The Accounting Cycle

Reporting Financial Results

Chapter 5

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5-1

Preparing Financial
Statements
Publicly owned companies those with shares listed on
a stock exchange have obligations to release annual
and quarterly information to their stockholders and to the
public.

The annual report includes comparative financial

statements and other information relating to the
companys financial position, business operations, and
future prospects.
The financial statements contained in the annual report
must be audited by a firm of certified public accountants
(CPAs).
5-2

Now, lets prepare the financial statements

for Overnight Auto Service for 2015.
5-3

The Income Statement

Net income also appears on the

Statement of Retained Earnings.
5-4

The Statement of Retained

Earnings

Next, lets prepare the Balance Sheet.

5-5

The Balance Sheet

5-6

Relationships among the

Financial Statements

5-7

Drafting the Notes that

Accompany Financial
Statements
Examples of Items Disclosed
Notes to the
Financial Statements

Lawsuits pending
Scheduled plant closings
Governmental investigations

Significant events occurring

after the balance sheet date
Specific customers that
account for a large portion of
revenue
Unusual transactions and
related party transactions

5-8

Closing the Temporary Accounts

Close Revenue
accounts to
Income Summary.

Close Expense
accounts to
Income Summary.

Close Income
Summary account
to Retained
Earnings.

Close Dividends to
Retained Earnings.

5-9

Closing Entries for Revenue

Accounts
Since both revenue accounts have credit
balances, the closing entry requires a debit
to the Revenue accounts.
GENERAL JOURNAL
Date

Account Titles and Explanation

Dec 31 Repair Service Revenue

Rent Revenue
Revenue Earned
Earned
Income Summary

Debit

Credit

172,000
3,000
175,000

To close the revenue accounts.

5-10

Closing Entries for Revenue

Accounts

5-11

Closing Entries for Expense Accounts

Net Income

5-12

Closing the Income Summary

Account
Since Income Summary has a $39,942 credit
balance, the closing entry requires a debit to
Income Summary.

GENERAL JOURNAL
Date

Account Titles and Explanation

Dec 31 Income Summary

Retained Earnings

Debit Credit
39,942
39,942

To close Income Summary.

5-13

Closing the Dividends Account

Since the Dividends account has a debit
balance, the closing entry requires a credit
to the Dividends account.

GENERAL JOURNAL
Date

Account Titles and Explanation

Dec 31 Retained Earnings

Dividends

Debit Credit
14,000
14,000

To close the Dividends account.

5-14

After-Closing Trial Balance

5-15

End of Chapter 5

5-16