Task Team of FUNDAMENTAL ACCOUNTING School of Business Sun Yat-sen University The difference between revenues and expenses is added directly to the statement of owner's equity. Net income is added to the retained earnings How to use the worksheet for preparing financial statements The financial statement can be prepared by rearranging the items on the worksheet The income statement is typically prepared first and then the balance sheet Notice: the worksheet does not eliminate the need to journalize and post the adjusting journal entries. This must still be done in order for the information to enter the accounting system Journalizing and posting the adjusting journal entries will bring the ledger into agreement with the adjusted trial balance amounts shown What is Temporary and permanent accounts? beginning of a period, used to record events for that period and closed at the end of the period. They accumulate data related to one accounting period only Permanent accounts are those accounts that their balances are carried forward from one accounting period to the next What is closing entries? entries are entries that transfer the balances in the temporary accounts to a balance sheet equity account The purpose of closing entries. An the end of an accounting period, an income statement is prepared. The revenue and expense accounts have served their purpose in determining the periods net income. New revenue and expense accounts will be needed for the next accounting period. Closing entries can give the temporary accounts a zero balance How to prepare the closing entries First of all, we need to set a closing account called"Income Summar Then the revenues and expenses are transferred to owner's equity account through the Income Summary account. The balance in the Income Summary account after closing the revenues and expenses must equal the net income or net loss, it is used to confirm that revenues and expenses have been closed properly Once the net income or loss has been proved, the balance in the Income Summary is transferred to the owners equity account Four typical closing entries are 1. Close revenue to income summary which will debit all revenue accounts andTask Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Yat-sen University The difference between revenues and expenses is added directly to the statement of owner’s equity. Net income is added to the retained earnings. How to use the worksheet for preparing financial statements? The financial statement can be prepared by rearranging the items on the worksheet. The income statement is typically prepared first and then the balance sheet. Notice: the worksheet does not eliminate the need to journalize and post the adjusting journal entries. This must still be done in order for the information to enter the accounting system .Journalizing and posting the adjusting journal entries will bring the ledger into agreement with the adjusted trial balance amounts shown on the worksheet. What is Temporary and Permanent Accounts? Temporary accounts are also called nominal accounts. They are opened at the beginning of a period, used to record events for that period and closed at the end of the period. They accumulate data related to one accounting period only. Permanent accounts are those accounts that their balances are carried forward from one accounting period to the next. What is closing entries? Closing entries are entries that transfer the balances in the temporary accounts to a balance sheet equity account. The purpose of closing entries. An the end of an accounting period, an income statement is prepared. The revenue and expense accounts have served their purpose in determining the period’s net income. New revenue and expense accounts will be needed for the next accounting period. Closing entries can give the temporary accounts a zero balance. How to prepare the closing entries? First of all, we need to set a closing account called “Income Summary”. Then the revenues and expenses are transferred to owner’s equity account through the Income Summary account. The balance in the Income Summary account after closing the revenues and expenses must equal the net income or net loss, it is used to confirm that revenues and expenses have been closed properly. Once the net income or loss has been proved, the balance in the Income Summary is transferred to the owner’s equity account. Four typical closing entries are: 1. Close revenue to income summary which will debit all revenue accounts and