Completing the Accounting Cycle

Completing the Accounting Cycle
4 Completing the Accounting Cycle

1 2 3 4 Completing the Accounting Cycle
After studying this chapter, you should be able to: 1 Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements. 2 Prepare financial statements from adjusted account balances. 3 Prepare closing entries. After studying this chapter, you should be able to: 4 Describe the accounting cycle. 4-2

5 6 Illustrate the accounting cycle for one period.
Completing the Accounting Cycle (continued) 5 Illustrate the accounting cycle for one period. 6 Explain what is meant by the fiscal year and the natural business year. 4-3

1 Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements. 4-4

1 Exhibit 1 End-of-Period Spreadsheet (Work Sheet)

Flow of Accounting Information Spreadsheet (Work Sheet)
1 Flow of Accounting Information Spreadsheet (Work Sheet) Trial Balance Adjustments Adjusted TB Accounts Dr Cr Dr Cr Dr Cr Accounts are listed in the Trial Balance column using the ending balance found in the general ledger.

1 Flow of Accounting Information Spreadsheet (Work Sheet) Trial Balance Adjustments Adjusted TB Accounts Dr Cr Dr Cr Dr Cr Adjustments are entered here. Two possibilities: 1. Deferrals – Existing balances are changed. 2. Accruals – New information is entered.

1 Flow of Accounting Information Spreadsheet (Work Sheet) Trial Balance Adjustments Adjusted TB Accounts Dr Cr Dr Cr Dr Cr Adjustments are combined with the trial balance. Account balances are now adjusted.

1 Flow of Accounting Information Spreadsheet (Work Sheet) Adjusted TB Income State. Balance Sheet Accounts Dr Cr Dr Cr Dr Cr Revenue and expense balances in the Adjusted Trial Balance column are extended to the Income Statement column.

1 Flow of Accounting Information Spreadsheet (Work Sheet) Adjusted TB Income State. Balance Sheet Accounts Dr Cr Dr Cr Dr Cr Asset, liability, owner’s equity, and drawing balances in the Adjusted Trial Balance column are extended to the Balance Sheet column.

1 Example Exercise 4-1 Flow of Accounts into Financial Statements
The balances for the accounts listed below appear in the Adjusted Trial Balance columns of the end-of-period spreadsheet (work sheet). Indicate whether each balance should be extended to (a) an Income Statement column or (b) a Balance Sheet column. Amber Bablock, Drawing Utilities Expense Accumulated Depreciation—Equipment Unearned Rent Fees Earned Accounts Payable Rent Revenue Supplies 4-11

1 Follow My Example 4-1 Balance Sheet column Income Statement column
Example Exercise 4-1 (continued) 1 Follow My Example 4-1 Balance Sheet column Income Statement column For Practice: PE 4-1A, PE 4-1B 4-12

Prepare financial statements from adjusted account balances.
2 Prepare financial statements from adjusted account balances. 4-13

2 The income statement is prepared directly from the Income Statement or Adjusted Trial Balance columns of the spreadsheet (work sheet).

2 Exhibit 2 Financial Statements Prepared from Work Sheet
to statement of owner’s equity

2 Example Exercise 4-2 Determining the Net Income from End-of-Period Spreadsheet In the Balance Sheet columns of the end-of-period spreadsheet (work sheet) for Dimple Consulting Co. for the current year, the Debit column total is $678,450, and the Credit column total is $599,750 before the amount of net income or net loss has been included. In preparing the income statement from the end-of-period spreadsheet (work sheet), what is the amount of net income or net loss? 4-16

Example Exercise 4-2 (continued)
Follow My Example 4-2 A net income of $78,700 ($678,450 – $599,750) would be reported. When the Debit column of the Balance Sheet columns is more than the Credit column, net income is reported. If the Credit column exceeds the Debit column, a net loss is reported. For Practice: PE 4-2A, PE 4-2B 4-17

2 The first item presented on the statement of owner’s equity is the balance of the owner’s capital account at the beginning of the period.

2 Exhibit 2 Financial Statements Prepared from Work Sheet (continued)
from the income statement to the balance sheet

2 Example Exercise 4-3 Statement of Owner’s Equity
Zack Gaddis owns and operates Gaddis Employment Services. On January 1, 2009, Zack Gaddis, Capital had a balance of $186,000. During the year, Zack invested an additional $40,000 and withdrew $25,000. For the year ended December 31, 2007, Gaddis Employment Services reported a net income of $18,750. Prepare a statement of owner’s equity for the year ended December 31, 2009. 4-20

2 Follow My Example 4-3 GADDIS EMPLOYMENT SERVICES
Example Exercise 4-3 (continued) 2 Follow My Example 4-3 GADDIS EMPLOYMENT SERVICES STATEMENT OF OWNER’S EQUITY For the Year Ended December 31, 2009 Zack Gaddis, capital, January 1, 2009 $186,000 Additional investment during ,000 Total $226,000 Withdrawals $ 25,000 Less net income ,750 Decrease in owner’s equity ,250 Zack Gaddis, capital, December 31, $219,750 For Practice: PE 4-3A, PE 4-3B 4-21

2 The balance sheet is prepared directly from the Balance Sheet or Adjusted Trial Balance columns of the spreadsheet (or worksheet).

2 A classified balance sheet is a balance sheet that was expanded by adding subsections for current assets; property, plant, and equipment; and current liabilities.

2 Cash and other assets that are expected to be converted into cash, sold or used up usually within a year or less, through the normal operations of the business, are called current assets. Cash Accounts Receivable Supplies

2 Notes receivable are written promises by the customer to pay the amount of the note and possibly interest at an agreed rate.

2 Property, plant, and equipment (also called fixed assets) include assets that depreciate over a period of time. Land is an exception as it is not subject to depreciation. Equipment Machinery Buildings Land

2 Liabilities that will be due within a short time (usually one year or less) and that are to be paid out of current assets are called current liabilities. Accounts payable Wages payable Interest payable Unearned fees

2 Liabilities not due for a long time (usually more than one year) are long-term liabilities. Notes payable Mortgage payable Bond payable

2 Owner’s equity is the owner’s right to the assets of the business. Owner’s equity is added to the total liabilities, and the total must be equal to the total assets.

2 Exhibit 2 Financial Statements Prepared from Work Sheet (continued)
from the statement of owner’s equity

2 Example Exercise 4-4 Classified Balance Sheet
The following accounts appear in the adjusted trial balance of Hindsight Consulting. Indicate whether each account would be reported in the (a) current asset; (b) property, plant, and equipment; (c) current liability, (d) long-term liability; or (e) owner’s equity section of the December 31, 2009 balance sheet of Hindsight Consulting. Jason Corbin, Capital 5. Cash Notes Receivable (due 6. Unearned Rent in 6 months) 7. Accumulated Depr.— 3. Notes Payable (due in Equipment 2011) 8. Accounts Payable 4. Land 4-31

2 Follow My Example 4-4 Follow My Example 4-4 Stockholders’ equity
Example Exercise 4-4 (continued) 2 Follow My Example 4-4 Follow My Example 4-4 Stockholders’ equity Current asset 2. Current asset Current liability 3. Long-term liability 7. Property, plant, and equipment 4. Property, plant, and equipment 8. Current liability For Practice: PE 4-4A, PE 4-4B 4-32

Prepare closing entries.
3 Prepare closing entries. 4-33 4-33

3 Closing Entries Accounts that are relatively permanent from year to year are called real accounts. Accounts that report amounts for only one period are called temporary accounts or nominal accounts.

3 Closing Entries To report amounts for only one period, temporary accounts should have zero balances at the beginning of the period. At the end of the period the revenue and expense account balances are transferred to Income Summary.

3 Closing Entries The balance of Income Summary is then transferred to the owner’s capital account. The balance of the owner’s drawing account is also transferred to the owner’s capital account. The entries that transfer these balances are called closing entries.

3 Exhibit 3 The Closing Process

3 Exhibit 4 Flowchart of Closing Entries for NetSolutions Debit each revenue account for the amount of its balance, and credit Income Summary for the total revenue. Step 1: Fees Earned Bal. 16,840 Income Summary 16,840 Step 1 16,960 Rent Revenue 120 Bal. 120

Miscellaneous Expense
3 Flowchart of Closing Entries for NetSolutions (continued) Exhibit 4 Wages Expense Bal. 4,525 Bal. 1,600 Bal. 50 Bal. 985 Bal. 2,040 455 200 2,040 985 50 1,600 4,525 Income Summary Rent Expense 9,855 16,960 Depreciation Expense Utilities Expense Step 2 Debit Income Summary for the total expenses and credit each expense account for its balance. Supplies Expense Insurance Expense Bal. 200 Miscellaneous Expense Bal. 455

3 Flowchart of Closing Entries for NetSolutions (continued) Exhibit 4 Income Summary 9,855 16,960 7,105 Debit Income Summary for the amount of its balance (in this case, the net income) and credit the capital account. Step 3 Chris Clark, Capital Bal. 25,000 Chris Clark, Drawing Bal. 4,000 7,105

3 Flowchart of Closing Entries for NetSolutions (continued) Exhibit 4 Chris Clark, Capital Bal. 25,000 7,105 Chris Clark, Drawing Bal. 4,000 Debit the capital account for the balance of the drawing account, and credit drawing for the same amount. Step 4 4,000 4,000

3 Flowchart of Closing Entries for NetSolutions (summary) Exhibit 4

3 Exhibit 5 Closing Entries for NetSolutions Step 1 Step 2 Step 3

3 After the closing entries are posted, all of the temporary accounts have zero balances.

3 Exhibit 6 Ledger for NetSolutions

3 Ledger for NetSolutions (continued) Exhibit 6

3 Exhibit 6 Ledger for NetSolutions (continued)

3 Example Exercise 4-5 Closing Entries
After the accounts have been adjusted at July 31, the end of the fiscal year, the following balances are taken from the ledger of Cabriolet Services Co. Terry Lambert, Capital $615,850 Terry Lambert, Drawing 25,000 Fees Earned 380,450 Wages Expense 250,000 Rent Expense 65,000 Supplies Expense 18,250 Miscellaneous Expense 6,200 Journalize the four entries required to close the accounts. 4-49

3 Follow My Example 4-5 For Practice: PE 4-5A, PE 4-5B 4-50
Example Exercise 4-5 (continued) 3 Follow My Example 4-5 July 31 Fees Earned…………………………….. 380,450 Income Summary…………………. 380,450 31 Income Summary……………………… 339,450 Wages Expense…………………… 250,000 Rent Expense……………………… 65,000 Supplies Expense………………… 18,250 Miscellaneous Expense…………. 6,200 31 Income Summary………………………. 41,000 Terry Lambert, Capital…………… 41,000 31 Terry Lambert, Capital………………… 25,000 Terry Lambert, Drawing………….. 25,000 For Practice: PE 4-5A, PE 4-5B 4-50

3 A post-closing trial balance is prepared after the closing entries have been posted. The purpose of the PCTB is to verify that the ledger is in balance at the beginning of the next period.

3 Exhibit 7 Post-Closing Trial Balance

Describe the accounting cycle.
4 Describe the accounting cycle. 4-53

4 The accounting process that begins with analyzing and journalizing transactions and ends with preparing the accounting records for the next period’s transactions is called the accounting cycle. There are ten steps in the accounting cycle.

Transactions are analyzed and recorded in the journal.
4 Accounting Cycle Transactions are analyzed and recorded in the journal. Transactions are posted to the ledger. An unadjusted trial balance is prepared. Adjustment data are assembled and analyzed. An optional end-of-period spreadsheet (work sheet) is prepared. (continued)

Accounting Cycle (continued)
4 Accounting Cycle (continued) Adjusting entries are journalized and posted to the ledger. An adjusted trial balance is prepared. Financial statements are prepared. Closing entries are journalized and posted to the ledger. A post-closing trial balance is prepared.

4 Example Exercise 4-6 Accounting Cycle
From the following list of steps in the accounting cycle, identify what two steps are missing. Transactions are analyzed and recorded in the journal. Transactions are posted to the ledger. Adjustment data are assembled and analyzed. An optional end-of-period spreadsheet (work sheet) is prepared. Adjusting entries are journalized and posted to the ledger. Financial statements are prepared. Closing entries are journalized and posted to the ledger. A post-closing trial balance is prepared. 4-57

Example Exercise 4-6 (continued)
Follow My Example 4-6 The following two steps are missing: (1) the preparation of an unadjusted trial balance and (2) the preparation of the adjusted trial balance. The unadjusted trial balance should be prepared after step (b). The adjusted trial balance should be prepared after step (e). For Practice: PE 4-6A, PE 4-6B 4-58

5 Illustrate the accounting cycle for one period. 4-59

5 Exhibit 9 Journal entries for April, Kelly Consulting

5 Exhibit 9 Journal entries for April, Kelly Consulting (continued)

5 Exhibit 10 Unadjusted Trial Balance, Kelly Consulting

5 Exhibit 11 End-of-Period Spreadsheet (Work Sheet) 4-63

5 Exhibit 12 Adjusting Entries, Kelly Consulting

5 Exhibit 13 Adjusted Trial Balance, Kelly Consulting

5 Exhibit 14 Financial Statements, Kelly Consulting

5 Financial Statements, Kelly Consulting (continued) Exhibit 14

5 Exhibit 15 Closing Entries, Kelly Consulting

5 Exhibit 16 Post-Closing Trial Balance, Kelly Consulting

5 Exhibit 17 Ledger, Kelly Consulting

5 Exhibit 17 Ledger, Kelly Consulting (continued)

6 Explain what is meant by the fiscal year and the natural business year. 4-75

6 The annual accounting period adopted by a business is known as its fiscal year. When a business adopts a fiscal year that ends when business activities have reached the lowest point in its annual operation, such a fiscal year is also called the natural year.

Financial History of a Business
6 Financial History of a Business

End-of-Period Spreadsheet (Work Sheet)
Appendix 1: End-of-Period Spreadsheet (Work Sheet) 4-78

The unadjusted trial balance is checked for equality.
Trial Balance Adjustments Trial Balance Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accumulated Depr. Accounts Payable 900 Wages Payable Unearned Rent 360 Chris Clark, Capital 25, Chris Clark, Drawing 4,000 Fees Earned 16,340 Rent Revenue Wages Expense 4,275 Rent Expense 1,600 Depreciation Expense Utilities Expense 985 Supplies Expense 800 Insurance Expense Miscellaneous Exp. 455 42,600 42,600 The unadjusted trial balance is checked for equality. 4-79

Supplies needs adjusting
Trial Balance Adjustments Trial Balance Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accumulated Depr. Accounts Payable 900 Wages Payable Unearned Rent 360 Chris Clark, Capital 25, Chris Clark, Drawing 4,000 Fees Earned 16,340 Rent Revenue Wages Expense 4,275 Rent Expense 1,600 Depreciation Expense Utilities Expense 985 Supplies Expense 800 Insurance Expense Miscellaneous Exp. 455 42,600 42,600 Supplies needs adjusting 4-80

4-81 (a) Cost of supplies on hand at December 31 is $760. Cash 2,065
Trial Balance Adjustments Trial Balance Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accumulated Depr. Accounts Payable 900 Wages Payable Unearned Rent 360 Chris Clark, Capital 25, Chris Clark, Drawing 4,000 Fees Earned 16,340 Rent Revenue Wages Expense 4,275 Rent Expense 1,600 Depreciation Expense Utilities Expense 985 Supplies Expense 800 Insurance Expense Miscellaneous Exp. 455 42,600 42,600 (a) 1,240 (a) Cost of supplies on hand at December 31 is $760. (a) 1,240 4-81

4-82 (b) The insurance expense for December is $200 ($2,400 ÷ 12).
Trial Balance Adjustments Trial Balance Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accumulated Depr. Accounts Payable 900 Wages Payable Unearned Rent 360 Chris Clark, Capital 25, Chris Clark, Drawing 4,000 Fees Earned 16,340 Rent Revenue Wages Expense 4,275 Rent Expense 1,600 Depreciation Expense Utilities Expense 985 Supplies Expense 800 Insurance Expense Miscellaneous Exp. 455 42,600 42,600 (a) 1,240 (b) (b) The insurance expense for December is $200 ($2,400 ÷ 12). (a) 1,240 (b) 4-82

4-83 (c) Rent revenue earned during December was $120. Cash 2,065
Trial Balance Adjustments Trial Balance Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accumulated Depr. Accounts Payable 900 Wages Payable Unearned Rent 360 Chris Clark, Capital 25, Chris Clark, Drawing 4,000 Fees Earned 16,340 Rent Revenue Wages Expense 4,275 Rent Expense 1,600 Depreciation Expense Utilities Expense 985 Supplies Expense 800 Insurance Expense Miscellaneous Exp. 455 42,600 42,600 (a) 1,240 (b) (c) Rent revenue earned during December was $120. (c) (c) (a) 1,240 (b) 4-83

Trial Balance Adjustments Trial Balance
Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accumulated Depr. Accounts Payable 900 Wages Payable Unearned Rent 360 Chris Clark, Capital 25, Chris Clark, Drawing 4,000 Fees Earned 16,340 Rent Revenue Wages Expense 4,275 Rent Expense 1,600 Depreciation Expense Utilities Expense 985 Supplies Expense 800 Insurance Expense Miscellaneous Exp. 455 42,600 42,600 (d) (a) 1,240 (b) (d) Fees accrued at the end of December, but not recorded, totaled $500. (c) (d) (c) (a) 1,240 (b) 4-84

Trial Balance Adjustments Trial Balance
Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accumulated Depr. Accounts Payable 900 Wages Payable Unearned Rent 360 Chris Clark, Capital 25, Chris Clark, Drawing 4,000 Fees Earned 16,340 Rent Revenue Wages Expense 4,275 Rent Expense 1,600 Depreciation Expense Utilities Expense 985 Supplies Expense 800 Insurance Expense Miscellaneous Exp. 455 42,600 42,600 (d) (a) 1,240 (b) (e) Wages accrued but not paid at the end of December totaled $250. (e) (c) (d) (c) (e) (a) 1,240 (b) 4-85

(f) Depreciation of office equipment is $50 for December.
Trial Balance Adjustments Trial Balance Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accumulated Depr. Accounts Payable 900 Wages Payable Unearned Rent 360 Chris Clark, Capital 25, Chris Clark, Drawing 4,000 Fees Earned 16,340 Rent Revenue Wages Expense 4,275 Rent Expense 1,600 Depreciation Expense Utilities Expense 985 Supplies Expense 800 Insurance Expense Miscellaneous Exp. 455 42,600 42,600 (d) (a) 1,240 (b) (f) Depreciation of office equipment is $50 for December. (f) (e) (c) (d) (c) (e) (f) (a) 1,240 (b) 4-86

Summed and ruled 4-87 Cash 2,065 Accounts Receivable 2,220
Trial Balance Adjustments Trial Balance Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accumulated Depr. Accounts Payable 900 Wages Payable Unearned Rent 360 Chris Clark, Capital 25, Chris Clark, Drawing 4,000 Fees Earned 16,340 Rent Revenue Wages Expense 4,275 Rent Expense 1,600 Depreciation Expense Utilities Expense 985 Supplies Expense 800 Insurance Expense Miscellaneous Exp. 455 42,600 42,600 (d) (a) 1,240 (b) (f) (e) (c) (d) (c) (e) (f) (a) 1,240 (b) Summed and ruled 2,360 2,360 4-87

The next step is to add or subtract the adjustments from (to) the amounts found in the Unadjusted Trial Balance columns and enter the results in the Adjusted Trial Balance columns.

4-89 Cash 2,065 2,065 Accounts Receivable 2,220 2,720
Trial Balance Adjustments Trial Balance Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2, ,065 Accounts Receivable 2, ,720 Supplies 2, Prepaid Insurance 2, ,200 Land 20, ,000 Office Equipment 1, ,800 Accumulated Depr Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital 25, ,000 Chris Clark, Drawing 4, ,000 Fees Earned 16, ,840 Rent Revenue Wages Expense 4, ,525 Rent Expense 1, ,600 Depreciation Expense Utilities Expense Supplies Expense ,040 Insurance Expense Miscellaneous Exp 42,600 42, ,400 43,400 (d) (a) 1,240 (b) (f) (c) (d) (c) (e) (f) (a) 1,240 (b) 2,360 2,360 4-89

Because of space constraints, the Unadjusted Trial Balance and the Adjustments columns will not be shown in the following slides.

The next step is to extend amounts in the Adjusted Trial Balance columns to the Income Statement and Balance Sheet columns.

Trial Balance Income Statement Balance Sheet Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2, ,065 Accounts Receivable 2, ,720 Supplies 2, Prepaid Insurance 2, ,200 Land 20, ,000 Office Equipment 1, ,800 Accumulated Depr Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital 25, ,000 Chris Clark, Drawing 4, ,000 Fees Earned 16, ,840 Rent Revenue Wages Expense 4,275 4,525 Rent Expense 1,600 1,600 Depreciation Expense Utilities Expense Supplies Expense ,040 Insurance Expense 200 Miscellaneous Exp 42,600 42,600 4-92

4-93 The four columns are summed. Cash 2,065 2,065
Trial Balance Income Statement Balance Sheet Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2, ,065 Accounts Receivable 2, ,720 Supplies 2, Prepaid Insurance 2, ,200 Land 20, ,000 Office Equipment 1, ,800 Accumulated Depr Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital 25, ,000 Chris Clark, Drawing 4, ,000 Fees Earned 16, ,840 Rent Revenue Wages Expense 4,275 4,525 Rent Expense 1,600 1,600 Depreciation Expense Utilities Expense Supplies Expense ,040 Insurance Expense 200 Miscellaneous Exp 42,600 42,600 9,855 16,960 33,545 26,440 4-93 The four columns are summed.

9,855 16,960 33,545 26,440 7, ,105 16,960 16,960 33,545 33,545 Income Statement Balance Sheet Net Income The difference between the Income Statement columns totals is the net income (or net loss) for the period.

Trial Balance Income Statement Balance Sheet Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2, ,065 Accounts Receivable 2, ,720 Supplies 2, Prepaid Insurance 2, ,200 Land 20, ,000 Office Equipment 1, ,800 Accumulated Depr Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital 25, ,000 Chris Clark, Drawing 4, ,000 Fees Earned 16, ,840 Rent Revenue Wages Expense 4,275 4,525 Rent Expense 1,600 1,600 Depreciation Expense Utilities Expense Supplies Expense ,040 Insurance Expense 200 Miscellaneous Exp 42,600 42,600 9,855 16,960 33,545 26,440 Net income 7, ,105 16,960 16,960 33,545 33,545 4-95

Completing the Accounting Cycle

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