WILEY

IFRS EDITION

Prepared by
Coby Harmon
University
4-1
of California, Santa Barbara
Westmont College
 PREVIEW OF CHAPTER 4

Financial Accounting
IFRS 3rd Edition
Weygandt Kimmel Kieso
4-2
 CHAPTER

4 Completing the
Accounting Cycle
LEARNING OBJECTIVES
After studying this chapter, you should be able to:

1. Prepare a worksheet.
2. Explain the process of closing the books.
3. Describe the content and purpose of a post-closing trial balance.
4. State the required steps in the accounting cycle.
5. Explain the approaches to preparing correcting entries.
6. Identify the sections of a classified statement of financial position.

4-3
 Using a Worksheet
Learning
Worksheet Objective 1
Prepare a
worksheet.
Multiple-column form used in preparing
financial statements. ‫الية‬%‫اعمدة متعددة تستخدم في اعداد القوائم ا‬

Not a permanent accounting record. ‫مايعتبر اساسي للمحاسب‬

May be aEcomputerized worksheet using an electronic

spreadsheet program such as Excel. ‫ممكن الوركشيت يكون عباره عن استخدام برامج‬
‫كسل‬N‫الكترونية زي ا‬

Prepared using a five step process. ‫خطوات‬5 ‫يستخدمو‬

Use of worksheet is optional. ‫اختياري مو اجباري استخدام الوركشيت‬

4-4 LO 1
 Steps in Preparing a Worksheet Illustration 4-1
Form and procedure
for a worksheet

‫عشان اسويهم‬
‫استخدم‬

4-5
 Steps in Preparing a Worksheet Illustration 4-2

1. PREPARE A TRIAL BALANCE ON THE WORKSHEET

Adjusted Income Statement of
Trial Balance Adjustments Trial Balance Statement Financial Position
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200
Supplies 2,500
Prepaid Insurance 600
Equipment 5,000
Notes Payable 5,000
Accounts Payable 2,500
Unearned Revenue 1,200
Share Capital-Ordinary 10,000
Dividends 500
Service Revenue 10,000

Salaries and Wages Exp. 4,000

Rent Expense 900
Totals 28,700 28,700

Trial balance amounts come

directly from ledger accounts.
Include all accounts
with balances.

4-6 LO 1
 Steps in Preparing a Worksheet
Illustration 3-23
General journal showing
adjusting entries

Adjusting
Journal
Entries
(Chapter 3)

4-7
 Steps in Preparing a Worksheet Illustration 4-2

2. ENTER THE ADJUSTMENTS IN THE ADJUSTMENTS COLUMNS

Adjusted Income Statement of
Trial Balance Adjustments Trial Balance Statement Financial Position
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200
Supplies 2,500 (a) 1,500
Prepaid Insurance 600 (b) 50
Equipment 5,000
Adjustments Key:
Notes Payable 5,000 (a) Supplies Used.
Accounts Payable 2,500
Unearned Revenue 1,200 (d) 400 (b) Insurance Expired.
Share Capital-Ordinary 10,000
(c) Depreciation Expensed.
Dividends 500
Service Revenue 10,000 (d) 400 (d) Service Revenue Recognized.
(e) 200
Salaries and Wages Exp. 4,000 (g) 1,200
(e) Service Revenue Accrued.
Rent Expense 900 (f) Interest Accrued.
Totals 28,700 28,700
Supplies Expense (a) 1,500 (g) Salaries Accrued.
Insurance Expense (b) 50
Accumulated Depreciation (c) 40
Depreciation Expense (c) 40
(e) 200
Accounts Receivable
(f)
Enter adjustment amounts, total
Interest Expense 50
Interest Payable (f) 50 adjustments columns,
Salaries and Wages Payable (g) 1,200 and check for equality.
Totals 3,440 3,440

Add additional accounts as needed.

4-8 LO 1
 Steps in Preparing a Worksheet Illustration 4-2

3. COMPLETE THE ADJUSTED TRIAL BALANCE COLUMNS

O
Adjusted Income Statement of
Trial Balance Adjustments Trial Balance Statement Financial Position
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200 15,200
Supplies 2,500 (a) 1,500 1,000
‫اذا اختلفو اطرحهم‬
Prepaid Insurance 600 (b) 50 550
Equipment 5,000 5,000
Notes Payable 5,000 5,000
Accounts Payable 2,500 2,500
Unearned Revenue 1,200 (d) 400 800
Share Capital-Ordinary 10,000 10,000
Dividends 500 500
Service Revenue 10,000 (d) 400 10,600
(e) 200
Salaries and Wages Exp. 4,000 ‫اذا اتفقو اجمعهم‬ (g) 1,200 5,200
Rent Expense 900 900
Totals 28,700 28,700
Supplies Expense (a) 1,500 1,500
Insurance Expense (b) 50 50

y
Accumulated Depreciation (c) 40 40
Depreciation Expense (c) 40 40
Accounts Receivable (e) 200 200
Interest Expense (f) 50 50
Interest Payable (f) 50 50
Salaries and Wages Payable (g) 1,200 1,200
Totals 3,440 3,440 30,190 30,190

Total the adjusted trial balance

4-9 columns and check for equality. LO 1
 Steps in Preparing a Worksheet Illustration 4-2

4. EXTEND AMOUNTS TO FINANCIAL STATEMENT COLUMNS

Adjusted Income Statement of
Trial Balance Adjustments Trial Balance Statement Financial Position
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200 15,200
Supplies 2,500 (a) 1,500 1,000
Prepaid Insurance 600 (b) 50 550
Equipment 5,000 5,000
Notes Payable 5,000 5,000
Accounts Payable 2,500 2,500
Unearned Revenue
Share Capital-Ordinary
A 1,200 (d) 400
10,000
800
10,000
Dividends 500 500
Service Revenue 10,000 (d) 400 10,600 10,600
(e) 200
Salaries and Wages Exp. 4,000 (g) 1,200 5,200 5,200
Rent Expense 900 900 900
Totals 28,700 28,700
Supplies Expense (a) 1,500 1,500 1,500
Insurance Expense (b) 50 50 50
Accumulated Depreciation (c) 40 40
Depreciation Expense (c) 40 40 40
Accounts Receivable (e) 200 200
Interest Expense (f) 50 50 50
Interest Payable (f) 50 50
Salaries and Wages Payable (g) 1,200 1,200
Totals 3,440 3,440 30,190 30,190 7,740 10,600

Extend all revenue and expense account

balances to the income statement columns.
4-10 LO 1
 Steps in Preparing a Worksheet Illustration 4-2

5. TOTAL COLUMNS, COMPUTE NET INCOME (LOSS)

Adjusted Income Statement of
Trial Balance Adjustments Trial Balance Statement Financial Position
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200 15,200 15,200
Supplies 2,500 (a) 1,500 1,000 1,000
Prepaid Insurance 600 (b) 50 550 550
Equipment 5,000 5,000 5,000
Notes Payable 5,000 5,000 5,000
Accounts Payable 2,500 2,500 2,500
Unearned Revenue 1,200 (d) 400 800 800
Share Capital-Ordinary 10,000 10,000 10,000
Dividends 500 500 500
Service Revenue 10,000 (d) 400 10,600 10,600
(e) 200
Salaries and Wages Exp. 4,000 (g) 1,200 5,200 5,200
Rent Expense 900 900 900
Totals 28,700 28,700
Supplies Expense (a) 1,500 1,500 1,500
Insurance Expense (b) 50 50 50
Accumulated Depreciation (c) 40 40 40
Depreciation Expense (c) 40 40 40
Accounts Receivable (e) 200 200 200
Interest Expense (f) 50 50 50
Interest Payable (f) 50 50 50
Salaries and Wages Payable (g) 1,200 1,200 1,200
Totals 3,440 3,440 30,190 30,190 7,740 10,600 22,450 19,590
Net Income 2,860 2,860
S Totals 10,600 10,600 22,450 22,450
Compute Net Income or Net Loss.
income‫لو الشركة تستخدم الوركشيت الرصيد حق ال‬
4-11
dr ‫ يكون‬statement
LO 1
 Steps in Preparing a Worksheet

Question
Which of the following statements is incorrect concerning the
worksheet?
a. The worksheet is essentially a working tool of the
accountant.
o
b. The worksheet
z
is distributed to management and other
interested parties.
c. The worksheet cannot be used as a basis for posting to
ledger accounts.
d. Financial statements can be prepared directly from the
worksheet before journalizing and posting the adjusting

4-12
entries. 0 LO 1
 Preparing Financial Statements from a
Worksheet
‫اذا ابغا‬
‫ من‬data‫حاخد ال‬
Income statement is prepared from the income statement
columns.
‫اذا ابغا‬
Etf
Statement of financial position and retained earnings
statement are prepared from the statement of financial
position columns. ‫ من‬data‫حاخد ال‬

Companies can prepare financial statements before they

journalize and post adjusting entries.

e
‫ عندها قبل ماتعمل‬financial statement‫الشركة ممكن تعمل ال‬
‫ دي حاله شاذة لو الشركة تستخدم وتشتغل‬adjustment‫تسجيل وال‬
‫بالوركشيت بس‬

4-13 LO 1
 Preparing Statements from a Worksheet

Illustration 4-3
Financial statements from a worksheet

4-14 LO 1
 Preparing Statements from a Worksheet

Net
2 imma O RE
Illustration 4-3
Financial statements from a worksheet

4-15 LO 1
 8g
F

4-16 Illustration 4-3

Financial statements from a worksheet
LO 1
 Preparing Adjusting Entries from a
Worksheet
‫اذا ابغا‬ ‫ من‬data‫حاخد ال‬

Adjusting entries are prepared from the adjustments

columns of the worksheet.

Journalizing and posting of adjusting entries follows the

preparation of financial statements when a worksheet is
used. ‫في حالة إستخدام الوركشيت يكون التسجيل والترحيل بعد اعداد القوائم‬

4-17 LO 1
 > DO IT!

Susan Elbe is preparing a worksheet. Explain to Susan how she

should extend the following adjusted trial balance accounts to the
financial statement columns of the worksheet.

Cash Statement of financial position

(debit column)
Accumulated
Depreciation
Statement of financial position
Accounts Payable (credit column)

Dividends Income statement

Service Revenue (debit column)

Salaries and Income statement

Wages Expense (credit column)

4-18 LO 1
 Closing the Books
‫بد للشركة ان تقفل حساباتها يعني عشان السنه الجديدة تبدا نظيفه‬N ‫في نهاية كل فترة محاسبية‬ Learning
At the end of the accounting period, the Objective 2
Explain the process
company makes the accounts ready for the of closing the books.
next period.
‫حساب مؤقت‬ ‫حساب دائم‬

Illustration 4-4
Temporary versus permanent accounts
4-19 LO 2
 Preparing Closing Entries

Closing entries formally recognize in the ledger the transfer of

net income (or net loss) and
Dividends
to Retained Earnings.
‫ نهايه السنه‬N‫تتم ا‬N ‫اليه واقفال الحسابات‬%‫بعد ماتقفل حساباتي يعني انتهت السنه ا‬
Companies generally journalize and post closing entries only
at the end of the annual accounting period.
Closing entries produce a zero balance in each temporary
account. ‫ؤقته صفر‬%‫قفال تجعل ارصده الحسابات ا‬N‫قيود ا‬

4-20 LO 2
Service revenue

Supplies expense

Depreciation expense

Insurance expense

Salary and wages expense

Rent expense

Retained earnind

Dividend

‫ايش الحسابات اللي أقفلها‬

Rev
Expense
Net income or Netloss
Dividend
 Rev‫طبيعة ال‬
Cr
‫اقوم اعكسه‬

‫اجمعهم‬
‫والحط‬
‫الناتج في‬
DR‫ال‬

IR je ome same ‫لو عكسته يعطيني‬

Nat loss

Div‫ال‬
Dr
‫اعكسها‬

Illustration 4-6
4-22
Closing entries journalized LO 2
 > DO IT!

The worksheet for Hancock Company shows the following in

the financial statement columns: in come sommmer I
Dividends Or
or
RE Cr
180so
Common stock
Net income
E or
Prepare the closing entries at December 31 that affect equity.

e
Income Summary
Retained Earnings
18,000
18,000
Or
Retained Earnings 15,000 or
Dividends 15,000

4-25 LO 2
 Preparing a Post-Closing Trial Balance
Learning
Post-closing trial balance Objective 3
Describe the content
and purpose of a
Lists permanent accounts and their post-closing trial
balance.
balances after the journalizing and
posting of closing entries. ‫يحتوي على الحسابات الدائمة‬

Purpose is to prove the equality of the permanent account

balances carried forward into the next accounting period.
Only contains balances for permanent statement of
financial position accounts. ‫يظهرو‬
All temporary accounts will have zero balances.
‫ؤقته تحتوي على رصيد بصفر‬%‫الحسابات ا‬

4-26 LO 3
 Illustration 4-8

Illustration 4-8
4-27 Post-closing trial balance LO 3
 Learning Objective 4
The Accounting Cycle State the required steps in
the accounting cycle.

W
1. Analyze business transactions

E
9. Prepare a post-closing 2. Journalize the

e
trial balance transactions

8. Journalize and post

3. Post to ledger accounts
closing entries

7. Prepare financial
4. Prepare a trial balance
statements

balance
E
6. Prepare an adjusted trial

Et
5. Journalize and post
adjusting entries

Illustration 4-11
4-28
Steps in the accounting cycle
LO 4
 Correcting Entries An Avoidable Step
‫لو ماعندي خطا مايحتاج اعدل في القيود‬ Learning
Unnecessary if accounting records are Objective 5
Explain the
free of errors. approaches to
preparing correcting
‫زم اصححه‬N ‫لو عندي اي خطا‬
entries.
Made whenever an error is discovered.
‫ني لو قفلت محا ينفع ارجع اعدل‬N ‫خطاء قبل ماقفل الحسابات‬N‫بد من تصحيح ا‬N
É
Must be posted before closing entries.

Instead of preparing a correcting entry, it is possible to

reverse the incorrect entry and then prepare the correct
entry.‫في طريقه سهله لتعديل الخطا إللي سويته اني اعكس القيد مره اخرى‬

4-29 LO 5
 Correcting Entries An Avoidable Step

CASE 1: On May 10, Bai Co. journalized and posted a NT$500 cash

I
collection on account from a customer as a debit to Cash NT$500 and
a credit to Service Revenue NT$500. The company discovered the
error on May 20, when the customer paid the remaining balance in full.
‫خطأ في تسجيل الحساب‬
‫تشابه‬%‫نطير ا‬
Incorrect Cash 500

s
entry
Service Revenue 500
‫اقلب‬
Correct Cash 500 ‫الباقي‬
entry Cr ‫اللي‬
Accounts Receivable to Dr
500
‫او‬
Correcting Service Revenue 500 ‫العكس‬
entry Accounts Receivable 500

ca sm s o
4-30 LO 5
 Correcting Entries An Avoidable Step

CASE 2: On May 18, Mercato purchased on account equipment

costing NT$4,500. The transaction was journalized and posted as a
debit to Equipment NT$450 and a credit to Accounts Payable NT$450.
The error was discovered on June 3. ‫بلغ فقط‬%‫حاسب اخطأ في تسجيل ا‬%‫ا‬
‫ من بعض‬s‫…اطرح الرقم‬
Incorrect Equipment
I 450

DE
entry
Accounts Payable 450
Correct Equipment 4,500
entry
Accounts Payable 4,500
Equipment 4,050
Correcting
entry Accounts Payable
Y
4,050

4-31 LO 5
 > DO IT!

Sanchez Company discovered the following errors made in

January 2017 .

1. A payment of Salaries and Wages Expense of $600 was

debited to Supplies and credited to Cash, both for $600.

Correct the error without reversing the incorrect entry.

Salaries and Wages Expense 600

Supplies 600

A
4-34
s 6 LO 5
lies
 > DO IT!

Sanchez Company discovered the following errors made in

January 2017 . ‫خطأ في تسجيل مبلغ واسم الحساب‬

2. A collection of $3,000 from a client on account was debited

to Cash $200 and credited to Service Revenue $200.

Correct the error without reversing the incorrect entry.

Service Revenue 200

Cash 2,800
Accounts Receivable 3,000
am

a
4-35
4 2 so
LO 5
 > DO IT!

Sanchez Company discovered the following errors made in

January 2017 . ‫بلغ فقط‬%‫الخطا في ا‬

3.
s‫اطرح الرقم‬ a É
The purchase of supplies on account for $860 was debited
to Supplies $680 and credited to Accounts Payable $680.

Correct the error without reversing the incorrect entry.

Supplies ($860 - $680) 180

se
Accounts Payable 180

4-36 LO 5
 Statement of Financial Position
‫الي للشركة‬%‫وقف ا‬%‫ توضح ا‬2 Learning
Presents a snapshot at a point in time. Objective 6
Identify the sections
of a classified
To improve understanding, companies statement of financial
position.
group similar assets and similar liabilities
together. ‫لتزامات‬N‫صول اللي عندها و تشوف ا‬N‫زم تجمع ا‬N ‫الشركة عشان تعمل القائمه دي‬
‫نه في بنود معينه بدونها محا تقدر تسوي القائمه‬N ‫اللي عندها‬

Standard Classifications

Assets Equity and Liabilities

‫اصول غير ملموسه زي شهره‬
Intangible assets ‫مة التجارية‬z‫حل او الع‬%‫ا‬
Equity
Property, plant, and equipment ‫ساسات‬N‫ العقارات وا‬Non-current liabilities ‫جل او التزامات‬N‫خصوم طويله ا‬
Et
Long-term investments ‫جل زي اوراق‬N‫استثمار طويل ا‬ Current liabilities ‫جل‬N‫خصوم قصيرة ا‬

Current assets ‫جل ممكن ابيعه‬N‫اوصل قصيرة ا‬

‫في اقل من سنة‬
Illustration 4-16
Standard statement of financial position classifications
4-37 LO 6
 Illustration 4-17
Classified statement
of financial position

IF

L Ehh

4-38
paint she
LO 6
 Illustration 4-17
Classified statement
of financial position

TEE

4-39 LO 6
 Intangible Assets

Assets that do not have physical substance.

Illustration 4-18
Intangible assets section

4-40 LO 6
 ‫مبنى او عقار او مبنى‬
Property, Plant, and Equipment

Long useful lives. ‫يطول استخدامه‬

E
Currently used in operations. ‫هدفي في حركة الشغل حقي‬

Depreciation - allocating the cost of assets to a number

of years. ‫صل على اكتر من سنه‬N‫حل يعني اوزع تكلفه ا‬% ‫ك من قيمة‬z‫ك واسته‬z‫اه‬

Accumulated depreciation - total amount of

4-41 LO 6
 Property, Plant, and Equipment

Illustration 4-19
Property, plant, and equipment section

4-42 LO 6
 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.

Illustration 4-20
Long-term investments section
4-43 LO 6
 Current Assets

Assets that a company expects to convert to cash or

use up within one year or the operating cycle, whichever
is longer. ‫ل سنة‬z‫اصول تشتريها الشركة بغرض بيعها وتحولها الى كاش في فتره خ‬

Operating cycle is the average time it takes from the

purchase of inventory to the collection of cash from
customers.
‫دورة حياة الشغل الشركة تشتري بضاعه وابيعها لعميل الفتره اللي ابيعها ويحصلها‬
Operating cycle ‫العميل دي اسمها‬

4-44 LO 6
 Current Assets

SEE

Illustration 4-21
Current assets section Accounts usually listed in the reverse order they
expect to convert them into cash.

4-45 LO 6
 People, Planet, and Profit Insight
Creating Value
Appendix B at the end of this textbook contains the financial statements of
Nestlé SA (CHE). Nestlé, like many other companies today, reports its
achievements with regard to other, nonfinancial goals. In Nestlé s case, it calls
these goals Creating Shared Value. Nestlé has set objectives to help society
in areas most directly related to its particular expertise: nutrition, water and
environmental sustainability, and rural development. The company evaluates
its progress in each area using objective measures. Examples of measures
used are provided below.
Nutrition: Products meeting or exceeding Nutritional Foundation profiling
criteria (as percentage of total sales) and products with increase in nutritious
ingredients or essential nutrients.
Water and Environmental Sustainability: Quality of water discharged
(average mg COD/I) and packaging weight reduction (tonnes).
Rural Development: Farmers trained through capacity building programs and
suppliers audited for food safety, quality, and processing.

4-46
LO 6
 Equity

Proprietorship - one capital account.

Eee
Partnership - capital account for each partner.
Corporation Share Capital and Retained Earnings.

Illustration 4-22
4-47 Equity section LO 6
 Non-Current Liabilities

Obligations a company expects to pay after one year.

Illustration 4-23
Non-current liabilities section

4-48 LO 6
 Current Liabilities

Obligations company is to pay within the coming year or

its operating cycle, whichever is longer.

Usually list notes payable first, followed by accounts

__
payable. Other items follow in order of magnitude.

Liquidity - ability to pay obligations expected to be due

within the next year.

4-49 LO 6
 Current Liabilities

to
Illustration 4-24
Current liabilities section

4-50 LO 6
 Statement of Financial Position

Question
The correct order of presentation in a classified statement of

Fina
financial position for the following current assets is: she
a. accounts receivable, cash, prepaid insurance, inventories.

b. cash, inventories, accounts receivable, prepaid insurance.

c. prepaid insurance, inventories, accounts receivable, cash.

d. inventories, cash, accounts receivable, prepaid insurance.

4-52 LO 6
 Statement of Financial Position

Question
In a classified statement of financial position, assets are usually

__
classified using the following sequence of categories:
a. current assets; non-current assets; property, plant, and
equipment; intangible assets.
b. tangible assets; property, plant, and equipment; long-term
investments; current assets.
c. current assets; long-term investments; tangible assets;
intangible assets.
d. intangible assets; property, plant, and equipment; long-
term investments; current assets.
4-53 LO 6
 > DO IT!
The following accounts were taken from the financial statements of Callahan
Company.

Match each of the following accounts to its proper statement of financial

position classification, shown below. If the item would not appear on a
statement of financial position, use NA.
Current assets (CA) Current liabilities (CL)
Long-term investments (LTI) Non-current liabilities (NCL)
Property, plant, and equipment (PPE) Equity (E)
Intangible assets (IA)

4-54 LO 6