In Lesson 2, you learned the double-entry process of recording business transactions. This process involved recording the transactions in the general journal and posting to the proper ledger accounts (T-Accounts). The ending balances in the ledger accounts (T-Accounts) are used to prepare an unadjusted trial balance. In Lesson 3, the accounting process continued with the recording of adjusting entries at the end of the accounting period. The process in Lesson 3 involved recorded adjusting entries in the general journal and posting to the proper ledger accounts (T-Accounts). In Lesson 3, we made sure that revenues and expenses were recorded in the correct accounting period. The ending balances in the ledger accounts (T-Accounts) after adjusting entries have been recorded are used to prepare the adjusted trial balance. In Lesson 4, we are at the end of the accounting period and are ready to prepare our financial statements. We will use the account transactions from the adjusted balance in Lesson 3 to prepare the following financial statements:
If we are at the end of our fiscal year, we need to prepare for the beginning of the new year by closing all of our revenue, expense, and dividends accounts. At the end of each fiscal year, the balances of all revenue, expense, and dividends accounts are “closed” to retained earnings. The balances in these accounts are set to $0 to begin the new year, with their balances transferred to retained earnings.
By the end of this lesson, make sure you have completed the readings and activities found in the Lesson 4 Course Schedule.