Week11-Completing The Accounting Cycle

Completing the Accounting Cycle
(Week 11)
Copyright 2007 Prentice-Hall. All rights reserved
Objective 1
Explain the steps in the accounting cycle
The Accounting Cycle

Process of gathering financial information and preparing the financial statements
Accounting Cycle
8. Prepare post-closing trial balance 7. Record & post closing entries 1. Identify business transactions 2. Record transactions
6. Record & post adjusting entries 5. Prepare financial statements
3. Post journal entries to ledger
4. Prepare worksheet
4
Objective 2
Prepare a worksheet
The Accounting Worksheet

Internal document tool to help gather information before preparing financial statements Helpful when preparing adjusting and closing entries also Holds trial balance, adjustments, adjusted trial balance
Account Title
Trial Balance Debit Credit
COMPANY NAME Work Sheet For the Month Ended December 31, 2009 Adjusted Trial Adjustments Balance Debit Credit Debit Credit
Income Statement Debit Credit
Balance Sheet Debit Credit
Step 1 Step 2 Step 3Step 4 Prepare Unadjusted Plan Adjustments Sort Adjusted Adjusted Trial Amounts Balance to Statement Trial Balance Columns
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Account Titles Cash Accounts receivable Prepaid rent Supplies Equipment Accum. Depreciation Accounts payable Salary payable C. Smith, Capital C. Smith, Withdrawals Service revenue Depreciation expense Salary expense Rent expense Supplies expense Total Trial Balance Dr. Cr. 3,500 3,400 1,200 3,300 32,600 1,800 3,600 35,300 2,000 7,100 1,800 Christine's Piano Service Worksheet Septmeber 30, 2009 Adjustments Adjusted T/B Dr. Cr. Dr. Cr. Income Statement Balance Sheet Dr. Cr. Dr. Cr.
47,800
47,800
Account Titles Cash Accounts receivable Prepaid rent Supplies Equipment Accum. Depreciation Accounts payable Salary payable C. Smith, Capital C. Smith, Withdrawals Service revenue Depreciation expense Salary expense Rent expense Supplies expense Total Net Income
Trial Balance Dr. Cr. 3,500 3,400 1,200 3,300 32,600 1,800 3,600 35,300 2,000 7,100 1,800
47,800
47,800
Christine's Piano Service Worksheet Septmeber 30, 2009 Adjustments Adjusted T/B Income Statement Balance Sheet Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. 3,500 4,000 a. 600 400 d. 800 e. 1,600 1,700 32,600 1,900 b. 100 3,600 c. 500 500 35,300 2,000 7,700 a. 600 7,700 b. 100 100 100 c. 500 2,300 2,300 d. 800 800 800 e. 1,600 1,600 1,600 3,600 3,600 49,000 49,000 4,800 7,700 44,200 41,300
2,900 7,700
7,700
2,900 44,200 44,200
Objective 3
Prepare financial statements using the worksheet
10
Christines Piano Service Income Statement For the Month Ended September 30, 2009 Christine's Piano Service Worksheet Service revenue Septmeber 30, 2009 Expenses: Income Statement Depreciation expense $ 100 Account Titles Dr. Cr. Salary expense 2,300 Cash Accounts receivable Rent expense 800 Prepaid rent Supplies expense 1,600 Supplies Equipment Total Expenses Accum. Depreciation Net Income
Accounts payable Salary payable C. Smith, Capital C. Smith, Withdrawals Service revenue Depreciation expense Salary expense Rent expense Supplies expense Total Net Income
$7,700
4,800 $2,900
7,700 100 2,300 800 1,600 4,800 2,900 7,700
7,700 7,700
C. Add: Net Income Subtotal Deduct: Withdrawals C. Smith, Capital, September 30, 2009
Christine's Piano Service Worksheet Septmeber 30, 2009 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 Christines Piano Service Salary expense 2,300 2,300 Rent expense 800 800 Statement of Owners Equity Supplies expense 1,600 1,600 For the Month Ended September 30, 2009 Total 49,000 49,000 4,800 7,700 44,200 41,300 Net Income 2,900 2,900 $35,300 Smith, Capital, September 1, 2009 7,700 7,700 44,200 44,200
2,900 $38,200 2,000 $36,200
Christine's Piano Service Worksheet Septmeber 30, 2009 Balance Account Titles Dr. Cash 3,500 Accounts receivable 4,000 Prepaid rent 400 Supplies 1,700 Equipment 32,600 Accum. Depreciation Accounts payable Salary payable C. Smith, Capital C. Smith, Withdrawals 2,000 Service revenue Depreciation expense Salary expense Assets Rent expense Supplies Cash expense Total 44,200 Accounts Receivable Net Income Prepaid Rent 44,200
Sheet Cr.
1,900 3,600 500 35,300
Supplies Equipment Less: Accumulated Depreciation Total Assets
Christines Piano Service Balance Sheet September 30, 2009 Liabilities $ 3,500 Accounts Payable 41,300 4,000 Salary Payable 2,900 400 Total liabilities 44,200 1,700 $32,600 Owners Equity C. Smith, Capital 1,900 30,700 Total Liabilities & $40,300 Owners Equity
3,600 500 $4,100
$ 36,200
$40,300
Recording Adjusting Entries

Work sheet helps identify accounts that need adjustments Actual adjustment of accounts requires journalizing and posting entries
14
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GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
Sep 30 Accounts Receivable

Service Revenue
600
600
30 Depreciation Expense, Equipment

Accumulated Depreciation, Equipment
100 100
15
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GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
Sep 30 Salary Expense Salary Payable
500 500
30 Rent Expense
800
Prepaid Rent
800
16
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GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
Sep 30 Supplies Expense Supplies
1,600 1,600
17
Objective 4
Close the revenue, expense, and withdrawals accounts
18
Closing the Accounts

Prepares accounts for recording transactions during next period Updates owners capital account
19
Closing the Accounts

Permanent Accounts Temporary Accounts
20
Four Closing Entries

Close all income statement accounts to Income Summary Entry 1: Close revenue accounts to Income Summary Entry 2: Close expense accounts to Income Summary
21

Revenue
500 500
Bal 0 Bal 0
Expense
200 200
Income Summary
200 500
Bal 300
Revenues Expenses = Net Income

Copyright 2007 Prentice-Hall. All rights reserved 22

Entry 3: Close Income Summary to Capital Entry 4: Close Withdrawals to Capital
23

Income Summary
200 500
Bal Bal 300 0 Bal
Withdrawals
100
0
100
300
Capital
100
1,000 Beginning balance
300
1,200 Ending balance
24
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GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
Nov 30 Service Revenue Income Summary To close revenue accounts
7,700 7,700
25
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DATE DESCRIPTION
Notice: Only income statement accounts are closed to income summary

REF
GENERAL JOURNAL
DEBIT CREDIT
Nov 30 Income Summary Depreciation Expense Salary Expense Rent Expense
4,800 100 2,300 800
Supplies Expense
To close expense accounts
1,600
26
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GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
Nov 30 Income Summary C. Smith, Capital To close income summary
2,900 2,900
30 C. Smith, Capital
C. Smith, Withdrawals To close withdrawals
2,000
2,000
27
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Accounts Receivable 3,400 Adj. 600
Bal. 4,000 Supplies 3,300 Adj. Bal. 1,700 Accumulated Depreciation 1,800 Adj. Bal. Salary Payable Adj. Bal. 100 1,900 Bal.
Prepaid Rent 1,200 Adj. 400
800
1,600
500 500 Clo.
C. Smith, Capital 36,000 2,000 Clo. Bal. 2,900 35,900
C. Smith, Withdrawals 2,000 Clo. 2,000 Clo. Clo.
Income Summary 4,800 Clo. 2,900 Bal. 7,700 0

28
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Service Revenue 7,100 Adj. Clo. 7,700 Bal. 600 7,700 Depreciation Expense Adj. Bal. 100 100 Clo. 100
Salary Expense 1,800 Adj. Bal. 500 2,300 Clo. 2,300 Adj. Bal.
Rent Expense 800 800 Clo. 800
Supplies Expense Adj. Bal. 1,600 1,600 Clo. 1,600

29
Income Summary Account

Debit balance = Net Loss Credit balance = Net Income
30
Post-Closing Trial Balance

List of permanent accounts and their balances after posting closing entries Total debits and credits must be equal
31
Only Balance Sheet accounts remain on the Post-Closing Trial Balance. All other accounts have a Christines Piano Service -$0- balance Postclosing Trial Balance
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September 30, 2009 ACCOUNT Cash DEBIT $ 3,500 CREDIT
Accounts receivable
Prepaid rent Supplies Equipment Accumulated depreciation Accounts payable Salary payable Gail Pfeiffer, capital Total
4,000
400 1,700 32,600 $ 1,900 3,600 500 36,200 $42,200 $42,200
32
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Michael s Framing Service Post-closing Trial Balance September 30, 2009 Account Dr. Cash 9,225 Accounts Receivable 33,300 Supplies Equipment Accumulated Depreciation, Equipment 19,980 11,250 Accounts Payable Salary Payable 5,400 Unearned Rent Michael Good, Capital 68,175 Total $107,505 Cr.
1,980 63,000
2,700
$107,505
33
Objective 5
Classify assets and liabilities as current or long-term
34
Liquidity
Measure of how quickly an item can be converted into cash On the balance sheet, assets and liabilities are classified as either current or long-term to indicate their relative liquidity
35
Current Assets
Cash, or assets that will be converted to cash, sold, or used up in one year or within normal business operating cycle Examples
Cash Short-term receivables Inventory Prepaid expenses
36
Long-term Assets
Plant Assets (Property, Plant, & Equipment)
Land Building Furniture Equipment
37
Current Liabilities
Debts or obligations that must be paid or extinguished within one year or operating cycle, whichever is shorter Examples
Accounts and salary payables Short-term notes payable Unearned revenue
38
Long-term Liabilities
Long-term liabilities - all other debts due in longer than one year or entitys operating cycle
Long-term notes payable Mortgage payable
39
The Classified Balance Sheet

Debit side Current assets Long-term assets Credit side Current liabilities Long-term liabilities
40
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Petersonss Catering Service Balance Sheet December 31, 2009 Assets Current Assets Cash Accounts Receivable Supplies Total Current Assets Fixed Assets Equipment Accumulated Depreciation Furniture Accumulated Depreciation Total Fixed Assets Total Assets
$8,700 1,500 100 $10,300 $2,000 50 $6,600 60
$1,950 6,540 8,490 $18,790
41
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Petersonss Catering Service Balance Sheet December 31, 2009 Liabilities Current Liabilities Accounts Payable Salary Payable Unearned Revenue Total Current Liabilities Owners Equity O. Wilson, Capital Total Liabilities & Owners Equity
4,600 500 600 $5,700
13,090 $18,790
42
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Petersonss Catering Service Balance Sheet December 31, 2009
Assets Current Assets

Cash Accounts Receivable Supplies
Liabilities Current Liabilities

$8,700 Accounts Payable 1,500 Salary Payable 100 Unearned Revenue Total Current $10,300 Liabilities $2,000 50 6,600 60 $1,950 Owners Equity O. Wilson, Capital 13,090 $ 4,600 500 600
Total Current Assets Fixed Assets Equipment Accumulated Depreciation Furniture Less: Accumulated Depreciation Total Fixed Assets
Total Assets
$5,700
6,540 8,490 Total Liabilities & $18,790 Owners Equity $18,790

43
Thank You
44

Week11-Completing The Accounting Cycle

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Completing the Accounting Cycle

Copyright 2007 Prentice-Hall. All rights reserved

Copyright 2007 Prentice-Hall. All rights reserved

The Accounting Cycle

Copyright 2007 Prentice-Hall. All rights reserved

6. Record & post adjusting entries 5. Prepare financial statements

3. Post journal entries to ledger

Copyright 2007 Prentice-Hall. All rights reserved

Copyright 2007 Prentice-Hall. All rights reserved

The Accounting Worksheet

Copyright 2007 Prentice-Hall. All rights reserved

Trial Balance Debit Credit

Income Statement Debit Credit

Balance Sheet Debit Credit

2,900 44,200 44,200

Copyright 2007 Prentice-Hall. All rights reserved

7,700 100 2,300 800 1,600 4,800 2,900 7,700

2,900 $38,200 2,000 $36,200

1,900 3,600 500 35,300

Supplies Equipment Less: Accumulated Depreciation Total Assets

3,600 500 $4,100

Recording Adjusting Entries

Copyright 2007 Prentice-Hall. All rights reserved

Sep 30 Accounts Receivable

30 Depreciation Expense, Equipment

Sep 30 Salary Expense Salary Payable

Copyright 2007 Prentice-Hall. All rights reserved

Sep 30 Supplies Expense Supplies

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Copyright 2007 Prentice-Hall. All rights reserved

Closing the Accounts

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Closing the Accounts

Copyright 2007 Prentice-Hall. All rights reserved

Four Closing Entries

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Four Closing Entries

Revenues Expenses = Net Income

Four Closing Entries

Copyright 2007 Prentice-Hall. All rights reserved

Four Closing Entries

Copyright 2007 Prentice-Hall. All rights reserved

Nov 30 Service Revenue Income Summary To close revenue accounts

Copyright 2007 Prentice-Hall. All rights reserved

Notice: Only income statement accounts are closed to income summary

Nov 30 Income Summary Depreciation Expense Salary Expense Rent Expense

4,800 100 2,300 800

Copyright 2007 Prentice-Hall. All rights reserved

Nov 30 Income Summary C. Smith, Capital To close income summary

Prepaid Rent 1,200 Adj. 400

500 500 Clo.

C. Smith, Capital 36,000 2,000 Clo. Bal. 2,900 35,900

C. Smith, Withdrawals 2,000 Clo. 2,000 Clo. Clo.

Income Summary 4,800 Clo. 2,900 Bal. 7,700 0

Copyright 2007 Prentice-Hall. All rights reserved

Rent Expense 800 800 Clo. 800

Supplies Expense Adj. Bal. 1,600 1,600 Clo. 1,600

Copyright 2007 Prentice-Hall. All rights reserved

Income Summary Account

Copyright 2007 Prentice-Hall. All rights reserved

Post-Closing Trial Balance

Copyright 2007 Prentice-Hall. All rights reserved

September 30, 2009 ACCOUNT Cash DEBIT $ 3,500 CREDIT