Chapter 6

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Chapter 6

ClosingProcess andFinancial Statements

6-6-22

No. Account Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.101 Cash 4,350 126 Supplies 9,720 128 Prepaid insurance 2,400 167 Equipment 26,000 168 Accum. depr. - Equip. - 201 Accounts payable 6,200 209 Salaries payable - 236 Unearned revenue 3,000 301 C. Taylor, Capital 30,000 302 C. Taylor, Withdrawals 200 403 Consulting revenue 5,800 406 Rental revenue 300 612 Depr. expense - 622 Salaries expense 1,400 637 Insurance expense - 640 Rent expense 1,000 652 Supplies expense - 690 Utilities expense 230

Totals 45,300 45,300

Dr. Cr.Income Statement

Balance Sheet & Statement of

Owner's Equity

FastForwardWork Sheet

For Month Ended December 31, 2010

Adjusted Trial BalanceAdjustmentsUnadjusted Trial

Balance

Enter unadjustedEnter unadjusted trial balance trial balance

Learning Objective 1Prepare a work sheet and explain its usefulness.

LO1

6-6-33

No. Account Dr. Cr. Dr. Cr. Dr. Cr. Dr.101 Cash 4,350 126 Supplies 9,720 (b) 1,050 128 Prepaid insurance 2,400 (a) 100 167 Equipment 26,000 168 Accum. depr. - Equip. - (c) 375 201 Accounts payable 6,200 209 Salaries payable - (d) 210 236 Unearned revenue 3,000 301 C. Taylor, Capital 30,000 302 C. Taylor, Withdrawals 200 403 Consulting revenue 5,800 406 Rental revenue 300 612 Depr. expense - (c) 375 622 Salaries expense 1,400 (d) 210 637 Insurance expense - (a) 100 640 Rent expense 1,000 652 Supplies expense - (b) 1,050 690 Utilities expense 230

Totals 45,300 45,300 1,735 1,735




BalanceDr. Cr.

Income Statement


Owner's Equity

Use of a Work Sheet

Enter adjustmentsEnter adjustments

LO1

6-6-44

No. Account Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.101 Cash 4,350 4,350 126 Supplies 9,720 (b) 1,050 8,670 128 Prepaid insurance 2,400 (a) 100 2,300 167 Equipment 26,000 26,000 168 Accum. depr. - Equip. - (c) 375 375 201 Accounts payable 6,200 6,200 209 Salaries payable - (d) 210 210 236 Unearned revenue 3,000 3,000 301 C. Taylor, Capital 30,000 30,000 302 C. Taylor, Withdrawals 200 200 403 Consulting revenue 5,800 5,800 406 Rental revenue 300 300 612 Depr. expense - (c) 375 375 622 Salaries expense 1,400 (d) 210 1,610 637 Insurance expense - (a) 100 100 640 Rent expense 1,000 1,000 652 Supplies expense - (b) 1,050 1,050 690 Utilities expense 230 230

Totals 45,300 45,300 1,735 1,735 45,885 45,885




BalanceDr. Cr.

Income Statement


Owner's Equity

Use of a Work Sheet

Prepare adjustedPrepare adjusted trial balance trial balance

LO1

6-6-55

Use of a Work Sheet

No. Account Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.101 Cash 4,350 4,350 4,350 126 Supplies 9,720 (b) 1,050 8,670 8,670 128 Prepaid insurance 2,400 (a) 100 2,300 2,300 167 Equipment 26,000 26,000 26,000 168 Accum. depr. - Equip. - (c) 375 375 375 201 Accounts payable 6,200 6,200 6,200 209 Salaries payable - (d) 210 210 210 236 Unearned revenue 3,000 3,000 3,000 301 C. Taylor, Capital 30,000 30,000 30,000 302 C. Taylor, Withdrawals 200 200 200 403 Consulting revenue 5,800 5,800 5,800 406 Rental revenue 300 300 300 612 Depr. expense - (c) 375 375 375 622 Salaries expense 1,400 (d) 210 1,610 1,610 637 Insurance expense - (a) 100 100 100 640 Rent expense 1,000 1,000 1,000 652 Supplies expense - (b) 1,050 1,050 1,050 690 Utilities expense 230 230 230

Totals 45,300 45,300 1,735 1,735 45,885 45,885




BalanceDr. Cr.

Income Statement


Owner's Equity

Sort adjusted trialSort adjusted trial balance amounts to balance amounts to financial statements financial statements

LO1

6-6-66

Use of a Work Sheet


Totals 45,300 45,300 1,735 1,735 45,885 45,885 4,365 6,100 41,520 39,785




BalanceDr. Cr.

Income Statement


Owner's Equity

Total statementTotal statement columns, compute columns, compute income or loss and income or loss and balance columns balance columns

Column totals differ by the amount of net income.Column totals differ by the amount of net income.

{ {

LO1

6-6-77

Use of a Work Sheet


Totals 45,300 45,300 1,735 1,735 45,885 45,885 4,365 6,100 41,520 39,785 1,735 6,100 6,100



Owner's Equity




Balance


Revenues exceed expenses, resulting in net income of $1,735.Revenues exceed expenses, resulting in net income of $1,735.

LO1

6-6-88

Use of a Work Sheet


Totals 45,300 45,300 1,735 1,735 45,885 45,885 4,365 6,100 41,520 39,785 1,735 1,735 6,100 6,100 41,520 41,520



Owner's Equity




Balance


Net income is extended to the credit column of these columns.Net income is extended to the credit column of these columns.

LO1

6-6-99

Prepare the Income Statement.

Financial Statements Preparedfrom the Work Sheet

Prepare the Statement of Owner’s Equity.

Prepare the Balance Sheet.

FastForwardBalance Sheet

December 31, 2010Assets

Cash 4,350$ Supplies 8,670 Prepaid insurance 2,300 Equipment 26,000$ Less: accum. depr. (375) 25,625 Total assets 40,945$

LiabilitiesAccounts payable 6,200$ Salaries payable 210 Unearned consulting revenues 3,000 Total liabilities 9,410$

Owner's EquityC.Taylor, Capital 31,535 Total liabilities and equity 40,945$

LO1

6-6-1010

Learning Objective 2Explain why temporary accounts are closed each period.

Income is earned over a period of time. At the end of the time period, we start over and calculate income for the next period.

The closing process resets all revenue, expense, and withdrawal accounts to a zero balance at the end of the period. This is so we can start the next accounting period fresh.

Temporary Accounts

Revenues

Income Summary

Expe

nse

s

Withdraw

als

Permanent Accounts

Assets

Liab

ilitie

s Ow

ner’s C

apital

LO2

6-6-1111

Learning Objective 3Describe and prepare closing entries.

Close Revenue accounts to Income Summary.

Close Expense accounts to Income Summary.

Close Income Summary account to Owner’s Capital.

Close Withdrawals to Owner’s Capital.

Revenue Accounts25,000 25,000

-

Income Summary25,000

25,000

Expense Accounts10,000 10,000

-

Income Summary10,000 25,000

15,000

Income Summary10,000 25,000 15,000

-

Owner's Capital30,000 15,000

45,000

Owner, Withdrawals5,000 5,000

-

Owner's Capital5,000 30,000

15,000

40,000

LO3

6-6-1212

Learning Objective 4Explain and prepare a post-closing trial balance.

List of permanent accounts and their balances after closing entries have been posted.

Total debits and credits must be equal.

LO4

6-6-1313

Learning Objective 5Identify steps in the accounting cycle.

1. Analyze transactions

2. Journalize

3. Post4. Prepare unadjusted trial balance

5. Adjust6. Prepare Adjusted trial balance

7. Prepare statements

8. Close9. Prepare post-closing trial balance

Steps 1 through 3 occur regularly as a company enters into transactions.

Steps 4 through 9 are done at the end of a period.

LO5

6-6-1414

End of Chapter 6

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Chapter 6