Completing the Accounting Cycle
After studying this chapter, you should be able to: 1 Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements. Prepare financial statements from adjusted account balances. Prepare closing entries. 4 5 6 Describe the accounting cycle. Illustrate the accounting cycle for one period. Explain what is meant by the fiscal year and the natural business year.
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Electronic Arts Inc.
ost of us have had to file a personal tax return. At the beginning of the year, you estimate your upcoming income and decide whether you need to increase your payroll tax withholdings or perhaps pay estimated taxes. During the year, you earn income and enter into taxrelated transactions, such as making charitable contributions. At the end of the year, your employer sends you a tax withholding information form (W-2) form, and you collect the tax records needed for completing your yearly tax forms. As the next year begins, you start the cycle all over again. Businesses also go through a cycle of activities. For example, Electronic Arts Inc., the world’s largest developer and marketer of electronic game software, begins its cycle by developing new or revised game titles, such as Madden NFL Football®, Need for Speed®, Tiger Woods PGA Tour®, The Sims®, and The Lord of the Rings®. These games are marketed and sold throughout the year. During the year, operating transactions of the business are recorded. For Electronic Arts, such transactions include the salaries
for game developers, advertising expenditures, costs for producing and packaging games, and game revenues. At the end of the year, financial statements are prepared that summarize the operating activities for the year....