CHAPTER 6 PRE-TEST

Chapter 6–Financial Statements and the Closing Process

Chapter 6 Learning Objectives

LO1    Prepare financial statements with the aid of a work sheet.

LO2    Journalize and post closing entries.

LO3    Prepare a post-closing trial balance.

LO4    List and describe the steps in the accounting cycle.


LO1– Prepare financial statements with the aid of a work sheet.

  1. The Financial Statements (See Figure 6-1 and Figure 6-2)
    1. Appearance
      1. Dollar signs are placed at the top of each column and beneath underlines.
      2. Single underlines indicate addition or subtraction.
      3. Double underlines are placed under totals.
      4. The headings of financial statements relate to who, what, and when:
        1. company name
        2. statement title
        3. period ended or date
  2. The Income Statement--WATCH THIS VIDEO
    1. Use the work sheet to prepare adjusting entries that you learned in Chapter 5.
    2. Income Statement columns of the work sheet provide the information needed to prepare the income statement.
    3. Revenue is listed first.
    4. Expenses are listed next.
      1. They could be listed in the same order that they appear in the chart of accounts.
      2. They could be listed in descending order by dollar amount.
      3. Amounts are itemized in the left column, when two columns are used.
      4. Subtotals appear in the right column.
    5. Revenues – Expenses = Net Income or Net Loss
  3. In-Class Exercise:
    1. E6-1A
      1. USE THE INCOME STATEMENT TAB IN THIS SPREADSHEET
        1. Click DOWNLOAD & ENABLE EDITING to properly use this spreadsheet
      2. SHOW ME BEFORE MOVING ON
      3. You will use this same spreadsheet for 2A
    2. E6-1B
      1. USE THE INCOME STATEMENT TAB IN THIS SPREADSHEET
        1. Click DOWNLOAD & ENABLE EDITING to properly use this spreadsheet
      2. SHOW ME BEFORE MOVING ON
      3. You will use this same spreadsheet for 2B
  4. The Statement of Owner’s Equity–WATCH THIS VIDEO
    1. Information is taken from the:
      1. Balance Sheet columns of the work sheet.
        • Capital account balance (includes beginning balance plus any investments made during the period).
        • Drawing account balance.
      2. Net income or net loss from the income statement.
  5. In-Class Exercise:
    1. E6-2A
      1. Use the spreadsheet you used for E6-1A
      2. SHOW ME BEFORE MOVING ON
    2. E6-2B
      1. Use the spreadsheet you used for E6-1B
      2. SHOW ME BEFORE MOVING ON
    3. E6-9A–Use page 187 to help you
      1. USE THE STATEMENT OF OWNER’S EQUITY TAB IN THIS SPREADSHEET
      2. SHOW ME BEFORE YOU MOVE ON
    4. E6-9B–Use page 187 to help you
      1. USE THE STATEMENT OF OWNER’S EQUITY TAB IN THIS SPREADSHEET
      2. SHOW ME BEFORE YOU MOVE ON
  6. The Balance Sheet–WATCH THIS VIDEO
    1. Information is taken from the:
      1. Balance Sheet columns of the work sheet.
      2. Ending balance from the statement of owner’s equity replaces the owner’s Capital balance.
    2. Types of balance sheets
      1. Report form
        • The liabilities and owner’s equity are shown below the assets section.
      2. Account form
        • The assets are listed on the left.
        • The liabilities and owner’s equity sections are listed on the right.
    3. Classified balance sheet
      • Similar items are grouped together.
      • The following major balance sheet classifications are generally used.
        • Current assets include cash and items that will be converted into cash within one year or the normal operating cycle of the business.
          • An operating cycle is the period of time required to purchase supplies and services and convert them back into cash. (See Figure 6-3)
        • Property, plant, and equipment, also called plant assets or long-term assets, are assets that are expected to serve the business for many years.
        • Current liabilities include accounts payable, wages payable, and other items due within one year or the normal operating cycle.
        • Long-term liabilities, or long-term debt, are obligations that are not expected to be paid within a year and do not require the use of current assets.
  7. Additional Investments by the Owner:
    1. If additional investments were not reported on the statement of owner’s equity, the beginning balance of owner’s equity for the current period would not be the same as the ending balance for owner’s equity from the prior period due to Net Income/Net Loss being included into the sum total.
    2. Additional investments by the owner would not be represented on the work sheet.
    3. The owner’s capital account in the general ledger must be reviewed in order to prepare the proper statement of owner’s equity.
    4. Beginning owner’s equity balance + Additional investments + Net income (or – Net loss) – Withdrawals = Ending owner’s equity balance (See Figure 6-4)
  8. In-Class Exercise:
    1. E6-3A
      1. USE THIS SPREADSHEET
        1. Download it and Enable Editing in Excel
      2. SHOW ME BEFORE MOVING ON
    2. E6-3B
      1. USE THIS SPREADSHEET
        1. Download it and Enable Editing in Excel
      2. SHOW ME BEFORE MOVING ON
    3. P6-7A
      1. USE THIS SPREADSHEET
        1. Download it and Enable Editing in Excel
      2. SHOW ME BEFORE MOVING ON
    4. P6-7B
      1. USE THIS SPREADSHEET
        1. Download it and Enable Editing in Excel
      2. SHOW ME BEFORE MOVING ON