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A Look BackChapter 3 explained the timing of reports. We described why adjusting accounts is key for recognizing revenues and expenses in the proper period. We prepared an adjusted trial balance and used it to prepare financial statements.A Look at This ChapterThis chapter emphasizes the final steps in the accounting process and reviews the entire accounting cycle. We explain the closing process, including accounting procedures and the use of a post-closing trial balance. We show how a work sheet aids in preparing financial statements.A Look AheadChapter 5 looks at accounting for merchandising activities. We describe the sale and purchase of merchandise and their implications for preparing and analyzing financial statements.Completing the Accounting CycleCAPLearning Objectives4CONCEPTUALC1 Explain why temporary accounts are closed each period. (p. 142)C2 Identify steps in the accounting cycle. (p. 146)C3 Explain and prepare a classified balance sheet. (p. 147)ANALYTICALA1 Compute the current ratio and describe what it reveals about a companys financial condition. (p. 150)PROCEDURALP1 Prepare a work sheet and explain its usefulness. (p. 138)P2 Describe and prepare closing entries. (p. 143)P3 Explain and prepare a post-closing trial balance. (p. 144)P4 Appendix 4APrepare reversing entries and explain their purpose. (p. 154)LP4wiL10874_ch04_136-177.indd Page 136 7/31/10 5:20:15 PM user-f500 /Users/user-f500/DesktopSAN DIEGO“I have been battling greasy fingers and keyboard crumbs,” complained gamer Keith Mullin. “I thought there has to be a better way!” So, Keith-the-gamer morphed into Keith-the- entrepreneur. In 2008, Keith set up what he calls his “garage startup” and introduced Gamer Grub(GamerGrub.com), which is perfor-mance snack food for gamers. “I got tired of wiping my hands on my jeans,” laughs Keith. “And, I like to multi-task.”Success, however, requires Keith to monitor and minimize costs. “I made the first Gamer Grub prototypes in my moms kitchen,” explains Keith. He eventually set up an accounting sys-tem to track costs and match them with revenues. But, Keith says, it is a constant struggle as his business has been tripling in revenues each month. He explains that properly applying the ac-counting cycle, preparing classified financial statements, and acting on that information has helped in his success. However, admits Keith, “it is more of a collaborative effort.”To date, Keith has successfully controlled his costs while monitoring both revenues and customer needs. “You need to be in front of your customer, watch them taste it, watch them understand what youre doing,” says Keith. “You have to be out there . . . we have given out at least 16,000 samples!” Keith adds that he applies the accounting cycle, including closing entries, to help identify and match costs with revenues for spe-cific time periods. He also relies on classified balance sheets to plan payment schedules. But, what keeps him going, admits Keith, is knowing that he offers “different ways to snack while youre computer gaming or multi-tasking.”Keith is on a mission. What motivates him, explains Keith, is the “Wow! If you get that Wow reaction, thats a really good thing.” To make that happen, he tracks the accounting numbers to be sure his “Wow food” is a money-making venture. “Gamer Grub allows gamers to consume healthy, game-enhancing snacks,” in-sists Keith. “Without greasy fingers or keyboard crumbs!”Sources: GamerGrub Website, January 2011; Entrepreneur, October 2009; Business Wire, September 2008; MGC Website, January 2010Decision Insight“Be in front of your customer . . . and have a little bit of an edge”KEITH MULLIN (far left)Gamer Grub!wiL10874_ch04_136-177.indd Page 137 8/2/10 4:47:54 PM user-f500 /Users/user-f500/DesktopPoint: Since a work sheet is not a required report or an accounting record, its format is flexible and can be modified by its user to fit his/her preferences.Chapter PreviewMany of the important steps leading to financial statements were explained in earlier chapters. We described how trans actions and events are analyzed, journalized, and posted. This chapter explains the closing process that readies revenue, expense, and withdrawal accounts for the next reporting period and updates the capital account. A work sheet is shown to be a useful tool for these final steps and in preparing financial statements. It also explains how accounts are classified on a balance sheet to increase their useful-ness to decision makers.Completing the Accounting CycleClosing Process Temporary and permanent accounts Closing entries Post-closing trial balanceWork Sheet Benefits of a work sheet Use of a work sheetAccounting Cycle Definition of accounting cycle Review of accounting cycleClassified Balance Sheet Classification structure Classification categoriesInformation preparers use various analyses and internal documents when organizing informa-tion for internal and external decisi
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