When entries 1 and 2 are posted to the general ledger, the balances in all revenue and expense accounts are transferred to the Income Summary account. Notice that a zero balance results for each revenue and expense account after the closing entries are posted, and there is a $2,057 credit balance in the income summary. The income summary balance agrees to the net income reported on the income statement. Initially, the concept of crediting Accumulated Depreciation may be confusing because of how we learned to adjust prepaids (debit an expense and credit the prepaid).

• It involves eight steps that ensure the proper recording and reporting of financial transactions.
• Generally, companies with longer operating cycles must require higher return on their sales to compensate for the higher opportunity cost of the funds blocked in inventories and receivables.
• Recall from Chapter 2 that Big Dog paid for a 12-month insurance policy that went into effect on January 1 (transaction 5).
• This cash-to-cash sequence of transactions is commonly referred to as an operating cycle and is illustrated in Figure 3.1.
• This section shows how financial statements are prepared using the adjusted trial balance.

A ratio of 1.6 times seems to be a very low turnover rate for Clear Lake Sporting Goods. This may mean the company is maintaining too high an inventory supply to meet a low demand from customers. Managers may want to decrease their on-hand inventory to free up more liquid assets to use in other ways. Ratios should be used with caution and in conjunction with other ratios https://www.bookstime.com/ and additional financial and contextual information. To gain a better understanding of its ratio performance, Clear Lake Sporting Goods can compare its turnover to industry averages, key competitors, and its own historical ratios. Given this outcome, the managers may want to consider stricter credit lending practices to make sure credit customers are of a higher quality.

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PCL allows F&B businesses to enjoy the convenience and costs efficiencies of SUP without the guilt. It ensures unnecessary operational costs do not get passed on to customers. The upcycling of waste SUP into brand new products, tracked and made visible, can definitely supercharge recycling efforts for all who bothered to do their part in recycling as operating cycle compared to yesteryears. Average inventory is found by dividing the sum of beginning and ending inventory balances found on the balance sheet. The beginning inventory balance in the current year is taken from the ending inventory balance in the prior year. For our discussion of financial statement analysis, we will look at Clear Lake Sporting Goods.

The operating cycle is also known as the cash-to-cash cycle, the net operating cycle, and the cash conversion cycle. Thus, several management decisions (or negotiated issues with business partners) can impact the operating cycle of a business. Ideally, the cycle should be kept as short as possible, so that the cash requirements of the business are reduced. This end of life (EOL) exercise ensures that the packaging we put out will be diverted from local incinerators or landfills, hence locking away carbon emissions for good. This is our definition of a truly eco friendly product but more importantly, the final upcycled product will all be accounted for and made known to consumers who bothered to recycle.