
- Share capital ordinary
- Share premium
- other reserves
- retained earnings
Define Non-Current Liabilities and name examples for accounts
Obligations a company expects to pay after one year.
- Long-term debt
- Pension plans
- Provisions
- Deferred tax liabilities
Define Current Liabilities and name examples for accounts
Obligations company is to pay within the coming year or its operating cycle, whichever is longer and usually list notes payable first, followed by accounts payable. Other items follow in order of magnitude.
- Trade payables
- current provision
- current financial liabilities
- income tax payable
- current maturities of long-term debt
- other current liabilities
