Chapter 8

Financial Statement Presentation, Closing

the books and Financial Analysis
Closing Entries
1. Income
2. Expense
3. Difference between 1 and 2
4. Drawings
Reversing entries
 Adjusting entries for expense and income method
 Other adjusting entries need not to be reversed
Financial Analysis
 Analyzing result of operation thru ratio and percentages.
 To better intracompany and intercompany comparisons.
 Trend Percentages, Horizontal and Vertical Analysis and
Financial Ratios
Financial Ratios
 Profitability

 Profit Margin: Net Income/Revenues

 Return on Total Assets: Net Income/Average Total

Assets

 Return on Equity: Net Income/Average Owner’s

Equity
Financial Ratios
 Liquidity

 Working Capital: Current Asset – Current Liabilities

 Current Ratio: Current Assets/Current Liabilities

 Quick Ratio/Acid-test Ratio: Quick Assets/Current

Liabilities
Financial Ratios
 Solvency

 Debt Ratio: Total Liabilities/Total Assets

 Equity Ratio: Total Equity/Total Assets

 Trial Balance
Accounts DR CR
Cash On Hand 5,000
Cash In Bank 20,000
Prepaid Insurance 24,000
Linen Supplies 19,000
Land 150,000
Lodge 700,000
Furniture 168,000
Accounts Payable 53,000
Unearned rent 46,000
Mortgage Payable 350,000
Sawyer, Capital 600,000
Sawyer, Personal 10,000
Rent Revenue 92,000
Advertising Expense 5,000
Salaries Expense 30,000
Utilities Expense 10,000
Total 1,141,000 1,141,000