CPA Financial Accounting and Reporting (FAR)

Certified Public Accountant Financial Accounting and Reporting examination.

Conceptual Framework and Standard SettingFinancial Statements and DisclosuresRevenue Recognition
LeasesFinancial Instruments and Fair Value MeasurementBusiness Combinations and Consolidations
Analyzing Real-World Financial StatementsPreparing Adjusting and Closing EntriesApplying GAAP to New Business Transactions
Mastering Multiple-Choice QuestionsSimulations and Task-Based Testlets
Conceptual Framework...Financial Statements...Revenue RecognitionLeasesFinancial Instrument...Business Combination...Analyzing Real-World...Preparing Adjusting ...Applying GAAP to New...Mastering Multiple-C...Simulations and Task...
Practical Applications

Preparing Adjusting and Closing Entries

The Final Steps in the Accounting Cycle

Adjusting and closing entries ensure that all accounts are up to date before the new accounting period begins. Adjusting entries record revenues and expenses in the correct period, while closing entries reset temporary accounts.

Adjusting Entries

  • Record accrued revenues and expenses.
  • Adjust for prepaid and unearned items.

Closing Entries

  • Transfer balances from temporary (income and expense) accounts to permanent accounts (retained earnings).

Real-World Impact

This process ensures the accuracy and completeness of financial statements, helping businesses report their true performance.

Examples

  • An accountant records accrued interest revenue at year-end to match income with the correct period.

  • A company closes its revenue accounts to retained earnings after preparing the income statement.

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Applying GAAP to New Business Transactions