4 - 1 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

The Accounting Cycle

Continued:
Preparing Worksheets
and Financial Statements
Chapter 4
4 - 2 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
The Accounting Cycle
Business
transactions
1
Book of
original entry
2 Journal
Book of
final entry
3 Ledger
Trial balance
4
Worksheet
5
4 - 3 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
The Accounting Cycle
Trial
balance
Adjustments
Adjusted
trial
balance
Income
statement
Balance
sheet
Balance
sheet
Statement of
owners equity
6
Financial Statements
Income
statement
4 - 4 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Objective 1
Adjustments: prepaid rent,
office supplies, depreciation on
equipment, and accrued salaries.
4 - 5 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 4-1
(Preparing the Worksheet)
The worksheet is not a formal report.
Correct heading information is used.
It is used to facilitate the preparation of
adjusting entries and financial statements.
4 - 6 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 4-1
(Preparing the Worksheet)
The trial balance
The adjustments
The adjusted trial balance
Income
statement
Balance
sheet
4 - 7 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 4-1
(Preparing the Worksheet)
Cash, Accts. Rec.
Office Supplies
Prepaid Rent
Equipment
Accounts Payable
B. Clark, Capital
B. Clark, Withdrawals
Fees
Salaries Expense
Other Expenses

Office Supplies Expense
Rent Expense
Depreciation Expense
Accum. Depreciation
Salaries Payable
Totals
Net income

11,155
600
1,200
6,000
3,350
10,000
625
8,000
1,300
470
21,350 21,350







Trial Balance
Dr. Cr. Account Titles
Adjustments
Dr. Cr.
Adj. Trial Bal.
Dr. Cr.
4 - 8 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 4-1
(Preparing the Worksheet)
Assets must be adjusted to show
amounts used or allocated to periods.
Supplies used Prepaid rent expired
Depreciation Salaries incurred
4 - 9 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 4-1
(Preparing the Worksheet)
Expenses incurred must be recorded in the
correct period before the period closes.
What are examples?
Supplies used
Prepaid rent expired
4 - 10 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 4-1
(Preparing the Worksheet)
Accounting
period
Depreciation is a unique adjustment.
4 - 11 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 4-1
(Preparing the Worksheet)
Historical cost of the asset remains
in the financial statements.
This cost remains in the records
as a balance in the asset account.
This cost is allocated to expense
over the life of the asset.
What is the accompanying account?
4 - 12 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 4-1
(Preparing the Worksheet)
The accompanying (contra-asset) account
is called Accumulated Depreciation.
This account is used for the
yearly credited amounts.
The normal balance is a credit balance.
4 - 13 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 4-1
(Preparing the Worksheet)
Cost of equipment $6,000
Less: Estimated residual value 1,200
Depreciable base $4,800
Estimated useful life 5 years
(Cost Residual value) Estimated useful life
($6,000 $1,200) 5 = $960
$960 12 = $80 per month
4 - 14 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 4-1
(Preparing the Worksheet)
Clarks Word Processing Services
Balance Sheet
May 31, 200x
Word processing equipment $6,000
Less: Accumulated depreciation 80
$5,920
Book value
4 - 15 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 4-1
(Preparing the Worksheet)
Clarks Word Processing Services
paid $1,300 in office salaries.
The last salary checks for the
month were paid on May 27.
John Murray worked for Clark on
May 28, 29, 30, and 31, but his next
pay check is not due until June 3.
4 - 16 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 4-1
(Preparing the Worksheet)
Is John Murrays earnings of
$350 an expense for May?
Office Salary Expense
1,300
350
4 - 17 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 4-1
(Preparing the Worksheet)
Cash, Accts. Rec.
Office Supplies
Prepaid Rent
Equipment
Accounts Payable
B. Clark, Capital
B. Clark, Withdrawals
Fees
Salaries Expense
Other Expenses

Office Supplies Expense
Rent Expense
Depreciation Expense
Accum. Depreciation
Salaries Payable
Totals
Net income

11,155
600
1,200
6,000
3,350
10,000
625
8,000
1,300
470
21,350 21,350








(a) 500
(b) 400





(d) 350


(a) 500
(b) 400
(c) 80
(c) 80
(d) 350
Trial Balance
Dr. Cr. Account Titles
Adjustments
Dr. Cr.
Adj. Trial Bal.
Dr. Cr.
4 - 18 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Objective 2
Preparation of adjusted trial
balance on the worksheet.
4 - 19 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Adjustments Example
What are the adjusting entries for supplies?
Journal: Debit Credit
Supplies Expense xxx
Supplies (record correct amounts) xxx
The balance in the supplies account
after adjusting entries will be equal
to the dollar amount of the supplies on
hand at the end of the accounting period.
4 - 20 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Adjustments Example
Adjusting entries for depreciation.
Journal: Debit Credit
Depreciation Expense xxx
Accum. Depr. Equipment xxx
To record the proper amounts for all relevant
asset accounts
4 - 21 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Adjustments Example
What are the adjusting entries
for accrued service revenue?
Journal: Debit Credit
Accounts Receivable xxx
Revenue xxx
To record the proper amounts for relevant
asset and revenue accounts
4 - 22 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Adjustments Example
Cash, Accts. Rec.
Office Supplies
Prepaid Rent
Equipment
Accounts Payable
B. Clark, Capital
B. Clark, Withdrawals
Fees
Salaries Expense
Other Expenses

Office Supplies Expense
Rent Expense
Depreciation Expense
Accum. Depreciation
Salaries Payable
Totals
Net income

11,155
600
1,200
6,000
3,350
10,000
625
8,000
1,300
470
21,350 21,350








(a) 500
(b) 400





(d) 350


(a) 500
(b) 400
(c) 80
(c) 80
(d) 350
1,330 1,330
11,155
100
800
6,000
3,350
10,000
625
8,000
1,650
470

500
400
80
80
350
21,780 21,780
Trial Balance
Dr. Cr. Account Titles
Adjustments
Dr. Cr.
Adj. Trial Bal.
Dr. Cr.
4 - 23 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Objective 3
The income statement and
balance sheet sections
of the worksheet.
4 - 24 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
The Income Statement and
Balance Sheet Section
11,155
100
800
6,000
3,350
10,000
625
8,000
1,650
470

500
400
80
80
350
21,780 21,780
Adj. Trial Bal.
Dr. Cr.







8,000
1,650
470

500
400
80


3,100 8,000
4,900
Inc. Statement
Dr. Cr.
11,155
100
800
6,000
3,350
10,000
625







80
350
18,680 13,780
4,900
Balance Sheet
Dr. Cr.
Cash, Accts. Rec.
Office Supplies
Prepaid Rent
Equipment
Accounts Payable
B. Clark, Capital
B. Clark, Withdrawals
Fees
Salaries Expense
Other Expenses

Office Supplies Expense
Rent Expense
Depreciation Expense
Accum. Depreciation
Salaries Payable
Totals
Net income

Account Titles
4 - 25 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Objective 4
Preparing financial statements
from the worksheet.
4 - 26 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 4-2 (Preparing
the Financial Statements)
It reports revenues and expenses.
Beginning capital balance from the
balance sheet columns Withdrawals
Loss, or + Net income = Ending capital balance
4 - 27 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 4-2 (Preparing
the Financial Statements)
Use the asset and liability balances
from the balance sheet columns.
Use the corrected owners equity amounts
from the statement of owners equity.
4 - 28 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
End of Chapter 4