week11-completing the accounting cycle

8/12/2019 Week11-Completing the Accounting Cycle

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Copyright 2007 Prentice-Hall. All rights reserved 1

Completing the

Accounting Cycle

(Week 11)


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Objective 1

Explain the steps in the

accounting cycle


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The Accounting Cycle

Process of gathering financialinformation and preparing thefinancial statements


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Accounting Cycle

1. Identify businesstransactions

2. Record

transactions

3. Post journal

entries to ledger

4. Prepare worksheet5. Prepare financial

statements

6. Record & post

adjusting entries

7. Record & post

closing entries

8. Prepare post-closingtrial balance


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Objective 2

Prepare a worksheet


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The Accounting Worksheet

Internal document tool to helpgather information before preparingfinancial statements

Helpful when preparing adjusting andclosing entries also

Holds trial balance, adjustments,adjusted trial balance


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COMPANY NAME

Work Sheet

For the Month Ended December 31, 2009

Trial Balance Adjustments

Adjusted Trial

Balance Income Statement Balance Sheet

Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit

Account Title

Step 2Plan Adjustments

Step 3Adjusted Trial Balance

Step 4Sort Adjusted Amounts to Statement

Columns

Step 1Prepare Unadjusted

Trial Balance


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Worksheet

Trial Balance Adjustments Adjusted T/B Income Statement Balance Sheet

Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.

Cash 3,500

Accounts receivable 3,400

Prepaid rent 1,200

Supplies 3,300Equipment 32,600

Accum. Depreciation 1,800

Accounts payable 3,600

Salary payable

C. Smith, Capital 35,300

C. Smith, Withdrawals 2,000

Service revenue 7,100

Depreciation expense

Salary expense 1,800

Rent expense

Supplies expense

Total 47,800 47,800

Christine's Piano Service

Septmeber 30, 2009

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Worksheet

Trial Balance Adjustments Adjusted T/B Income Statement Balance Sheet

Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.

Cash 3,500


Prepaid rent 1,200

Supplies 3,300

Equipment 32,600



Salary payableC. Smith, Capital 35,300

C. Smith, Withdrawals 2,000




Rent expense

Supplies expense Total 47,800 47,800


Septmeber 30, 2009

Net Income

a. 600

a. 600

b. 100

b. 100

c. 500

c. 500d. 800

d. 800

e. 1,600

e. 1,6003,600 3,600

3,500

4,000400

1,700

32,600

2,000

100

2,300

800

1,600

1,900

3,600

50035,300

7,700

49,000

3,500

4,000

400

1,700

32,600

2,000

1,900

3,600

50035,300

49,000

100

2,300

800

1,600

7,700

4,800 7,700

2,900

7,7007,700

44,200 41,300

2,900

44,200 44,200


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Worksheet

Income Statement

Account Titles Dr. Cr.

Cash

Accounts receivable

Prepaid rent

Supplies

EquipmentAccum. Depreciation

Accounts payable

Salary payable

C. Smith, Capital

C. Smith, Withdrawals


Depreciation expense 100


Rent expense 800

Supplies expense 1,600

Total 4,800 7,700

Net Income 2,900

7,700 7,700


Septmeber 30, 2009

Christines Piano ServiceIncome Statement

For the Month Ended September 30, 2009Service revenue $7,700Expenses:

Depreciation expense $ 100Salary expense 2,300Rent expense 800Supplies expense 1,600

Total Expenses 4,800Net Income $2,900


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Worksheet

Adjusted T/B Income Statement Balance Sheet

Account Titles Dr. Cr. Dr. Cr. Dr. Cr.

Cash 3,500 3,500

Accounts receivable 4,000 4,000

Prepaid rent 400 400

Supplies 1,700 1,700

Equipment 32,600 32,600

Accum. Depreciation 1,900 1,900

Accounts payable 3,600 3,600

Salary payable 500 500

C. Smith, Capital 35,300 35,300

C. Smith, Withdrawals 2,000 2,000

Service revenue 7,700 7,700

Depreciation expense 100 100

Salary expense 2,300 2,300

Rent expense 800 800

Supplies expense 1,600 1,600

Total 49,000 49,000 4,800 7,700 44,200 41,300Net Income 2,900 2,900

7,700 7,700 44,200 44,200


Septmeber 30, 2009

Christines Piano Service

Statement of Owners EquityFor the Month Ended September 30, 2009

C. Smith, Capital, September 1, 2009 $35,300Add: Net Income 2,900

Subtotal $38,200Deduct: Withdrawals 2,000C. Smith, Capital, September 30, 2009 $36,200

Ch i ti ' Pi S i


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Worksheet

Balance Sheet

Account Titles Dr. Cr.

Cash 3,500


Prepaid rent 400Supplies 1,700

Equipment 32,600



Salary payable 500

C. Smith, Capital 35,300

C. Smith, Withdrawals 2,000Service revenue


Sala ry expense

Rent expense

Supplies expense

Total 44,200 41,300

Net Income 2,900

44,200 44,200


Septmeber 30, 2009

Christines Piano ServiceBalance SheetSeptember 30, 2009

Assets LiabilitiesCash $ 3,500 Accounts Payable $ 3,600Accounts Receivable 4,000 Salary Payable 500

Prepaid Rent 400 Total liabilities $4,100Supplies 1,700Equipment $32,600 Owners EquityLess: Accumulated

Depreciation 1,900 30,700C. Smith, Capital $ 36,200

Total Assets $40,300

Total Liabilities &

Owners Equity $40,300


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Recording Adjusting Entries

Work sheet helps identify accountsthat need adjustments

Actual adjustment of accountsrequires journalizing and postingentries



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GENERAL JOURNAL

DATE DESCRIPTION REF DEBIT CREDIT

Sep 30 Accounts Receivable 600

Service Revenue 600

30 Depreciation Expense,

Equipment 100

Accumulated Depreciation,

Equipment 100



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GENERAL JOURNAL


Sep 30 Salary Expense 500

Salary Payable 500

30 Rent Expense 800

Prepaid Rent 800



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GENERAL JOURNAL


Sep 30 Supplies Expense 1,600

Supplies 1,600



Objective 4

Close the revenue, expense,

and withdrawals accounts



Closing the Accounts

Prepares accounts for recordingtransactions during next period

Updates owners capital account



Closing the Accounts

Permanent Accounts

Temporary Accounts



Four Closing Entries

Close all income statement accountsto Income Summary

Entry 1: Close revenue accounts toIncome Summary

Entry 2: Close expense accounts toIncome Summary




500Revenue

500

Bal 0

200Expense

200

Bal 0

200

Income Summary

500

Bal 300

Revenues Expenses =

Net Income




Entry 3: Close Income Summary toCapital

Entry 4: Close Withdrawals toCapital




200Income Summary

500

Bal 300

100Withdrawals

100

Bal 0

100

Capital

300

1,000 Beginning balance

300

1,200 Ending balance

Bal 0


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GENERAL JOURNAL


Nov 30 Service Revenue 7,700

Income Summary 7,700To close revenue accounts


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GENERAL JOURNAL


Nov 30 Income Summary 4,800

Depreciation Expense 100Salary Expense 2,300

Rent Expense 800

Supplies Expense 1,600To close expense accounts

Notice: Only incomestatement accounts are

closed to income summary


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GENERAL JOURNAL


Nov 30 Income Summary 2,900

C. Smith, Capital 2,900To close income summary

30 C. Smith, Capital 2,000C. Smith, Withdrawals 2,000

To close withdrawals


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Accounts Receivable Prepaid Rent3,400 1,200 Adj. 800

Adj. 600 Bal. 400Bal. 4,000

Supplies Accumulated Depreciation3,300 Adj. 1,600 1,800

Bal. 1,700 Adj. 100Bal. 1,900

Salary Payable C. Smith, CapitalAdj. 500 36,000Bal. 500 Clo. 2,000 Clo. 2,900

Bal. 35,900C. Smith, Withdrawals Income Summary

2,000 Clo. 2,000 Clo. 4,800 Clo. 7,700Clo.

2,900

Bal.

0

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Income Summary Account

Debit balance = Net Loss

Credit balance = Net Income


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Post-Closing Trial Balance

List of permanent accounts and theirbalances after posting closing entries

Total debits and credits must beequal


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E4-13Christines Piano Service

Postclosing Trial Balance

September 30, 2009

ACCOUNT DEBIT CREDIT

Cash $ 3,500


Prepaid rent 400

Supplies 1,700

Equipment 32,600

Accumulated depreciation $ 1,900


Salary payable 500

Gail Pfeiffer, capital 36,200Total 42 200 42 200

Only Balance Sheetaccounts remain on the

Post-Closing Trial Balance.All other accounts have a

-$0- balance


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E4-20

Michael s Framing ServicePost-closing Trial Balance

September 30, 2009Account Dr. Cr.Cash 9,225

Accounts Receivable 33,300SuppliesEquipment

Accumulated Depreciation, EquipmentAccounts Payable

Salary Payable 2,700Unearned RentMichael Good, CapitalTotal

1,98063,000

19,98011,250

5,400

68,175

$107,505$107,505


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Objective 5

Classify assets and liabilities

as current or long-term


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Liquidity

Measure of how quickly an item canbe converted into cash

On the balance sheet, assets andliabilities are classified as eithercurrent or long-term to indicate theirrelative liquidity


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Current Assets

Cash, or assets that will beconverted to cash, sold, or used upin one year or within normal

business operating cycle Examples

Cash

Short-term receivables

Inventory

Prepaid expenses


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Long-term Assets

Plant Assets (Property, Plant, &Equipment)

Land

Building

Furniture

Equipment


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Current Liabilities

Debts or obligations that must bepaid or extinguished within one yearor operating cycle, whichever is

shorter

Examples

Accounts and salary payables

Short-term notes payable

Unearned revenue


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Long-term Liabilities

Long-term liabilities - all other debtsdue in longer than one year orentitys operating cycle

Long-term notes payable

Mortgage payable


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Debit sideCurrent assets

Long-term assets

Credit sideCurrent liabilities

Long-term liabilities

The Classified Balance Sheet


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E4-22Petersonss Catering Service

Balance SheetDecember 31, 2009

AssetsCurrent AssetsCash $8,700Accounts Receivable 1,500

Supplies 100Total Current Assets $10,300

Fixed AssetsEquipment $2,000Accumulated Depreciation 50 $1,950Furniture $6,600Accumulated Depreciation 60 6,540

Total Fixed Assets 8,490Total Assets $18,790


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LiabilitiesCurrent LiabilitiesAccounts Payable $ 4,600Salary Payable 500

Unearned Revenue 600Total Current Liabilities $5,700

Owners EquityO. Wilson, Capital 13,090

Total Liabilities & Owners Equity $18,790


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Assets LiabilitiesCurrent Assets Current Liabilities

Cash $8,700 Accounts Payable $ 4,600

Accounts Receivable 1,500 Salary Payable 500Supplies 100 Unearned Revenue 600

Total Current Assets $10,300Total Current

Liabilities $5,700Fixed AssetsEquipment $2,000 Owners Equity

Accumulated

Depreciation 50 $1,950 O. Wilson, Capital 13,090Furniture 6,600Less: Accumulated

Depreciation 60 6,540Total Fixed Assets 8,490

Total Assets $18,790

Total Liabilities &

Owners Equity $18,790


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Thank You

week11-completing the accounting cycle

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