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c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Completing the
Completing the
Accounting Accounting
CycleCycle
Chapter 4Chapter 4Chapter 4Chapter 4
Learning ObjectivesLearning Objectives
1.1. Describe the flow of accounting information from Describe the flow of accounting information from the unadjusted trial balance into the adjusted the unadjusted trial balance into the adjusted trial balance and financial statements.trial balance and financial statements.
2.2. Prepare financial statements from adjusted Prepare financial statements from adjusted account balances.account balances.
3.3. Prepare closing entries.Prepare closing entries.
4.4. Describe the accounting cycle.Describe the accounting cycle.
5.5. Illustrate the accounting cycle for one period.Illustrate the accounting cycle for one period.
6.6. Explain what is meant by the fiscal year and the Explain what is meant by the fiscal year and the natural business year.natural business year.
7.7. Describe and illustrate the use of working capital Describe and illustrate the use of working capital and the current ratio in evaluating a company’s and the current ratio in evaluating a company’s financial condition. financial condition.
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Learning Objective
ObjectiveDescribe the flow of accounting
Describe the flow of accounting
information from the unadjusted
information from the unadjusted
trial balance into the adjusted trial
trial balance into the adjusted trial
balance and financial statements.
balance and financial statements.
11
(continued)
FLOW OF FLOW OF ACCOUNTING ACCOUNTING INFORMATIONINFORMATION
FLOW OF ACCOUNTING INFORMATIONFLOW OF ACCOUNTING INFORMATION
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
End-of-Period Spreadsheet (Work Sheet)End-of-Period Spreadsheet (Work Sheet)
Unadjusted TB
Accounts Dr Cr Dr Cr Dr Cr
Adjustments Adjusted TB
Flow of Accounting InformationFlow of Accounting Information
o Account balances are listed in the Unadjusted Account balances are listed in the Unadjusted Trial Balance columns using the ending balances Trial Balance columns using the ending balances found in the general ledger.found in the general ledger.
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
End-of-Period Spreadsheet (Work Sheet)End-of-Period Spreadsheet (Work Sheet)
Accounts Dr Cr Dr Cr Dr Cr
Adjustments Adjusted TB
Flow of Accounting InformationFlow of Accounting Information
o Adjustments are entered here. Two possibilities:Adjustments are entered here. Two possibilities: Deferrals – Existing balances are changedDeferrals – Existing balances are changed Accruals – New information is enteredAccruals – New information is entered
Unadjusted TB
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Accounts Dr Cr Dr Cr Dr Cr
Adjustments Adjusted TB
End-of-Period Spreadsheet (Work Sheet)End-of-Period Spreadsheet (Work Sheet)
Flow of Accounting InformationFlow of Accounting Information
o Adjustments are combined with the unadjusted Adjustments are combined with the unadjusted trial balance amounts to provide balances for trial balance amounts to provide balances for the Adjusted Trial Balance columns.the Adjusted Trial Balance columns.
Unadjusted TB
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Adjusted TB
Accounts Dr Cr Dr Cr Dr Cr
Income State. Balance Sheet
End-of-Period Spreadsheet (Work Sheet)End-of-Period Spreadsheet (Work Sheet)
Flow of Accounting InformationFlow of Accounting Information
o Revenue and expense balances in the Adjusted Revenue and expense balances in the Adjusted Trial Balance columns are extended to the Income Trial Balance columns are extended to the Income Statement columns.Statement columns.
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Adjusted TB
Accounts Dr Cr Dr Cr Dr Cr
Income State. Balance Sheet
End-of-Period Spreadsheet (Work Sheet)End-of-Period Spreadsheet (Work Sheet)
Flow of Accounting InformationFlow of Accounting Information
o Asset, liability, and stockholders’ equity balances Asset, liability, and stockholders’ equity balances in the Adjusted Trial Balance columns are in the Adjusted Trial Balance columns are extended to the Balance Sheet columns.extended to the Balance Sheet columns.
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Learning Objective
ObjectivePrepare financial statements
Prepare financial statements
from adjusted account balances.
from adjusted account balances.
22
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Income StatementIncome Statement
o The income statement for NetSolutions is The income statement for NetSolutions is prepared directly from the Income prepared directly from the Income Statement or Adjusted Trial Balance Statement or Adjusted Trial Balance columns of the end-of-period spreadsheet columns of the end-of-period spreadsheet (work sheet) beginning with fees earned of (work sheet) beginning with fees earned of $16,840.$16,840.
to retained earnings statementto retained earnings statement
INCOME INCOME STATEMENTSTATEMENT
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Retained Earnings StatementRetained Earnings Statement
o The first item normally presented on the The first item normally presented on the retained earnings statement is the retained earnings statement is the balance of the Retained Earnings account balance of the Retained Earnings account at the beginning of the period.at the beginning of the period.
RETAINED RETAINED EARNINGS EARNINGS
STATEMENTSTATEMENTfrom the income statementfrom the income statement
to the balance sheetto the balance sheet
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Balance SheetBalance Sheet
o The balance sheet is prepared directly The balance sheet is prepared directly from the Balance Sheet or Adjusted Trial from the Balance Sheet or Adjusted Trial Balance columns of the end-of-period Balance columns of the end-of-period spreadsheet (or work sheet), beginning spreadsheet (or work sheet), beginning with Cash of $2,065.with Cash of $2,065.
BALANCE BALANCE SHEETSHEET
from the retained earnings statementfrom the retained earnings statement
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Classified Balance SheetClassified Balance Sheet
o A A classified balance sheetclassified balance sheet is a balance is a balance sheet that was expanded by adding sheet that was expanded by adding subsections for (1) current assets; (2) subsections for (1) current assets; (2) property, plant, and equipment; (3) property, plant, and equipment; (3) current liabilities; and (4) long-term current liabilities; and (4) long-term liabilities.liabilities.
CURRENT ASSETSCURRENT ASSETS
Cash and other Cash and other assets that are assets that are expected to be expected to be converted into converted into cash, sold, or used cash, sold, or used up usually within a up usually within a year or less, year or less, through the through the normal operations normal operations of the business, of the business, are called are called currentcurrent assetsassets..
CashCash
Accounts Accounts ReceivableReceivable
Notes Notes ReceivableReceivable
SuppliesSupplies
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Notes ReceivableNotes Receivable
o Notes receivable Notes receivable are written promises by are written promises by the customer to pay the amount of the the customer to pay the amount of the note and possibly interest at an agreed note and possibly interest at an agreed rate.rate.
FIXED ASSETSFIXED ASSETS
Property,Property, plant, andplant, and equipmentequipment (also (also called called fixed assetsfixed assets or or plant assetsplant assets) ) include assets that include assets that depreciate over a depreciate over a period of time. period of time. Land is an Land is an exception, since it exception, since it is not subject to is not subject to depreciation.depreciation.
EquipmentEquipment
MachineryMachinery
BuildingsBuildings
LandLand
CURRENT LIABILITIESCURRENT LIABILITIES
Liabilities that will Liabilities that will be due within a be due within a short time (usually short time (usually one year or less) one year or less) and that are to be and that are to be paid out of current paid out of current assets are called assets are called current liabilitiescurrent liabilities..
Accounts Accounts payablepayable
Wages payableWages payable
Interest payableInterest payable
Unearned feesUnearned fees
LONG-TERM LIABILITIESLONG-TERM LIABILITIES
Liabilities not due Liabilities not due for a long time for a long time (usually more than (usually more than one year) are one year) are called called long-term long-term liabilitiesliabilities..
Long-term notes Long-term notes payablepayable
Mortgage Mortgage payablepayable
Bond payableBond payable
STOCKHOLDERS’ EQUITYSTOCKHOLDERS’ EQUITY
Stockholders’ equity Stockholders’ equity is the stockholders’ is the stockholders’ right to the assets of right to the assets of the business. It is the business. It is presented on the presented on the balance sheet below balance sheet below the liabilities section.the liabilities section.
Capital stockCapital stock
Retained Retained earningsearnings
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Learning Objective
ObjectivePrepare closing entries.
Prepare closing entries.
33
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Closing EntriesClosing Entries
o Accounts that are relatively permanent Accounts that are relatively permanent from year to year are called from year to year are called permanent permanent accounts accounts or or real accountsreal accounts. These accounts . These accounts are carried forward from year to year.are carried forward from year to year.
o Accounts that report amounts for only one Accounts that report amounts for only one period are called period are called temporary accounts temporary accounts or or nominal accountsnominal accounts. Temporary accounts are . Temporary accounts are not carried forward because they relate to not carried forward because they relate to only one period. only one period.
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Closing EntriesClosing Entries
o To report amounts for only one period, To report amounts for only one period, temporary accounts should have zero temporary accounts should have zero balances at the beginning of the next balances at the beginning of the next period. period.
o To achieve this, the revenue and expense To achieve this, the revenue and expense account balances are transferred to account balances are transferred to Income Summary at the end of the Income Summary at the end of the period.period.
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Closing EntriesClosing Entries
o The balance of Income Summary (net The balance of Income Summary (net income or net loss) is then transferred to income or net loss) is then transferred to the Retained Earnings account. the Retained Earnings account.
o The balance of the Dividends account is The balance of the Dividends account is also transferred to the Retained Earnings also transferred to the Retained Earnings account. account.
o The entries that transfer these balances The entries that transfer these balances are called are called closing entriesclosing entries..
CLOSING CLOSING ENTRIESENTRIES
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Closing EntriesClosing Entries
o Income Summary Income Summary is a temporary account is a temporary account that is only used during the closing that is only used during the closing process.process.
o At the end of the At the end of the closing processclosing process, the , the Income Summary account will have a zero Income Summary account will have a zero balance.balance.
o Closing entries are recorded in the journal Closing entries are recorded in the journal and dated as of the last date of the and dated as of the last date of the accounting period.accounting period.
JOURNALIZING JOURNALIZING AND POSTING AND POSTING
CLOSING CLOSING ENTRIESENTRIES
JOURNALIZING JOURNALIZING AND POSTING AND POSTING
CLOSING CLOSING ENTRIESENTRIES
JOURNALIZING JOURNALIZING AND POSTING AND POSTING
CLOSING CLOSING ENTRIESENTRIES
JOURNALIZING JOURNALIZING AND POSTING AND POSTING
CLOSING CLOSING ENTRIESENTRIES
CLOSING CLOSING ENTRIESENTRIES
Step 1
Step 2
Step 3
Step 4
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Temporary Account BalancesTemporary Account Balances
o After the closing entries are posted, all of After the closing entries are posted, all of the temporary accounts have zero the temporary accounts have zero balances.balances.
LEDGERLEDGER
LEDGERLEDGER
LEDGERLEDGER
LEDGERLEDGER
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Post-Closing Trial BalancePost-Closing Trial Balance
o A post-closing trial balance is prepared A post-closing trial balance is prepared after the closing entries have been after the closing entries have been posted. The purpose of the post-closing posted. The purpose of the post-closing (after closing) trial balance is to verify (after closing) trial balance is to verify that the ledger is in balance and ready for that the ledger is in balance and ready for the next accounting period.the next accounting period.
POST-CLOSING POST-CLOSING TRIAL BALANCETRIAL BALANCE
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Learning Objective
ObjectiveDescribe the accounting cycle.
Describe the accounting cycle.
44
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Accounting CycleAccounting Cycle
o The accounting process that begins with The accounting process that begins with analyzing and journalizing transactions analyzing and journalizing transactions and ends with preparing the accounting and ends with preparing the accounting records for the next period’s transactions records for the next period’s transactions is called the is called the accounting cycleaccounting cycle. There are . There are ten steps in the accounting cycle.ten steps in the accounting cycle.
ACCOUNTING ACCOUNTING CYCLECYCLE
to the financial to the financial statementsstatements
ACCOUNTING ACCOUNTING CYCLECYCLE
From the adjusted From the adjusted trial balancetrial balance
ACCOUNTING ACCOUNTING CYCLECYCLE
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Learning Objective
ObjectiveIllustrate the accounting cycle
Illustrate the accounting cycle for one period.
for one period.
55
ACCOUNTINACCOUNTING CYCLEG CYCLE
ACCOUNTING ACCOUNTING CYCLECYCLE
ACCOUNTING ACCOUNTING CYCLECYCLE
UNADJUSTED UNADJUSTED TRIAL BALANCETRIAL BALANCE
END-OF-END-OF-PERIOD PERIOD
SPREADSHEETSPREADSHEET
ADJUSTING ADJUSTING ENTRIESENTRIES
ADJUSTED ADJUSTED TRIAL BALANCETRIAL BALANCE
INCOME INCOME STATEMENTSTATEMENT
RETAINED RETAINED EARNINGS EARNINGS
STATEMENTSTATEMENT
BALANCE BALANCE SHEETSHEET
CLOSING CLOSING ENTRIESENTRIES
POST-CLOSING POST-CLOSING TRIAL BALANCETRIAL BALANCE
LEDGERLEDGER
LEDGERLEDGER
LEDGERLEDGER
LEDGERLEDGER
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Learning Objective
ObjectiveExplain what is meant by the
Explain what is meant by the
fiscal year and the natural
fiscal year and the natural business year.
business year.
66
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Accounting PeriodAccounting Period
o The annual accounting period adopted by The annual accounting period adopted by a business is known as its a business is known as its fiscal yearfiscal year..
o When a business adopts a fiscal year that When a business adopts a fiscal year that ends when business activities have ends when business activities have reached the lowest point in its annual reached the lowest point in its annual operation, such a fiscal year is also called operation, such a fiscal year is also called the the natural business yearnatural business year..
ACCOUNTING ACCOUNTING PERIODPERIOD
FINANCIAL FINANCIAL HISTORY OF A HISTORY OF A
BUSINESSBUSINESS
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Learning Objective
ObjectiveDescribe and illustrate the use of
Describe and illustrate the use of
working capital and the current
working capital and the current
ratio in evaluating a company’s
ratio in evaluating a company’s financial condition.
financial condition.
77
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Working Capital and Current RatioWorking Capital and Current Ratio
o The ability to convert assets into cash is The ability to convert assets into cash is called called liquidityliquidity..
o The ability of a business to pay its debts is The ability of a business to pay its debts is called called solvencysolvency..
o Working capital Working capital is the excess of the is the excess of the current assets of a business over its current assets of a business over its current liabilities.current liabilities.
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Working Capital and Current RatioWorking Capital and Current Ratio
o NetSolutions’ working capital at the end of NetSolutions’ working capital at the end of 2013 is $6,355 as computed below. This 2013 is $6,355 as computed below. This amount of working capital implies that amount of working capital implies that NetSolutions is able to pay its current NetSolutions is able to pay its current liabilities.liabilities.
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Working Capital and Current RatioWorking Capital and Current Ratio
o The The current ratio current ratio is another means of is another means of expressing the relationship between expressing the relationship between current assets and current liabilities. The current assets and current liabilities. The current ratio is computed by dividing current ratio is computed by dividing current assets by current liabilities.current assets by current liabilities.
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Working Capital and Current RatioWorking Capital and Current Ratio
o The current ratio for NetSolutions at the The current ratio for NetSolutions at the end of 2013 is 5.6, computed as follows:end of 2013 is 5.6, computed as follows:
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
AppendixAppendix
End-of-Period
End-of-Period
Spreadsheet
SpreadsheetEnd-of-Period
End-of-Period
Spreadsheet
Spreadsheet
75
Account Title Debit Credit Debit Credit Debit Credit
12345678910111213141516171819202122232425
Unadjusted Trial Balance Adjustments Trial Balance
Adjusted
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accumulated Depr.Accounts Payable 900Wages PayableUnearned Rent 360Capital Stock 25,000Dividends 4,000Fees Earned 16,340Rent RevenueWages Expense 4,275Rent Expense 1,600Depreciation ExpenseUtilities Expense 985Supplies Expense 800Insurance ExpenseMiscellaneous Exp. 455
42,600 42,600
The The unadjusted unadjusted trial balance trial balance is checked is checked
for equalityfor equality..
76
Account Title Debit Credit Debit Credit Debit Credit
12345678910111213141516171819202122232425
Trial Balance Adjustments Trial Balance
Adjusted
Supplies Supplies needs needs adjusting adjusting
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accumulated Depr.Accounts Payable 900Wages PayableUnearned Rent 360Capital Stock 25,000 Dividends 4,000Fees Earned 16,340Rent RevenueWages Expense 4,275Rent Expense 1,600Depreciation ExpenseUtilities Expense 985Supplies Expense 800Insurance ExpenseMiscellaneous Exp. 455
42,600 42,600
Unadjusted
77
Account Title Debit Credit Debit Credit Debit Credit
12345678910111213141516171819202122232425
Trial Balance Adjustments Trial Balance
Adjusted
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accumulated Depr.Accounts Payable 900Wages PayableUnearned Rent 360Capital Stock 25,000Dividends 4,000Fees Earned 16,340Rent RevenueWages Expense 4,275Rent Expense 1,600Depreciation ExpenseUtilities Expense 985Supplies Expense 800Insurance ExpenseMiscellaneous Exp. 455
42,600 42,600
(a) Cost of supplies on hand at December 31 is $760.
Unadjusted
(a) 1,240
(a) 1,240
78
Account Title Debit Credit Debit Credit Debit Credit
12345678910111213141516171819202122232425
Trial Balance Adjustments Trial Balance
Adjusted
(a) 1,240
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accumulated Depr.Accounts Payable 900Wages PayableUnearned Rent 360Capital Stock 25,000Dividends 4,000Fees Earned 16,340Rent RevenueWages Expense 4,275Rent Expense 1,600Depreciation ExpenseUtilities Expense 985Supplies Expense 800Insurance ExpenseMiscellaneous Exp. 455
42,600 42,600
(a) 1,240
(b) The insurance expense for December is $200 ($2,400 ÷ 12).
Unadjusted
(b) 200
(b) 200
79
Account Title Debit Credit Debit Credit Debit Credit
12345678910111213141516171819202122232425
(c) 120
(c) 120
Trial Balance Adjustments Trial Balance
Adjusted
(b) 200(a) 1,240
(b) 200
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accumulated Depr.Accounts Payable 900Wages PayableUnearned Rent 360Capital Stock 25,000Dividends 4,000Fees Earned 16,340Rent RevenueWages Expense 4,275Rent Expense 1,600Depreciation ExpenseUtilities Expense 985Supplies Expense 800Insurance ExpenseMiscellaneous Exp. 455
42,600 42,600
(a) 1,240
(c) Rent revenue earned during December was $120 ($360 ÷ 3).
Unadjusted
80
Account Title Debit Credit Debit Credit Debit Credit
12345678910111213141516171819202122232425
Trial Balance Adjustments Trial Balance
Adjusted
(b) 200(a) 1,240
(b) 200
(c) 120
(c) 120
(d) 500
(d) 500
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accumulated Depr.Accounts Payable 900Wages PayableUnearned Rent 360Capital Stock 25,000Dividends 4,000Fees Earned 16,340Rent RevenueWages Expense 4,275Rent Expense 1,600Depreciation ExpenseUtilities Expense 985Supplies Expense 800Insurance ExpenseMiscellaneous Exp. 455
42,600 42,600
(a) 1,240
(d) Fees accrued at the end of December, but not recorded, totaled $500.
Unadjusted
81
Account Title Debit Credit Debit Credit Debit Credit
12345678910111213141516171819202122232425
(e) 250
Trial Balance Adjustments Trial Balance
Adjusted
(b) 200(a) 1,240
(d) 500
(b) 200
(c) 120
(c) 120
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accumulated Depr.Accounts Payable 900Wages PayableUnearned Rent 360Capital Stock 25,000Dividends 4,000Fees Earned 16,340Rent RevenueWages Expense 4,275Rent Expense 1,600Depreciation ExpenseUtilities Expense 985Supplies Expense 800Insurance ExpenseMiscellaneous Exp. 455
42,600 42,600
(d) 500
(e) 250
(a) 1,240
((e) Wages accrued, but not paid, at the end of December totaled $250.
Unadjusted
82
Account Title Debit Credit Debit Credit Debit Credit
12345678910111213141516171819202122232425
Trial Balance Adjustments Trial Balance
Adjusted
(b) 200(a) 1,240
(d) 500
(c) 120
(c) 120(d) 500
(f) 50
(f) 50
(b) 200
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accumulated Depr.Accounts Payable 900Wages PayableUnearned Rent 360Capital Stock 25,000Dividends 4,000Fees Earned 16,340Rent RevenueWages Expense 4,275Rent Expense 1,600Depreciation ExpenseUtilities Expense 985Supplies Expense 800Insurance ExpenseMiscellaneous Exp. 455
42,600 42,600
(e) 250
(a) 1,240
(e) 250
(f) Depreciation of office equipment is $50 for December.
Unadjusted
83
Account Title Debit Credit Debit Credit Debit Credit
12345678910111213141516171819202122232425
2,360 2,360
Trial Balance Adjustments Trial Balance
Adjusted
(b) 200(a) 1,240
(d) 500
(c) 120
(c) 120
(f) 50
(b) 200(a) 1,240
(e) 250
(e) 250
(d) 500
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accumulated Depr.Accounts Payable 900Wages PayableUnearned Rent 360Capital Stock 25,000Dividends 4,000Fees Earned 16,340Rent RevenueWages Expense 4,275Rent Expense 1,600Depreciation ExpenseUtilities Expense 985Supplies Expense 800Insurance ExpenseMiscellaneous Exp. 455
42,600 42,600 Summed and ruled
(f) 50
Unadjusted
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Add/Subtract AdjustmentsAdd/Subtract Adjustments
o The next step is to add or subtract the The next step is to add or subtract the adjustments to (or from) the amounts adjustments to (or from) the amounts found in the Unadjusted Trial Balance found in the Unadjusted Trial Balance columns and enter the results in the columns and enter the results in the Adjusted Trial Balance columns.Adjusted Trial Balance columns.
85
Account Title Debit Credit Debit Credit Debit Credit
Trial Balance Adjustments Trial Balance
12345678910111213141516171819202122232425
Adjusted
2,360 2,360
(b) 200(a) 1,240
(d) 500
(c) 120
(c) 120(d) 500
(f) 50
(b) 200(a) 1,240
(e) 250
Cash 2,065 2,065Accounts Receivable 2,220 2,720Supplies 2,000 760Prepaid Insurance 2,400 2,200Land 20,000 20,000Office Equipment 1,800 1,800Accumulated Depr. 50Accounts Payable 900 900Wages Payable 250Unearned Rent 360 240Capital Stock 25,000 25,000Dividends 4,000 4,000Fees Earned 16,340 16,840Rent Revenue 120Wages Expense 4,275 4,525Rent Expense 1,600 1,600Depreciation Expense 50Utilities Expense 985 985Supplies Expense 800 2,040Insurance Expense 200Miscellaneous Exp. 455 455
42,600 42,600 43,400 43,400
(f) 50
Unadjusted
(e) 250
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SpreadsheetSpreadsheet
o Preparing the work sheet as a spreadsheet Preparing the work sheet as a spreadsheet allows the computer to assist you in the allows the computer to assist you in the process. The spreadsheet illustrated in process. The spreadsheet illustrated in Exhibit 20 has been reproduced on the Exhibit 20 has been reproduced on the next slide. next slide.
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Extending Amounts to Statement Extending Amounts to Statement ColumnsColumnso The next step is to extend amounts in the The next step is to extend amounts in the
Adjusted Trial Balance columns to the Adjusted Trial Balance columns to the Income Statement and Balance Sheet Income Statement and Balance Sheet columns. Because of space limitations, the columns. Because of space limitations, the unadjusted trial balance and the unadjusted trial balance and the adjustments columns have been removed adjustments columns have been removed for the remainder of this slide for the remainder of this slide presentation.presentation.
89
Account Title Debit Credit Debit Credit Debit Credit
Trial Balance Income Statement Balance Sheet
12345678910111213141516171819202122232425
Adjusted
Cash 2,065 2,065Accounts Receivable 2,720 2,720Supplies 760 760Prepaid Insurance 2,200 2,200Land 20,000 20,000Office Equipment 1,800 1,800Accumulated Depr. 50 50Accounts Payable 900 900Wages Payable 250 250Unearned Rent 240 240Capital Stock 25,000 25,000Dividends 4,000 4,000Fees Earned 16,840 16,840Rent Revenue 120 120Wages Expense 4,525 4,525Rent Expense 1,600 1,600Depreciation Expense 50 50Utilities Expense 985 985Supplies Expense 2,040 2,040Insurance Expense 200 200Miscellaneous Exp. 455 455
43,400 43,400
90
Account Title Debit Credit Debit Credit Debit Credit
Trial Balance Income Statement Balance Sheet
12345678910111213141516171819202122232425
Adjusted
The four columns are summed.
Cash 2,065 2,065Accounts Receivable 2,720 2,720Supplies 760 760Prepaid Insurance 2,200 2,200Land 20,000 20,000Office Equipment 1,800 1,800Accumulated Depr. 50 50Accounts Payable 900 900Wages Payable 250 250Unearned Rent 240 240Capital Stock 25,000 25,000Dividends 4,000 4,000Fees Earned 16,840 16,840Rent Revenue 120 120Wages Expense 4,525 4,525Rent Expense 1,600 1,600Depreciation Expense 50 50Utilities Expense 985 985Supplies Expense 2,040 2,040Insurance Expense 200 200Miscellaneous Exp. 455 455
43,400 43,400 9,855 16,960 33,545 26,440
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Determining Net Income (Net Loss)Determining Net Income (Net Loss)
o The difference between the Income Statement The difference between the Income Statement column totals and Balance Sheet column totals column totals and Balance Sheet column totals is net income (or net loss) for the period.is net income (or net loss) for the period.
9,855 16,960 33,545 26,4407,105 7,105
16,960 16,960 33,545 33,545
Income Statement Balance Sheet
Net IncomeNet Income
92
Account Title Debit Credit Debit Credit Debit Credit
Trial Balance Income Statement Balance Sheet
12345678910111213141516171819202122232425
Adjusted
Cash 2,065 2,065Accounts Receivable 2,720 2,720Supplies 760 760Prepaid Insurance 2,200 2,200Land 20,000 20,000Office Equipment 1,800 1,800Accumulated Depr. 50 50Accounts Payable 900 900Wages Payable 250 250Unearned Rent 240 240Capital Stock 25,000 25,000Dividends 4,000 4,000Fees Earned 16,840 16,840Rent Revenue 120 120Wages Expense 4,525 4,525Rent Expense 1,600 1,600Depreciation Expense 50 50Utilities Expense 985 985Supplies Expense 2,040 2,040Insurance Expense 200 200Miscellaneous Exp. 455 455
43,400 43,400 9,855 16,960 33,545 26,440Net income 7,105 7,105
16,960 16,960 33,545 33,545
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Completing the
Completing the
Accounting Accounting
CycleCycle
The EndThe EndThe EndThe End
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