MUHASEBE I

Adjusted trial balance is one form of trial balance that holds in-term transactions’ totals and balances as well as the end of the period transactions’ totals and balances for final checking of the accounts and preparation of financial statements.

In the income statement company reports revenues, expenses and their differences.

Statement of owner’s equity reports the changes in the capital throughout the period caused by the owner’s capital investments or withdrawals, net profit or loss.

Revenues and expenses are reported in the income statement; assets, liabilities and owner’s equity are reported in the balance sheet.

Liquidity is the measure of how quickly and easily an account can be converted into cash

Assets are divided into two sections: current assets and non-current assets. Liabilities are also divided into two sections: current liabilities and non-current (long-term) liabilities. There is one more section in the classified balance sheet and, that is for the owner’s equity.

Equipment is an example of  non current assets.

Transferring the balances of the revenue and expense accounts to Income summary account, and transferring Income Summary account’s balance to Capital account are called the Closing Entries.

At the end of the period, the company must calculate the results of its operations. In other words, the company must ascertain the term’s profit or loss. For this aim, the balances of revenue accounts and expense accounts have to be posted to Income Summary account. By accounting meaning, the revenue accounts and expense accounts have to be closed and their balances have to be posted to Income Summary account. Because the company has so many different revenue and expense accounts separately, they have to be accumulated under one account in order to figure out the exact result. This account is the Income Summary account. After the accumulation of revenues and expenses under Income Summary account, the final result is clear. 

Transferring the balances of the revenue and expense accounts to Income summary account, and transferring Income Summary account’s balance to Capital account are called the “Closing Entries”. The accounts which are closed at the end of the term are called “temporary accounts” because they hold only one period’s transactions and they have to be zeroed for the next period.

Beginning of the period activities deal with the opening transactions of the company. After the closing entries done for the previous term, the accounts have to be opened for the new fiscal year. The opening of the accounts is based on the opening balance sheet.

Balance sheet reports the assets, liabilities and the owner’s equity in a specific date.Statement of owner’s equity reports the changes in the capital throughout the period caused by the owner’s capital investments or withdrawals, net profit or loss.

Revenues and expenses are reported in the income statement; assets, liabilities and owner’s equity are reported in the balance sheet.

Liquidity is the measure of how quickly and easily an account can be converted into cash.

The steps in accounting cycles briefly: • Opening entries based on opening balance sheet • Posting opening entries to ledger accounts • Analyzing and journalizing daily transactions • Posting daily transactions to accounts • Preparing monthly trial balances • Preparing unadjusted trial balance at the end of the period • Adjusting entries • Preparing adjusted trial balance • Preparing financial statements • Closing entries • Preparing post-closing trial balance.

As the end of the period comes, adjusting entries are made to ensure the assets, liabilities and owner’s equity. After the adjustment transactions, adjusted trial balance is prepared, and financial statements are prepared afterwards. After the preparation of financial statements, the company journalizes and posts the closing entries. The final step of the accounting cycle is preparing the post-closing trial balance.

Accounting cycle can be defined as the process by which companies produce their financial statements for a specific period of time8 . As briefly mentioned, accounting cycle includes three main stages of activities; • beginning of the period activities • during the period activities • end of the period activities.

After closing of revenue accounts,expense accounts and Income Summary account, it is timeto prepare post-closing trial balance as the ending step in the accounting cycle. Post-closing trial balance shows the accounts with only balances. As the revenue accounts, expense accounts and Income Summary accounts were closed, it means that they have no balances. So, in the post-closing trial balance those type of accounts will not take place. Assets, liabilities and Capital accounts are the only accounts that have balances left at the end of the period.

Owner’s equity shows the owners’ investments, profit and loss of the period.

In TRApps Co. example, Income Summary account has the credit balance of 1,516.67 TL (7,400- 5,883.33). In other words, transferred revenue totals are higher than transferred expense totals. TRApps Co has the profit! Now, as the company calculated its profit, it is time to close Income Summary account. In this case, because the company has profit, the Income Summary account must be debited for closing. The balance will be transferred to Capital account. If there were loss for the company, then there would be a debit balance. In this case Income Summary account would be credited for closing. Here is the journal entry for TRApps Co. for closing Income Summary account.

Beginning of the period activities deal with the opening transactions of the company. After the closing entries done for the previous term, the accounts have to be opened for the new fiscal year. The opening of the accounts is based on the opening balance sheet which is also the closing balance sheet of the ended period. Journal entry is recorded according to the opening balance sheet and accounts are posted to the ledger. Hereby, the accounts are now ready for daily transactions, in other words, the accounts are ready for during the period transactions.