4 Tutorials that teach End of Period Activities
Take your pick:
End of Period Activities

End of Period Activities

Author: Evan McLaughlin
In this lesson, the student will learn about the series of activities that occur at the end of an accounting period.
See More

Get a great return on your investment.
Our Accounting course is only $329.

Sophia's online courses help save you money, while earning credits that are eligible for transfer to over 2,000 colleges and universities.*


"End of Period Activities"

Source: Instrumental “Drops of H2O ( The Filtered Water Treatment )" by J.Lang (feat. Airtone),” Creative Commons, http://ccmixter.org/files/djlang59/37792

Video Transcription

Download PDF

[MUSIC PLAYING] Hey everyone. Welcome to our video today on end of period activities. So what are we discussing today? Well, we're going to look at time periods, end reporting, we're going to look at the trial balance worksheet, and we'll walk through that, and then we're going to finish up with discussing financial statements. But let's start with that first point, time periods and reporting. So time periods and reporting, starting with our time period assumption, which is that businesses must have consistent periods of reporting and that these periods are consecutive, monthly, quarterly, or annually.

So how do we determine our report timing? Well, law dictates report timing for our publicly traded companies. So they have SCC requirements to report quarterly and annually. So in order to be SCC compliant, our publicly traded companies have to report quarterly as well as annually. Now, our privately owned companies. They don't have an SCC requirement, so they don't have that same regulatory requirement to report every quarter.

However, they do have to report annually for tax purposes. So now why do we report quarterly, annually, why do we report consistently? Well, it's to ensure report accuracy. So at the end of the reporting period, a business provides accurate reporting. And in order to report and be accurate, that data needs to be complete. So how do we ensure that our data is complete? How do we check our accuracy? Well that's through the use of the trial balance.

So let's talk about the trial balance. So we have what we call the trial balance worksheet. What is it? Well, it's a listing of all of our general ledger accounts. It details all of our account balances, the debits and the credits for the individual general ledger accounts. And remember, our total debits must always equal our total credits. So now let's take a look at the trial balance worksheet and walk through what it's used for.

Now, what we're looking at here is our trial balance worksheet. And like we talked about, the trial balance worksheet has a list of all our general ledger accounts which you can see there on the left. It also details the debits and credits, the balances within those general ledger accounts. And we use the trial balance worksheet in preparing a trial balance to ensure that accurate data is prepared. So after we have our trial balance, then we can start to make our adjustments.

So we'll adjust for any accruals, any prepaids, correct any errors and omissions, and this is where we handle our matching, so make sure that our revenues are matched with our expenses. After we've made all of our adjustments, we then can prepare our adjusted trial balance. And our adjusted trial balance is going to be the source for our financial statements. So now that we have our adjusted trial balance, now we can look to prepare our financial statements.

Sticking with this trial balance worksheet, then we can prepare our income statement. So this is all of our revenues and our expenses and this is also when we can identify our net income. So you'll see there that for this example, our net income is $13,500, which is the difference between our credits and our debits. So after we have our income statement, then we can prepare our balance sheet. So our balance sheet has all of our assets, our liabilities, and our equity. So all of our permanent accounts.

And now that we have our financial statements, that part is complete. Now we can make our closing entries. So now we can close out our temporary accounts, which are our revenues and expenses. So we can close out all of those accounts for the period to start fresh for the next period. So that's our trial balance worksheet, taking us from the trial balance all the way through to our closing entries. And now that we've seen what the trial balance is used for, let's move on to our financial statements.

So the financial statements are the final step in our reporting process. So what are the financial statements? Well, we have four main financial statements. We have a balance sheet, an income statement, a statement of cash flow, and a statement of changes in owner's equity, which is sometimes referred to as a statement of retained earnings. So you might ask yourself, is there a specific order to prepare the financial statements? Can we start anywhere we want and then just make sure we prepare all four?

Well no, there is a specific order to how we prepare the financial statements. We must start with the income statement. And after we prepare our income statement, then we prepare our statement of changes in owner's equity. The reason being is that the net income from our income statement flows into our statement of changes in owner's equity. And after we've prepared that statement, then we can prepare our balance sheet. Now why do we then prepare the balance sheet?

Because the ending balance in that owner's equity from the statement of changes in owner's equity feeds into our balance sheet. And after we complete our balance sheet, then we can prepare our statement of cash flows. And our statement of cash flows contains the ending cash balance, which we get from our balance sheet. So that's why we have a specific order to our financial statements. So now let's summarize. Let's bring it home in a nutshell.

We talked about time periods and the different reporting requirements. We walked through a trial balance worksheet and we watched a video of that. And then we discussed our financial statements. So we talked about the source of those financial statements and the sequence of those financial statements. How the net income from our income statement feeds into our statement of changes in owner's equity, and the statement of changes of owner's equity feeds into the balance sheet and the balance sheet does a statement of cash flows I hope everybody enjoyed this video and I hope to see you next time.