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MANAGING PROJECTS

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Projects represent nonroutine business activities that often have long-term strategic ramifications for a firm. In this chapter, we examined how projects differ from routine business activities and discussed the major phases of projects. We noted how environmental changes have resulted in increased attention being paid to projects and project management over the past decade. In the second half of the chapter, we introduced some basic tools that businesses can use when planning for and controlling projects. Both Gantt charts and network diagrams give managers a visual picture of how a project is going. Network diagrams have the added advantage of showing the precedence between activities, as well as the critical path(s). We wrapped up the chapter by showing how these concepts are embedded in inexpensive yet powerful software packages such as Microsoft Project. If you want to learn more about project management, we encourage you to take a look at the Web site for the Proj...
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Completing the Accounting Cycle

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CONCEPTUAL
Temporary accounts are closed at the end of each accounting period for two main reasons. First, the closing process updates the capital account to include the effects of all transactions and events recorded for the period. Second, it prepares revenue, expense, and withdrawals accounts for the next reporting period by giving them zero balances.

The accounting cycle consists of 10 steps:
(1) analyze transactions,
(2) journalize,
(3) post,
(4) prepare an unadjusted trial balance,
(5) adjust accounts,
(6) prepare an adjusted trial balance,
(7) prepare statements,
(8) close,
(9) prepare a post-closing trial balance, and
(10) prepare (optional) reversing entries.
Classified balance sheets report assets and liabilities in two categories: current and noncurrent. Noncurrent assets often include long-term investments, plant assets, and intangible assets. Owner’s equity for proprietorships (and partnerships) report the capital account balance. A corporation separates equity into common stock and retained earnings.
ANALYTICAL
A company’s current ratio is defined as current assets divided by current liabilities. We use it to evaluate a company’s ability to pay its current liabilities out of current assets.

PROCEDURAL
Closing entries involve four steps: (1) close credit balances in revenue (and gain) accounts to Income Summary, (2) close debit balances in expense (and loss) accounts to Income Summary, (3) close Income Summary to the capital account, and (4) close withdrawals account to owner’s capital.

A post-closing trial balance is a list of permanent accounts and their balances after all closing entries have been journalized and posted. Its purpose is to verify that (1) total debits equal total credits for permanent accounts and (2) all temporary accounts have zero balances.

Reversing entries are an optional step. They are applied to accrued expenses and revenues. The purpose of reversing entries is to simplify subsequent journal entries. Financial statements are unaffected by the choice to use or not use reversing entries.

Guidance Answers to Decision Maker
Entrepreneur
Yes, you are concerned about the absence of a depreciation adjustment. Equipment does depreciate, and financial statements must recognize this occurrence. Its absence suggests an error or a misrepresentation (there is also the possibility that equipment is fully depreciated).

Colleague
The error is readily spotted in your friend’s postclosing trial balance as you know that rent expense is a temporary account. Post-closing trial balances only show permanent accounts.

Analyst
A current ratio of 1.2 suggests that current assets are sufficient to cover current liabilities, but it implies a minimal buffer in case of errors in measuring current assets or current liabilities. Removing the past due receivable reduces the current ratio to 0.7. Your assessment is that the company will have some difficulty meeting its loan payments.

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