WEBVTT NOTE Financial statements and closing entries 1 00:00:00.000 --> 00:00:07.021 You are listening to Chapter 3 of the ACC 300 course reading, Financial statements and closing entries. 2 00:00:07.021 --> 00:00:20.587 This chapter supports course objective 1.3: build the financial statements and the closing entries from an adjusted trial balance, and explain how net income and ending equity connect the statements. 3 00:00:20.587 --> 00:00:28.631 By the end, you should be able to sort the accounts on an adjusted trial balance into the statement each one lands on. 4 00:00:28.631 --> 00:00:38.856 You should also be able to say which accounts close and which carry forward, and why the amounts that appear on more than one statement have to agree. 5 00:00:38.856 --> 00:00:45.127 This chapter works through one company, Beacon Design, for the year ended December 31, 2026. 6 00:00:45.127 --> 00:00:56.784 Its statements are laid out on the page, so this recording gives you the totals and the connections between them and leaves the line-by-line detail to the written chapter. 7 00:00:56.784 --> 00:01:08.140 Financial statement preparation starts after all period-end adjustments have been posted. The adjusted account balances provide many of the statement line items. 8 00:01:08.140 --> 00:01:22.598 Other facts provide beginning equity balances, owner transactions, and the cash-flow and disclosure information that does not appear in ledger totals. Statement preparation and closing are separate stages. 9 00:01:22.598 --> 00:01:37.057 First, the company reports the completed period. It then closes the temporary accounts and lists the permanent balances that carry into the next period. What a complete set of financial statements reports. 10 00:01:37.057 --> 00:01:49.189 For a business entity, United States generally accepted accounting principles (US GAAP) requires a complete set of financial statements to report five types of information. 11 00:01:49.189 --> 00:01:57.864 The statements can use different titles, and some information can be combined, but the complete set reports all five types. 12 00:01:57.864 --> 00:02:11.916 The table lists the five types of information a complete set reports, and the statement that ordinarily carries each one. Financial position goes on the balance sheet, at the reporting date. 13 00:02:11.916 --> 00:02:27.150 Earnings, or net income, goes on the income statement, for the period. Comprehensive income goes on the statement of comprehensive income, either alone or combined with the income statement, for the period. 14 00:02:27.150 --> 00:02:39.649 Investments by and distributions to owners go on the statement of changes in equity, also called the statement of stockholders' equity for a corporation, for the period. 15 00:02:39.649 --> 00:02:44.160 Cash flows go on the statement of cash flows, for the period. 16 00:02:44.160 --> 00:02:57.417 Notes accompany the statements. They explain accounting policies, estimates, line items, and other information needed to understand the reported amounts. 17 00:02:57.417 --> 00:03:07.295 A S C Topic 205, Subtopic 10, Section 45, paragraph 1A identifies the five types of information in a complete set. 18 00:03:07.295 --> 00:03:16.480 A S C Topic 235, Subtopic 10, Section 50, paragraph 1 addresses significant accounting-policy disclosures. 19 00:03:16.480 --> 00:03:33.723 The income statement, statement of comprehensive income, statement of changes in equity, and statement of cash flows each cover a period. The balance sheet reports balances at the end of that period. 20 00:03:33.723 --> 00:03:41.088 Notes can explain both period activity and amounts reported at the end of the period. 21 00:03:41.088 --> 00:03:47.425 The timeline makes the difference between a period and a date visible. 22 00:03:47.425 --> 00:04:06.708 Four statements cover the whole 2026 reporting year, from January 1 to December 31: the income statement, the statement of comprehensive income, the statement of changes in equity, and the statement of cash flows. 23 00:04:06.708 --> 00:04:12.864 The balance sheet is a single point on that line, December 31, 2026. 24 00:04:12.864 --> 00:04:26.127 In this chapter, you will use an adjusted trial balance to prepare the income statement, statement of comprehensive income, statement of changes in equity, and balance sheet. 25 00:04:26.127 --> 00:04:41.371 In Chapter 10, you will prepare the statement of cash flows. Later chapters use notes when a line item needs policy, estimate, or other disclosure information. How adjusted balances become statements. 26 00:04:41.371 --> 00:04:54.862 An adjusted trial balance lists the ledger balances after period-end adjustments have been posted. Statement totals such as net income and ending equity are not ledger accounts. 27 00:04:54.862 --> 00:05:02.180 They must be calculated from the adjusted balances and the other facts for the reporting period. 28 00:05:02.180 --> 00:05:17.729 Four relationships determine the order of the statement calculations: Revenue and gains minus expenses and losses equals net income. Net income plus other comprehensive income equals comprehensive income. 29 00:05:17.729 --> 00:05:30.915 For each equity component, the beginning balance plus increases minus decreases equals the ending balance. Assets equal liabilities plus ending equity at the reporting date. 30 00:05:30.915 --> 00:05:42.120 These relationships apply to any business entity. The sections below first explain each statement and then apply the relationship to Beacon Design. 31 00:05:42.120 --> 00:05:52.851 Apply the adjusted-balance logic to Beacon. Beacon Design is a design-services corporation in its first reporting year, ending December 31, 2026. 32 00:05:52.851 --> 00:06:03.805 After Beacon posts the adjustments from Chapter 2, its adjusted trial balance includes accounts that did not appear in the unadjusted trial balance. 33 00:06:03.805 --> 00:06:18.385 These accounts include Wages Payable, Insurance Expense, and Accumulated Depreciation. Unearned revenue is a liability for payment received before a company provides the promised goods or services. 34 00:06:18.385 --> 00:06:30.819 Beacon calls this liability account Unearned Service Revenue. Beacon's Retained Earnings account has a zero balance, so that account is omitted from this trial balance. 35 00:06:30.819 --> 00:06:44.511 Current-year income has not yet been transferred into it. When Retained Earnings appears on an adjusted trial balance, its balance still excludes the current period's closing transfers. 36 00:06:44.511 --> 00:06:53.688 The equity rollforward starts with that balance and adds the current period's changes to calculate ending retained earnings. 37 00:06:53.688 --> 00:07:06.423 Beacon Design's adjusted trial balance at December 31, 2026 is set out as a schedule. It is worth reading there rather than hearing it. 38 00:07:06.423 --> 00:07:25.762 What matters here is that it lists 18 accounts and that both columns total 196,900 dollars. Service Revenue carries a credit balance of 120,900 dollars, and the seven expense accounts carry debit balances. 39 00:07:25.762 --> 00:07:35.856 Net income, ending retained earnings, and total equity are not on it, because they are not ledger accounts. 40 00:07:35.856 --> 00:07:46.630 Net income, ending retained earnings, total equity, and statement totals do not appear as accounts on the adjusted trial balance. 41 00:07:46.630 --> 00:08:03.418 These amounts must be calculated from the listed balances and Beacon's other year-specific facts. Check your understanding. Does the adjusted trial balance contain a line called Net Income? Answer. No. 42 00:08:03.418 --> 00:08:09.432 Net income is calculated from the adjusted revenue and expense balances. 43 00:08:09.432 --> 00:08:18.478 The income statement reports the revenue, gains, expenses, and losses included in net income for a stated period. 44 00:08:18.478 --> 00:08:35.130 Gains and losses arise from nonowner activities outside the company's main revenue-producing work, such as selling equipment. Net income equals revenue and gains minus expenses and losses for a stated period. 45 00:08:35.130 --> 00:08:51.221 It excludes items reported in OCI. Beacon has no gains or losses, so its income statement uses only the year's revenue and expenses. Parentheses identify amounts subtracted in the financial statements. 46 00:08:51.221 --> 00:08:55.224 Workbook formulas use minus signs for subtraction. 47 00:08:55.224 --> 00:09:14.061 Beacon's income statement for the year covers total revenues of 120,900 dollars, all of it service revenue, against total expenses of 116,400 dollars. Net income is 4,500 dollars. 48 00:09:14.061 --> 00:09:36.792 The expenses in order of size are wages, 64,700 dollars; rent, 24,000 dollars; insurance, 9,000 dollars; utilities, 7,300 dollars; software, 4,800 dollars; advertising, 3,600 dollars; and depreciation, 3,000 dollars. 49 00:09:36.792 --> 00:09:54.801 Subtracting 116,400 dollars of expenses from 120,900 dollars of revenue gives Beacon 4,500 dollars of net income. The statement of comprehensive income begins with that amount. The statement of comprehensive income. 50 00:09:54.801 --> 00:10:03.177 Some gains and losses are excluded from net income and reported in other comprehensive income (OCI). 51 00:10:03.177 --> 00:10:18.840 Examples include certain unrealized gains and losses on debt securities, foreign-currency translation adjustments, pension adjustments, and the effective portion of some cash-flow hedges. 52 00:10:18.840 --> 00:10:29.729 Comprehensive income is net income plus OCI. A company can present both in one continuous statement or in two separate statements. 53 00:10:29.729 --> 00:10:48.073 Under the two-statement approach, the statement of comprehensive income follows the income statement and starts with net income. Beacon has no OCI. Its comprehensive income therefore equals its 4,500 dollars net income. 54 00:10:48.073 --> 00:10:52.512 A separate statement makes that relationship visible: 55 00:10:52.512 --> 00:11:08.088 The statement of comprehensive income starts with the 4,500 dollars of net income, adds other comprehensive income of zero, and reports comprehensive income of 4,500 dollars. 56 00:11:08.088 --> 00:11:14.712 Beacon has no other comprehensive income, so the two amounts are the same. 57 00:11:14.712 --> 00:11:30.460 A S C Topic 220, Subtopic 10, Section 45, paragraph 1A and paragraph 1B govern this presentation. In Chapter 6, you will examine the income statement, OCI, comprehensive income, and accumulated OCI in depth. 58 00:11:30.460 --> 00:11:44.307 The statement of changes in equity reports how each component of equity changed during a stated period. It reconciles each component from its beginning balance to its ending balance. 59 00:11:44.307 --> 00:11:58.990 This reconciliation is an equity rollforward. A corporation might report common stock, additional paid-in capital, retained earnings, accumulated other comprehensive income, and treasury stock. 60 00:11:58.990 --> 00:12:14.130 Other entities use components that fit their ownership structure. For a corporation, the report is also called a statement of stockholders' equity. Retained earnings is an accumulated equity balance. 61 00:12:14.130 --> 00:12:28.738 Its main changes are net income, which increases it, and net losses and dividends, which reduce it. Dividends are distributions to shareholders, not expenses, so they do not reduce net income. 62 00:12:28.738 --> 00:12:45.019 Ending retained earnings equals beginning retained earnings plus net income, or minus a net loss, less dividends for the period. Direct adjustments to retained earnings, when applicable, also enter the rollforward. 63 00:12:45.019 --> 00:13:01.756 The capitalized name Retained Earnings identifies the ledger account. Beacon's equity has only two components: Common Stock and Retained Earnings. It begins the year with zero retained earnings and declares no dividends. 64 00:13:01.756 --> 00:13:09.288 Its statement shows the 40,000 dollars share issue separately from the 4,500 dollars of net income: 65 00:13:09.288 --> 00:13:26.492 The statement of changes in equity reconciles both components from January 1 to December 31. Common stock begins at zero, takes the 40,000-dollar share issue, and ends at 40,000 dollars. 66 00:13:26.492 --> 00:13:39.072 Retained earnings begins at zero, takes the 4,500 dollars of net income, and ends at 4,500 dollars. Total equity ends at 44,500 dollars. 67 00:13:39.072 --> 00:13:48.599 Retained earnings ends at 4,500 dollars: the zero beginning balance plus 4,500 dollars of net income and no dividends. 68 00:13:48.599 --> 00:14:05.391 The same 4,500 dollars appears as net income on the income statement and in the statement of changes in equity. A statement of retained earnings is a narrower statement that reconciles only Retained Earnings. 69 00:14:05.391 --> 00:14:22.668 The statement of changes in equity also reports changes in other equity accounts, such as Common Stock. Check your understanding. A company reports 4,500 dollars of net income and declares a 3,000 dollars dividend. 70 00:14:22.668 --> 00:14:33.648 What is net income after the dividend? Answer. Net income remains 4,500 dollars. The dividend reduces retained earnings, not net income. 71 00:14:33.648 --> 00:14:46.968 The chapter offers an optional statement walkthrough here. The lesson called Trace net income into ending equity uses a standalone example to separate dividends from the year's income. 72 00:14:46.968 --> 00:14:58.759 The balance sheet reports an entity's assets, liabilities, and equity at a stated date. Beacon reports these balances as of December 31, 2026. 73 00:14:58.759 --> 00:15:14.452 This unclassified balance sheet groups assets, liabilities, and equity without separating current and noncurrent items. In Chapter 9, you will classify those items as current or noncurrent. 74 00:15:14.452 --> 00:15:23.088 Equipment's carrying amount is its reported amount after accumulated depreciation is deducted from cost. 75 00:15:23.088 --> 00:15:36.564 Beacon's balance sheet at December 31 is also a schedule, and the written chapter is the place to read it line by line. The totals are these. 76 00:15:36.564 --> 00:15:56.253 Total assets are 77,500 dollars, which includes equipment at a carrying amount of 15,000 dollars: 18,000 dollars of cost less 3,000 dollars of accumulated depreciation. Total liabilities are 33,000 dollars. 77 00:15:56.253 --> 00:16:06.384 Total equity is 44,500 dollars. Total liabilities and equity are 77,500 dollars, the same as total assets. 78 00:16:06.384 --> 00:16:16.725 Both sides total 77,500 dollars. The balance sheet reports Beacon's 4,500 dollars ending Retained Earnings balance. 79 00:16:16.725 --> 00:16:27.696 That amount equals the zero beginning balance plus 4,500 dollars of current-year net income and no current-year dividends. 80 00:16:27.696 --> 00:16:39.835 In later years, beginning retained earnings will already contain the accumulated effects of prior-period income, losses, and dividends. 81 00:16:39.835 --> 00:16:47.928 Current-period revenue and expense accounts do not appear as separate balance-sheet lines. 82 00:16:47.928 --> 00:16:58.366 The statement of cash flows shows how the total of cash, cash equivalents, restricted cash, and restricted cash equivalents changed during a period. 83 00:16:58.366 --> 00:17:06.053 It reconciles the beginning total to the ending total through operating, investing, and financing cash flows. 84 00:17:06.053 --> 00:17:21.568 An adjusted trial balance gives ending account balances, but a cash-flow statement must explain the changes between beginning and ending balances. Comparative balance sheets and transaction details provide those changes. 85 00:17:21.568 --> 00:17:34.827 In Chapter 10, you will prepare the complete statement, including the direct and indirect operating sections, noncash transactions, and the reconciliation of beginning cash to ending cash. 86 00:17:34.827 --> 00:17:47.592 ASC 230 contains the governing requirements. A S C Topic 230, Subtopic 10, Section 45, paragraph 4 addresses the total that includes restricted cash and restricted cash equivalents. 87 00:17:47.592 --> 00:18:03.160 The notes to the financial statements are an integral part of the statements. They explain significant accounting policies, estimates, commitments, uncertainties, and details that cannot fit on the statement faces. 88 00:18:03.160 --> 00:18:14.655 For example, a note may disaggregate a line item, explain how an amount was measured, or describe a material event that is not recognized in statement totals. 89 00:18:14.655 --> 00:18:22.730 The disclosures required for a company depend on its transactions, policies, estimates, and governing guidance. 90 00:18:22.730 --> 00:18:36.552 In Chapter 5, you will locate amounts in the statements, notes, and accounting-policy footnotes of an actual filing. Later chapters return to the relevant notes for each statement line item. 91 00:18:36.552 --> 00:18:50.923 How the statements connect. Financial statement articulation means that amounts reported in one statement connect to related amounts in the others. Net income enters comprehensive income. 92 00:18:50.923 --> 00:19:06.524 Comprehensive income enters the equity rollforward, and ending equity appears on the balance sheet. The statement of cash flows reconciles its ending cash total to the cash reported on the balance sheet. 93 00:19:06.524 --> 00:19:18.667 The 5 statements form 2 connected paths. The performance path carries net income through comprehensive income and the equity rollforward to the balance sheet. 94 00:19:18.667 --> 00:19:25.968 The cash path connects ending cash on the statement of cash flows to cash on the balance sheet. 95 00:19:25.968 --> 00:19:39.651 The diagram shows the amounts that two or more statements share. On the performance and equity path, net income carries from the income statement to the statement of comprehensive income. 96 00:19:39.651 --> 00:19:49.383 Comprehensive income carries from there to the statement of changes in equity. Ending equity carries from there to the balance sheet. 97 00:19:49.383 --> 00:20:03.432 On the cash path, ending cash carries from the statement of cash flows to the balance sheet. The notes accompany the complete set and explain the statements and the other required information. 98 00:20:03.432 --> 00:20:14.933 An omitted adjustment can affect several statements at once. The table shows the effect of omitting Beacon's 2,700 dollars wage accrual. 99 00:20:14.933 --> 00:20:26.688 The difference column subtracts the correct amount from the amount reported after the omission. Parentheses indicate a negative difference. 100 00:20:26.688 --> 00:20:43.514 Reported amount · US dollars, Wages expense; Correct, 64,700 dollars; Accrual omitted, 62,000 dollars; Difference, (2,700 dollars). 101 00:20:43.514 --> 00:21:11.130 Reported amount · US dollars, Net income; Correct, 4,500; Accrual omitted, 7,200; Difference, 2,700. Reported amount · US dollars, Ending retained earnings; Correct, 4,500; Accrual omitted, 7,200; Difference, 2,700. 102 00:21:11.130 --> 00:21:27.314 Reported amount · US dollars, Total liabilities; Correct, 33,000; Accrual omitted, 30,300; Difference, negative 2,700 dollars. 103 00:21:27.314 --> 00:21:53.645 Reported amount · US dollars, Total equity; Correct, 44,500; Accrual omitted, 47,200; Difference, 2,700. Reported amount · US dollars, Total assets; Correct, 77,500; Accrual omitted, 77,500; Difference, 0. 104 00:21:53.645 --> 00:22:08.544 Reported amount · US dollars, Total liabilities and equity; Correct, 77,500; Accrual omitted, 77,500; Difference, 0. 105 00:22:08.544 --> 00:22:22.296 The chapter offers an optional connection check here. The lesson called Find why a set of statements does not agree shows how matching totals can still conceal a missing adjustment. 106 00:22:22.296 --> 00:22:35.977 Check your understanding. A company reports 75,000 dollars of net income and 4,000 dollars of OCI. What amount enters its equity rollforward as comprehensive income? Answer. 79,000 dollars. 107 00:22:35.977 --> 00:22:50.455 Comprehensive income equals 75,000 dollars of net income plus 4,000 dollars of OCI. Closing the temporary accounts. Revenue, gain, expense, loss, and dividend accounts measure activity for one period. 108 00:22:50.455 --> 00:23:01.675 Gain and loss accounts here contain amounts included in net income. Together, these accounts are temporary accounts and must begin the next period at zero. 109 00:23:01.675 --> 00:23:07.466 Permanent accounts hold balances for continuing assets, liabilities, and equity. 110 00:23:07.466 --> 00:23:17.745 Their ending balances carry forward because the resources, obligations, and owners' claims that exist on December 31 still exist on January 1. 111 00:23:17.745 --> 00:23:30.630 A closing entry brings a temporary account to zero and transfers its effect to a permanent equity account. Retained Earnings is permanent even though closing changes its balance. 112 00:23:30.630 --> 00:23:40.330 Closing records the transfer after the statements have been prepared; it does not create the income or distributions already reported. 113 00:23:40.330 --> 00:23:52.275 Beacon uses direct closing, which transfers each temporary-account balance directly to Retained Earnings. First, close Service Revenue directly to Retained Earnings. 114 00:23:52.275 --> 00:24:05.232 Service Revenue has a 120,900 dollars credit balance, so the closing entry debits it for 120,900 dollars. The credit to Retained Earnings transfers the revenue's effect on equity: 115 00:24:05.232 --> 00:24:21.720 The December 31 entry that closes revenue debits Service Revenue for 120,900 dollars and credits Retained Earnings, an equity account, for 120,900 dollars. 116 00:24:21.720 --> 00:24:41.184 Second, close the expenses. Each expense has a debit balance, so each receives a credit equal to that balance. The 116,400 dollars debit to Retained Earnings transfers the expenses' combined effect on equity: 117 00:24:41.184 --> 00:24:50.266 The December 31 entry that closes the expenses debits Retained Earnings for 116,400 dollars. 118 00:24:50.266 --> 00:25:17.808 It credits each expense for its balance: Wages Expense, 64,700 dollars; Rent Expense, 24,000 dollars; Insurance Expense, 9,000 dollars; Utilities Expense, 7,300 dollars; Software Expense, 4,800 dollars; Advertising Expense, 3,600 dollars; and Depreciation Expense, 3,000 dollars. 119 00:25:17.808 --> 00:25:30.984 Service Revenue returns to zero, while Retained Earnings receives the difference between revenue and expenses. The T-accounts show both closing entries and the resulting balances: 120 00:25:30.984 --> 00:25:47.448 The Service Revenue T-account has an adjusted credit balance of 120,900 dollars and a closing debit of 120,900 dollars, so its ending balance is zero. 121 00:25:47.448 --> 00:26:07.344 The Retained Earnings T-account begins at zero. The revenue closing entry credits 120,900 dollars and the expense closing entry debits 116,400 dollars, leaving an ending credit balance of 4,500 dollars. 122 00:26:07.344 --> 00:26:16.364 After the revenue and expense entries, closing has increased Beacon's retained earnings by its 4,500 dollars net income. 123 00:26:16.364 --> 00:26:28.390 Beacon's ending retained earnings happens to equal net income because this is its first year, beginning retained earnings is zero, and it declared no dividends. 124 00:26:28.390 --> 00:26:37.560 In a later year, ending retained earnings will also include the beginning balance and any dividends or direct adjustments. 125 00:26:37.560 --> 00:26:51.240 If a company has a Dividends balance, a separate entry credits Dividends and debits Retained Earnings. For example, a 3,000 dollars debit balance in Dividends closes with this entry: 126 00:26:51.240 --> 00:27:07.104 The end-of-period entry that closes a dividends balance of 3,000 dollars debits Retained Earnings for 3,000 dollars and credits Dividends for 3,000 dollars. Both are equity accounts. 127 00:27:07.104 --> 00:27:19.357 Closing transfers temporary-account balances into the permanent equity account; it does not change the income or equity already reported. Check your understanding. 128 00:27:19.357 --> 00:27:28.753 Which accounts begin the next period at zero: Accounts Receivable, Service Revenue, Wages Payable, and Wages Expense? Answer. 129 00:27:28.753 --> 00:27:38.675 Service Revenue and Wages Expense begin the next period at zero because they are temporary accounts. The post-closing trial balance. 130 00:27:38.675 --> 00:27:52.205 A post-closing trial balance lists the permanent ledger balances after the closing entries have been posted. It establishes the balances that carry into the next accounting period. 131 00:27:52.205 --> 00:28:00.850 Accountants also use it to confirm that temporary accounts have been closed and that the ledger remains in balance. 132 00:28:00.850 --> 00:28:16.560 The selected accounts below show that closing leaves permanent asset and liability balances in place, brings temporary revenue and expense balances to zero, and transfers their net effect to Retained Earnings. 133 00:28:16.560 --> 00:28:35.547 The bridge table follows five accounts from their adjusted balance, through closing, to their post-closing balance. Cash, a permanent asset, holds a debit balance of 40,200 dollars and takes no closing entry. 134 00:28:35.547 --> 00:28:54.626 Accounts Payable, a permanent liability, holds a credit balance of 6,300 dollars and takes no closing entry. Service Revenue, a temporary revenue account, goes from a credit balance of 120,900 dollars to zero. 135 00:28:54.626 --> 00:29:03.389 Wages Expense, a temporary expense account, goes from a debit balance of 64,700 dollars to zero. 136 00:29:03.389 --> 00:29:18.816 Retained Earnings, permanent equity, begins at zero, takes the credit of 120,900 dollars and the debit of 116,400 dollars, and ends at a credit balance of 4,500 dollars. 137 00:29:18.816 --> 00:29:36.485 Beacon's post-closing trial balance is the last schedule in the chapter. Every account left on it is permanent, and both columns total 80,500 dollars. Retained Earnings now appears, at a credit balance of 4,500 dollars. 138 00:29:36.485 --> 00:29:59.640 Note that the column totals of 80,500 dollars are not balance-sheet totals: this trial balance lists Equipment at its cost of 18,000 dollars and Accumulated Depreciation as a separate credit of 3,000 dollars, while the balance sheet nets the two into a carrying amount of 15,000 dollars. 139 00:29:59.640 --> 00:30:09.048 Every account left is permanent. The 80,500 dollars debit and credit column totals are not balance-sheet totals. 140 00:30:09.048 --> 00:30:19.548 The trial balance lists Equipment at its 18,000 dollars cost and Accumulated Depreciation as a separate 3,000 dollars credit. 141 00:30:19.548 --> 00:30:31.980 The balance sheet nets those amounts to report a 15,000 dollars carrying amount within its 77,500 dollars of total assets. Check your understanding. 142 00:30:31.980 --> 00:30:49.452 Why does Beacon's post-closing trial balance report Retained Earnings even though the adjusted trial balance omitted it? Answer. Closing transferred the year's revenue and expenses into the permanent account. 143 00:30:49.452 --> 00:30:55.248 Its 4,500 dollars ending credit balance carries into the next period. 144 00:30:55.248 --> 00:31:09.004 Closing preserves the accounting history. A zero ending balance can look as if closing deleted the period's activity. Closing instead adds dated entries to the journal and ledger. 145 00:31:09.004 --> 00:31:18.379 Beacon can still trace the completed year's revenue and expenses even though those accounts begin the next period at zero. 146 00:31:18.379 --> 00:31:26.064 The post-closing trial balance lists the balances carried forward, not the full transaction history. 147 00:31:26.064 --> 00:31:41.928 The chapter offers an optional closing walkthrough here. The lesson called Close the period without deleting its history supplies its own adjusted balances, closing entries, and post-closing trial balance. 148 00:31:41.928 --> 00:31:57.197 From adjusted balances to the next period. Financial statement preparation converts adjusted account balances and other facts into reports about performance, equity, financial position, and cash flows. 149 00:31:57.197 --> 00:32:12.313 Derived amounts connect those reports: net income enters comprehensive income, comprehensive income changes equity, and ending equity appears on the balance sheet. Closing comes after the statements. 150 00:32:12.313 --> 00:32:28.797 Revenue, gain, expense, loss, and dividend accounts return to zero. Permanent asset, liability, and equity balances carry forward on the post-closing trial balance and become the next period's opening ledger balances. 151 00:32:28.797 --> 00:32:38.293 The end-of-chapter practice that follows asks you to apply the statement and closing sequence to a company other than Beacon. 152 00:32:38.293 --> 00:32:52.650 Return to the written chapter for the statements themselves and the end-of-chapter practice, which applies the same sequence to a company other than Beacon. The order is what to carry away. 153 00:32:52.650 --> 00:33:05.184 Prepare the statements first, then close the temporary accounts, then list what carries forward. Check that every amount appearing on more than one statement agrees.