Completing the Accounting Cycle 4 Completing the Accounting Cycle

After studying this chapter, you should be able to: Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements. Prepare financial statements from adjusted account balances. Prepare closing entries.

After studying this chapter, you should be able to: After studying this chapter, you should be able to: Describe the accounting cycle. Illustrate the accounting cycle for one period. Explain what is meant by the fiscal year and the natural business year. 3

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

4-1 5

Spreadsheet (Work Sheet) 4-1 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. 6

Spreadsheet (Work Sheet) 4-1 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. 7

Spreadsheet (Work Sheet) 4-1 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. 8

Spreadsheet (Work Sheet) 4-1 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. 9

Spreadsheet (Work Sheet) 4-1 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. 10

4-1 Example Exercise 4-1 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 11

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

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

4-2 To balance sheet 14

From statement of owner’ equity 4-2 (Concluded) From statement of owner’ equity 15

4-2 Example Exercise 4-2 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? 16

For Practice: PE 4-2A, PE 4-2B 4-2 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 17

4-2 Example Exercise 4-3 Zack Gaddis owns and operates Gaddis Employment Services. On January 1, 2007, 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, 2007. 18

For Practice: PE 4-3A, PE 4-3B 4-2 Follow My Example 4-3 Gaddis Employment Services Statement of Owner’s Equity For the Year Ended December 31, 2007 Zack Gaddis, capital, January 1, 2007 $186,000 Additional investment during 2007 40,000 Total $226,000 Withdrawals $ 25,000 Less net income 18,750 Decrease in owner’s equity 6,250 Zack Gaddis, capital, December 31, 2007 $219,750 For Practice: PE 4-3A, PE 4-3B 19

4-2 A classified balance sheet is a balance sheet that was expanded by adding subsections for current assets; property, plant, and equipment; and current liabilities.

4-2 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

4-2 Notes receivable are written promises by the customer to pay the amount of the note and possibly interest at an agreed rate.

4-2 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

4-2 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

4-2 Liabilities not due for a long time (usually more than one year) are long-term liabilities. Notes payable Mortgage payable Bond payable

4-2 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.

Jason Corbin, Capital 5. Cash Notes Receivable (due 6. Unearned Rent 4-2 Example Exercise 4-4 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, 2007 balance sheet of Hindsight Consulting. Jason Corbin, Capital 5. Cash Notes Receivable (due 6. Unearned Rent in 6 months) months) Notes Payable (due in 7. Accumulated Depr.— 2009) Equipment 4. Land 8. Accounts Payable 27

For Practice: PE 4-4A, PE 4-4B 4-2 Follow My Example 4-4 Owner’s equity 5. Current asset Current asset 6. Current liability Long-term liability 7. Property, plant, and equipment Property, plant, and equip. 8. Current liability For Practice: PE 4-4A, PE 4-4B 28

Prepare closing entries. 4-3 Objective 3 Prepare closing entries.

4-3 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.

4-3 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.

4-3 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.

4-3 33

4-3 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 34

Miscellaneous Expense 4-3 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 Supplies Expense Debit Income Summary for the total expenses and credit each expense account for its balance. Insurance Expense Bal. 200 Miscellaneous Expense Bal. 455 35

4-3 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 36

4-3 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 37

4-3 Step 1 Step 2 Step 3 Step 4 38

4-3 After the closing entries are posted, all of the temporary accounts have zero balances.

Journalize the four entries required to close the accounts. 4-3 Example Exercise 4-4 Example Exercise 4-5 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, 2007, balance sheet of Hindsight Consulting. 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. 40

4-3 Follow My Example 4-5 31 Income Summary 41,000 4-3 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 41 For Practice: PE 4-5A, PE 4-5B

Post-Closing Trial Balance Exhibit 7 Post-Closing Trial Balance 4-3 NetSolutions Post-Closing Trial Balance December 31, 2007 Cash 2 065 00 Accounts Receivable 2 720 00 Supplies 760 00 Prepaid Insurance 2 200 00 Land 20 000 00 Office Equipment 1 800 00 Accumulated Depreciation 50 00 Accounts Payable 900 00 Wages Payable 250 00 Unearned Rent 240 00 Chris Clark, Capital 28 105 00 29 545 00 29 545 00 42

Describe the accounting cycle. 4-4 Objective 4 Describe the accounting cycle.

4-4 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. The Accounting Cycle 4-4 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

Adjusting entries are journalized and posted to the ledger. 4-4 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.

Transactions are analyzed and recorded in the journal. 4-4 Example Exercise 4-6 Example Exercise 4-4 From the following list of steps in the accounting cycle, identify what two steps are missing. 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, 2007, balance sheet of Hindsight Consulting. 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. 21 47

For Practice: PE 4-6A, PE 4-6B 4-4 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). 48 For Practice: PE 4-6A, PE 4-6B

Objective 5 Illustrate the accounting cycle for one period. 4-5 Objective 5 Illustrate the accounting cycle for one period. Refer to the textbook for this extended illustration.

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

4-6 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 4-6 The financial history of a business may be shown by a series of balance sheets and income statements, as displayed below. 52

End-of-Period Spreadsheet (Work Sheet) Appendix End-of-Period Spreadsheet (Work Sheet)

The end-of-period spreadsheet (work sheet) shown in the following slides does not have the usual spreadsheet headings due to space constraints.

The unadjusted trial balance is checked for equality. Unadjusted Adjusted Trial Balance Adjustments Trial Balance 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 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 Chris Clark, Capital 25,000 Chris Clark, Drawing 4,000 Fees Earned 16,340 Wages Expense 4,275 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 Miscellaneous Expense 455 42,600 42,600 The unadjusted trial balance is checked for equality. 55

Cost of supplies on hand at end of period is $760. Unadjusted Adjusted Trial Balance Adjustments Trial Balance 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 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 Chris Clark, Capital 25,000 Chris Clark, Drawing 4,000 Fees Earned 16,340 Wages Expense 4,275 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 Miscellaneous Expense 455 42,600 42,600 (a) 1,240 Cost of supplies on hand at end of period is $760. (a) 1,240 56

The insurance expense for December is $200 ($2,400/12) Unadjusted Adjusted Trial Balance Adjustments Trial Balance 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 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 (a) 1,240 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 Chris Clark, Capital 25,000 Chris Clark, Drawing 4,000 Fees Earned 16,340 Wages Expense 4,275 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 (a) 1,240 Miscellaneous Expense 455 42,600 42,600 (b) 200 The insurance expense for December is $200 ($2,400/12) Insurance Expense (b) 200 57 Accounts are added as needed.

Rent revenue earned during December was $120. Unadjusted Adjusted Trial Balance Adjustments Trial Balance 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 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 (a) 1,240 Prepaid Insurance 2,400 (b) 200 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 Chris Clark, Capital 25,000 Chris Clark, Drawing 4,000 Fees Earned 16,340 Wages Expense 4,275 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 (a) 1,240 Miscellaneous Expense 455 42,600 42,600 Rent revenue earned during December was $120. (c) 120 Insurance Expense (b) 200 58 Rent Revenue (c) 120

Wages accrued but not paid at the end of December totaled $250. Unadjusted Adjusted Trial Balance Adjustments Trial Balance 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 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 (a) 1,240 Prepaid Insurance 2,400 (b) 200 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 (c) 120 Chris Clark, Capital 25,000 Chris Clark, Drawing 4,000 Fees Earned 16,340 Wages Expense 4,275 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 (a) 1,240 Miscellaneous Expense 455 42,600 42,600 Wages accrued but not paid at the end of December totaled $250. (d) 250 Insurance Expense (b) 200 Rent Revenue (c) 120 59 Wages Payable (d) 250

Fees accrued at the end of December but not recorded total $500. Unadjusted Adjusted Trial Balance Adjustments Trial Balance 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 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 (a) 1,240 Prepaid Insurance 2,400 (b) 200 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 (c) 120 Chris Clark, Capital 25,000 Chris Clark, Drawing 4,000 Fees Earned 16,340 Wages Expense 4,275 (d) 250 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 (a) 1,240 Miscellaneous Expense 455 42,600 42,600 (e) 500 Fees accrued at the end of December but not recorded total $500. (e) 500 Insurance Expense (b) 200 Rent Revenue (c) 120 Wages Payable (d) 250 60

Depreciation of office equipment is $50 for December. Unadjusted Adjusted Trial Balance Adjustments Trial Balance 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 Cash 2,065 Accounts Receivable 2,220 (e) 500 Supplies 2,000 (a) 1,240 Prepaid Insurance 2,400 (b) 200 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 (c) 120 Chris Clark, Capital 25,000 Chris Clark, Drawing 4,000 Fees Earned 16,340 (e) 500 Wages Expense 4,275 (d) 250 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 (a) 1,240 Miscellaneous Expense 455 42,600 42,600 Depreciation of office equipment is $50 for December. Insurance Expense (b) 200 Rent Revenue (c) 120 Wages Payable (d) 250 61 Depreciation Expense (f) 50 Accum. Depreciation (f) 50

To make more space, let’s remove the heading. Unadjusted Adjusted Trial Balance Adjustments Trial Balance 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 Cash 2,065 Accounts Receivable 2,220 (e) 500 Supplies 2,000 (a) 1,240 Prepaid Insurance 2,400 (b) 200 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 (c) 120 Chris Clark, Capital 25,000 Chris Clark, Drawing 4,000 Fees Earned 16,340 (e) 500 Wages Expense 4,275 (d) 250 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 (a) 1,240 Miscellaneous Expense 455 42,600 42,600 To make more space, let’s remove the heading. Insurance Expense (b) 200 Rent Revenue (c) 120 Wages Payable (d) 250 Depreciation Expense (f) 50 Accum. Depreciation (f) 50 62

Summed and ruled 31 63 Cash 2,065 Accounts Receivable 2,220 (e) 500 Unadjusted Adjusted Trial Balance Adjustments Trial Balance 31 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 (e) 500 Supplies 2,000 (a) 1,240 Prepaid Insurance 2,400 (b) 200 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 (c) 120 Chris Clark, Capital 25,000 Chris Clark, Drawing 4,000 Fees Earned 16,340 (e) 500 Wages Expense 4,275 (d) 250 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 (a) 1,240 Miscellaneous Expense 455 42,600 42,600 Insurance Expense (b) 200 Rent Revenue (c) 120 Wages Payable (d) 250 Depreciation Expense (f) 50 Accum. Depreciation (f) 50 2,360 2,360 Summed and ruled 63

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.

34 65 Cash 2,065 Accounts Receivable 2,220 (e) 500 Unadjusted Adjusted Trial Balance Adjustments Trial Balance 34 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 (e) 500 Supplies 2,000 (a) 1,240 Prepaid Insurance 2,400 (b) 200 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 (c) 120 Chris Clark, Capital 25,000 Chris Clark, Drawing 4,000 Fees Earned 16,340 (e) 500 Wages Expense 4,275 (d) 250 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 (a) 1,240 Miscellaneous Expense 455 42,600 42,600 Insurance Expense (b) 200 Rent Revenue (c) 120 Wages Payable (d) 250 Depreciation Expense (f) 50 Accum. Depreciation (f) 50 2,360 2,360 65

34 66 Cash 2,065 2,065 Accounts Receivable 2,220 (e) 500 2,720 Unadjusted Adjusted Trial Balance Adjustments Trial Balance 34 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 2,065 Accounts Receivable 2,220 (e) 500 2,720 Supplies 2,000 (a) 1,240 760 Prepaid Insurance 2,400 (b) 200 2,200 Land 20,000 20,000 Office Equipment 1,800 1,800 Accounts Payable 900 900 Unearned Rent 360 (c) 120 240 Chris Clark, Capital 25,000 25,000 Chris Clark, Drawing 4,000 4,000 Fees Earned 16,340 (e) 500 16,840 Wages Expense 4,275 (d) 250 4,525 Rent Expense 1,600 1,600 Utilities Expense 985 985 Supplies Expense 800 (a) 1,240 2,040 Miscellaneous Expense 455 455 42,600 42,600 Insurance Expense (b) 200 200 Rent Revenue (c) 120 120 Wages Payable (d) 250 250 Depreciation Expense (f) 50 50 Accum. Depreciation (f) 50 50 2,360 2,360 43,400 43,400 66

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

38 68 Cash 2,065 Accounts Receivable 2,720 Supplies 760 Adjusted Trial Balance Income Statement Balance Sheet 38 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 760 Prepaid Insurance 2,200 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 240 Chris Clark, Capital 25,000 Chris Clark, Drawing 4,000 Fees Earned 16,840 Wages Expense 4,525 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 2,040 Miscellaneous Expense 455 Insurance Expense 200 Rent Revenue 120 Wages Payable 250 Depreciation Expense 50 Accum. Depreciation 50 43,400 43,400 68

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

38 70 Cash 2,065 Accounts Receivable 2,720 Supplies 760 Adjusted Trial Balance Income Statement Balance Sheet 38 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 760 Prepaid Insurance 2,200 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 240 Chris Clark, Capital 25,000 Chris Clark, Drawing 4,000 Fees Earned 16,840 Wages Expense 4,525 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 2,040 Miscellaneous Expense 455 Insurance Expense 200 Rent Revenue 120 Wages Payable 250 Depreciation Expense 50 Accum. Depreciation 50 43,400 43,400 70

40 71 Cash 2,065 2,065 Accounts Receivable 2,720 2,720 Adjusted Trial Balance Income Statement Balance Sheet 40 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 2,065 Accounts Receivable 2,720 2,720 Supplies 760 760 Prepaid Insurance 2,200 2,200 Land 20,000 20,000 Office Equipment 1,800 1,800 Accounts Payable 900 900 Unearned Rent 240 240 Chris Clark, Capital 25,000 25,000 Chris Clark, Drawing 4,000 4,000 Fees Earned 16,840 16,840 Wages Expense 4,525 4,525 Rent Expense 1,600 1,600 Utilities Expense 985 985 Supplies Expense 2,040 2,040 Miscellaneous Expense 455 455 Insurance Expense 200 200 Rent Revenue 120 120 Wages Payable 250 250 Depreciation Expense 50 50 Accum. Depreciation 50 50 43,400 43,400 71

The Income Statement and Balance Sheet columns are totaled. The Income Statement and Balance Sheet columns are totaled.

42 73 Cash 2,065 2,065 Accounts Receivable 2,720 2,720 Adjusted Trial Balance Income Statement Balance Sheet 42 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 2,065 Accounts Receivable 2,720 2,720 Supplies 760 760 Prepaid Insurance 2,200 2,200 Land 20,000 20,000 Office Equipment 1,800 1,800 Accounts Payable 900 900 Unearned Rent 240 240 Chris Clark, Capital 25,000 25,000 Chris Clark, Drawing 4,000 4,000 Fees Earned 16,840 16,840 Wages Expense 4,525 4,525 Rent Expense 1,600 1,600 Utilities Expense 985 985 Supplies Expense 2,040 2,040 Miscellaneous Expense 455 455 Insurance Expense 200 200 Rent Revenue 120 120 Wages Payable 250 250 Depreciation Expense 50 50 Accum. Depreciation 50 50 43,400 43,400 73

42 74 Cash 2,065 2,065 Accounts Receivable 2,720 2,720 Adjusted Trial Balance Income Statement Balance Sheet 42 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 2,065 Accounts Receivable 2,720 2,720 Supplies 760 760 Prepaid Insurance 2,200 2,200 Land 20,000 20,000 Office Equipment 1,800 1,800 Accounts Payable 900 900 Unearned Rent 240 240 Chris Clark, Capital 25,000 25,000 Chris Clark, Drawing 4,000 4,000 Fees Earned 16,840 16,840 Wages Expense 4,525 4,525 Rent Expense 1,600 1,600 Utilities Expense 985 985 Supplies Expense 2,040 2,040 Miscellaneous Expense 455 455 Insurance Expense 200 200 Rent Revenue 120 120 Wages Payable 250 250 Depreciation Expense 50 50 Accum. Depreciation 50 50 43,400 43,400 9,855 16,960 33,545 26,440 74

The net income or net loss is determined. Then the Income Statement and Balance Sheet columns are totaled and double-ruled.

76 Cash 2,065 2,065 Accounts Receivable 2,720 2,720 Supplies 760 760 Adjusted Trial Balance Income Statement Balance Sheet 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 2,065 Accounts Receivable 2,720 2,720 Supplies 760 760 Prepaid Insurance 2,200 2,200 Land 20,000 20,000 Office Equipment 1,800 1,800 Accounts Payable 900 900 Unearned Rent 240 240 Chris Clark, Capital 25,000 25,000 Chris Clark, Drawing 4,000 4,000 Fees Earned 16,840 16,840 Wages Expense 4,525 4,525 Rent Expense 1,600 1,600 Utilities Expense 985 985 Supplies Expense 2,040 2,040 Miscellaneous Expense 455 455 Insurance Expense 200 200 Rent Revenue 120 120 Wages Payable 250 250 Depreciation Expense 50 50 Accum. Depreciation 50 50 43,400 43,400 9,855 16,960 33,545 26,440 76

77 Cash 2,065 2,065 Accounts Receivable 2,720 2,720 Supplies 760 760 Adjusted Trial Balance Income Statement Balance Sheet 77 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 2,065 Accounts Receivable 2,720 2,720 Supplies 760 760 Prepaid Insurance 2,200 2,200 Land 20,000 20,000 Office Equipment 1,800 1,800 Accounts Payable 900 900 Unearned Rent 240 240 Chris Clark, Capital 25,000 25,000 Chris Clark, Drawing 4,000 4,000 Fees Earned 16,840 16,840 Wages Expense 4,525 4,525 Rent Expense 1,600 1,600 Utilities Expense 985 985 Supplies Expense 2,040 2,040 Miscellaneous Expense 455 455 Insurance Expense 200 200 Rent Revenue 120 120 Wages Payable 250 250 Depreciation Expense 50 50 Accum. Depreciation 50 50 43,400 43,400 9,855 16,960 33,545 26,440 Net income 7,105 7,105 16,960 16,960 33,545 33,545

9,855 16,960 33,545 26,440 7,105 7,105 16,960 16,960 33,545 33,545 Income Statement Balance Sheet Net Income Net Income The difference between the Income Statement column totals is the net income (or net loss) for the period. 78