CHAPTER 6 Business Accounting Cycle Part II.

CHAPTER 6 Business Accounting Cycle Part II

Checklist Chapter 6 Complete a Worksheet Financial Statements
Journalize Adjustments Closing the Books Post-Closing Trial Balance

Period End Procedures At the end of a period, several steps must be completed. Accounts must be adjusted to properly reflect their balances. Financial Statements must be created. Accounting records must be prepared for the next period. The trial balance created in the pervious chapter is the first step in beginning the period end procedures.

Trial Balance The trial balance ensures that debits are equal to credits. This is the end result of creating journal entries and posting them to the general ledger. Also called an Unadjusted Trial Balance since adjustments must still be made. Trial Balance January 31, 2014 Account Debit Credit Cash $4,000 Prepaid Insurance 1,200 Property, Plant & Equipment 8,000 Unearned Revenue $1,000 Bank Loan 2,000 Capital Account 6,700 Owner’s Drawings 1,500 Service Revenue 6,000 Rent Expense 800 Telephone Expense 200 Total $15,700

Unadjusted Trial Balance Adjusted Trial Balance
Worksheet A worksheet is used to test account balances during period end procedures. The first three sets of columns (Unadjusted Trial Balance, Adjustments and Adjusted Trial Balance) are shown below. Worksheet January 31, 2014 Unadjusted Trial Balance Adjustments Adjusted Trial Balance Account Debit Credit Cash $4,000 Prepaid Insurance 1,200 Property, Plant & Equipment 8,000 Unearned Revenue $1,000 Bank Loan 2,000 Capital Account 6,700 Owner’s Drawings 1,500 Service Revenue 6,000 Rent Expense 800 Telephone Expense 200 Total $15,700

Adjustments The following accounts are typically adjusted at the end of the period. Prepaid expenses (i.e. rent, insurance or office supplies) are reduced, which creates an expense on the income statement. Property, Plant and Equipment is depreciated, which creates an expense on the income statement. Interest on loans are accounted for, which creates an expense on the income statement Unearned Revenue can become earned, which creates a revenue on the income statement.

Contra Accounts Contra means opposite.
Accumulated depreciation is a contra asset account which reduces the value of property, plant and equipment. Accumulated depreciation is subtracted from property, plant and equipment to calculate the net value of the asset.

Depreciation Long-term assets have an estimated useful life.
The cost of the asset will be spread evenly over its useful life. Original Cost: $10,000 Useful Life: 5 years Annual Depreciation = $10,000 5 years Annual Depreciation = $2,000

Depreciation The entry to record depreciation is as follows:
Depreciation expense will increase with a debit entry. Accumulated depreciation is a contra account and will increase with a credit entry.

Depreciation: Exercise
Maple Company purchased equipment on January 1, 2013 for $30,000. The equipment is expected to last four years and have no salvage value. For December 31, 2013: Calculate the annual depreciation. Record the transaction in the appropriate T-accounts. $30,000 4 years 1) Annual Depreciation = Annual Depreciation = $7,500 2) + PROPERTY, PLANT AND EQUIPMENT - INCREASE (DR) DECREASE (CR) DECREASE (DR) INCREASE (CR) - ACCUMULATED DEPRECIATION + + DEPRECIATION EXPENSE - INCREASE (DR) DECREASE (CR) 7,500 7,500

Adjustments Adjustments are entered in the Adjustments column. Make sure debits and credits are balanced by totalling the two columns. Worksheet January 31, 2014 Unadjusted Trial Balance Adjustments Adjusted Trial Balance Account Debit Credit Cash $4,000 Prepaid Insurance 1,200 $100 Property, Plant & Equipment 8,000 Accumulated Depreciation $0 60 Unearned Revenue 1,000 Bank Loan 2,000 Capital Account 6,700 Owner’s Drawings 1,500 Service Revenue 6,000 Depreciation Expense $60 Insurance Expense 100 Rent Expense 800 Telephone Expense 200 Total $15,700 $160

Adjusted Trial Balance
Add or subtract the adjustments to the unadjusted balances to get the adjusted balances. Some accounts will have no change in their balance, so just copy their value over to the Adjusted Trial Balance columns. Be careful that the balances are placed in the proper columns. Examine the worksheet on the next slide.

Prepaid Insurance $1, $1,100 Worksheet January 31, 2014 Unadjusted Trial Balance Adjustments Adjusted Trial Balance Account Debit Credit Cash $4,000 Prepaid Insurance 1,200 $100 1,100 Property, Plant & Equipment 8,000 Accumulated Depreciation $0 $60 Unearned Revenue 1,000 Bank Loan 2,000 Capital Account 6,700 Owner’s Drawings 1,500 Service Revenue 6,000 Depreciation Expense 60 Insurance Expense 100 Rent Expense 800 Telephone Expense 200 Total $15,700 $160 $15,760

Worksheet From the Adjusted Trial Balance, the financial statements can now be created. The accounts are separated into those that will appear on the Income Statement, and those that will appear on the Balance Sheet and Statement of Owner’s Equity.

Worksheet Notice that the totals of the Income Statement and Balance Sheet columns do not balance. Worksheet January 31, 2014 Adjusted Trial Balance Income Statement Balance Sheet & Equity Account Debit Credit Cash $4,000 Prepaid Insurance 1,100 Property, Plant & Equipment 8,000 Accumulated Depreciation $60 Unearned Revenue 1,000 Bank Loan 2,000 Capital Account 6,700 Owner’s Drawings 1,500 Service Revenue 6,000 $6,000 Depreciation Expense 60 Insurance Expense 100 Rent Expense 800 Telephone Expense 200 Total $15,760 $1,160 $14,600 $9,760

Worksheet The totals do not balance because the company is expected to earn an income or generate a loss. The difference between the debit and credit column on the Income Statement indicates the income or loss. The same difference on the Balance Sheet indicates the increase or decrease the income or loss creates in the capital account.

Worksheet This company earned a net income because revenue was higher than expenses. Worksheet January 31, 2014 Adjusted Trial Balance Income Statement Balance Sheet & Equity Account Debit Credit Cash $4,000 Prepaid Insurance 1,100 Property, Plant & Equipment 8,000 Accumulated Depreciation $60 Unearned Revenue 1,000 Bank Loan 2,000 Capital Account 6,700 Owner’s Drawings 1,500 Service Revenue 6,000 $6,000 Depreciation Expense 60 Insurance Expense 100 Rent Expense 800 Telephone Expense 200 Total 15,760 1,160 14,600 9,760 Net Income (Loss) 4,840 $14,600 The net income balances the worksheet

Worksheet - Question Prepaid rent shows an unadjusted debit balance of $6,000 and a credit adjustment of $2,400. What is the adjusted balance of prepaid rent? $3,600 Debit $6,000 Debit $3,600 Credit $2,400 Credit

Worksheet - Question Unearned revenue shows an unadjusted credit balance of $4,000 and a debit adjustment of $1,600. What is the adjusted balance of unearned revenue? $2,400 Debit $4,000 Credit $2,400 Credit $1,600 Credit

Worksheet - Question Prepaid insurance is being adjusted for the amount used. What other account would be affected by this adjustment? Debit to Unearned Insurance Debit to Insurance Expense Credit to Unearned Insurance Credit to Insurance Expense

Financial Statements Once the worksheet is completed successfully, the formal financial statements can be created. The values from the Adjusted Trial Balance will be used to create the statements: Income Statement Statement of Owner’s Equity Balance Sheet

Income Statement The Income Statement only reports revenue and expenses. Adjusted Trial Balance Account Debit Credit Cash $4,000 Prepaid Insurance 1,100 Property, Plant & Equipment 8,000 Accumulated Depreciation $60 Unearned Revenue 1,000 Bank Loan 2,000 Capital Account 6,700 Owner’s Drawings 1,500 Service Revenue 6,000 Depreciation Expense 60 Insurance Expense 100 Rent Expense 800 Telephone Expense 200 Total $15,760 Income Statement For the Month Ended January 31, 2014 Service Revenue $6,000 Expenses Depreciation Expense $60 Insurance Expense 100 Rent Expense 800 Telephone Expense 200 Total Expenses 1,160 Net Income (Loss) $4,840

For the Month Ended January 31, 2014
Income Statement Net income on the Income Statement must match the net income shown on the worksheet. The net income (or loss) will be used on the next statement, the Statement of Owner’s Equity. Income Statement For the Month Ended January 31, 2014 Service Revenue $6,000 Expenses Depreciation Expense $60 Insurance Expense 100 Rent Expense 800 Telephone Expense 200 Total Expenses 1,160 Net Income (Loss) $4,840

Statement of Owner’s Equity
The Statement of Owner’s Equity reports any changes in equity over the reporting period. Adjusted Trial Balance Account Debit Credit Cash 4,000 Prepaid Insurance 1,100 Property, Plant & Equipment 8,000 Accumulated Depreciation 60 Unearned Revenue 1,000 Bank Loan 2,000 Capital Account 6,700 Owner’s Drawings 1,500 Service Revenue 6,000 Depreciation Expense Insurance Expense 100 Rent Expense 800 Telephone Expense 200 Total 15,760 Statement of Owner's Equity For the Month Ended January 31, 2014 Capital Account, January 1 $6,700 Add: Net Income 4,840 Subtotal 11,540 Less: Owner's Drawings 1,500 Capital Account, January 31 $10,040 Notice net income is the same figure from the Income Statement.

The ending value of the capital account from the Statement of Owner’s Equity will be used on the Balance Sheet. If the owner invested more cash or assets into the business during the month, the statement would look like: Statement of Owner's Equity For the Month Ended January 31, 2014 Capital Account, January 1 $6,700 Add: Net Income 4,840 Add: Investment 5,000 Subtotal 16,540 Less: Owner's Drawings 1,500 Capital Account, January 31 $15,040

The final value of the capital account that is shown on the Statement of Owner’s Equity will be carried over to the Balance Sheet. Statement of Owner's Equity For the Month Ended January 31, 2014 Capital Account, January 1 $6,700 Add: Net Income 4,840 Subtotal 11,540 Less: Owner's Drawings 1,500 Capital Account, January 31 $10,040

Balance Sheet The Balance Sheet shows the financial position of the company at a point in time. Balance Sheet As at January 31, 2014 Assets Cash $4,000 Prepaid Insurance 1,100 Property, Plant & Equipment $8,000 Less: Accumulated Depreciation (60) 7,940 Total Assets $13,040 Liabilities Unearned Revenue $1,000 Bank Loan 2,000 Total Liabilities 3,000 Owner's Equity 10,040 Total Liabilities and Equity Adjusted Trial Balance Account Debit Credit Cash $4,000 Prepaid Insurance 1,100 Property, Plant & Equipment 8,000 Accumulated Depreciation $60 Unearned Revenue 1,000 Bank Loan 2,000 Capital Account 6,700 Owner’s Drawings 1,500 Service Revenue 6,000 Depreciation Expense 60 Insurance Expense 100 Rent Expense 800 Telephone Expense 200 Total $15,760 Notice owner’s equity is the same figure from the Statement of Owner’s Equity

Balance Sheet The Balance Sheet uses the assets and liabilities from the Adjusted Trial Balance and the capital account balance from the Statement of Owner’s Equity. The accounts are set up to match the accounting equation: Assets = Liabilities + Owner’s Equity

Balance Sheet The value of Property, Plant & Equipment is decreased by the value of accumulated depreciation when calculating the value of total assets. Balance Sheet As at January 31, 2014 Assets Cash $4,000 Prepaid Insurance 1,100 Property, Plant & Equipment $8,000 Less: Accumulated Depreciation (60) 7,940 Total Assets $13,040 Liabilities Unearned Revenue $1,000 Bank Loan 2,000 Total Liabilities 3,000 Owner's Equity 10,040 Total Liabilities and Equity

Financial Statements - Question
Which of the following statements is true about the statement of owner’s equity? It links the income statement to the balance sheet It includes an addition to net income for the total amount of owner’s drawings It is prepared after the balance sheet and income statement

True or False? By analyzing the balance sheet, the revenue for the period can be observed. True False

Adjusting Entries The adjustments made in the worksheet to test the account balances can now be entered in the journal. Worksheet January 31, 2014 Unadjusted Trial Balance Adjustments Adjusted Trial Balance Account Debit Credit Cash $4,000 Prepaid Insurance 1,200 $100 1,100 Property, Plant & Equipment 8,000 Accumulated Depreciation $0 60 $60 Unearned Revenue 1,000 Bank Loan 2,000 Capital Account 6,700 Owner’s Drawings 1,500 Service Revenue 6,000 Depreciation Expense Insurance Expense 100 Rent Expense 800 Telephone Expense 200 Total 15,700 160 15,760

Adjusting Entries These journal entries will update the general ledger balances to match what has been shown on the financial statements. JOURNAL Page 2 DATE ACCOUNT TITLE & EXPLANATION PR DEBIT CREDIT Jan 31 Insurance Expense 515 100 Prepaid Insurance 110 Adjust for insurance used Depreciation Expense 510 60 Accumulated Depreciation 125 Adjust for depreciation

What type of entry to a prepaid insurance expense account is required to adjust it to the correct value at the end of the accounting period? Debit Credit

Closing the Books At the end of each accounting period, accountants are required to close the books. Closing the books updates the capital account so the income statement and owner’s drawings account start fresh for the next accounting period.

Closing the Books To close the books, the owner’s drawing, revenue and expense accounts need to be adjusted to zero (cleared) in preparation for a new fiscal year. + OWNER’S DRAWINGS - INCREASE (DR) DECREASE (CR) - REVENUE + DECREASE (DR) INCREASE (CR) + EXPENSES - INCREASE (DR) DECREASE (CR) 1,500 7,500 4,600 2,000 6,200 3,900 8,100 5,100 The drawings account keeps growing with each transaction The revenue account keeps growing with each transaction The expense accounts keeps growing with each transaction

Closing the Books To clear these accounts: Revenues must be debited
Expenses must be credited Owner’s Drawings must be credited + OWNER’S DRAWINGS - INCREASE (DR) DECREASE (CR) - REVENUE + DECREASE (DR) INCREASE (CR) + EXPENSES - INCREASE (DR) DECREASE (CR) 1,500 3,500 21,800 7,500 4,600 13,600 2,000 6,200 3,900 3,500 8,100 5,100 21,800 13,600

Close Directly to the Capital Account
When revenue is closed to the capital account, the capital account increases in value. Adjusted Trial Balance Account Debit Credit Cash $4,000 Prepaid Insurance 1,100 Property, Plant & Equipment 8,000 Accumulated Depreciation $60 Unearned Revenue 1,000 Bank Loan 2,000 Capital Account 6,700 Owner’s Drawings 1,500 Service Revenue 6,000 Depreciation Expense 60 Insurance Expense 100 Rent Expense 800 Telephone Expense 200 Total $15,760 - SERVICE REVENUE + DECREASE (DR) INCREASE (CR) 6,000 6,000 Closing Balance - CAPITAL ACCOUNT + DECREASE (DR) INCREASE (CR) 6,700 Opening Balance 6,000

The journal entry for closing the service revenue account is shown below: - SERVICE REVENUE + DECREASE (DR) INCREASE (CR) 6,000 6,000 Closing Balance - CAPITAL ACCOUNT + DECREASE (DR) INCREASE (CR) 6,700 Opening Balance 6,000 JOURNAL Page 3 DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT Jan 31 Service Revenue 6,000 Capital Account Close revenue account

When expenses are closed to the capital account, the capital account decreases in value. . Adjusted Trial Balance Account Debit Credit Cash $4,000 Prepaid Insurance 1,100 Property, Plant & Equipment 8,000 Accumulated Depreciation $60 Unearned Revenue 1,000 Bank Loan 2,000 Capital Account 6,700 Owner’s Drawings 1,500 Service Revenue 6,000 Depreciation Expense 60 Insurance Expense 100 Rent Expense 800 Telephone Expense 200 Total $15,760 + VARIOUS EXPENSES - INCREASE (DR) DECREASE (CR) 1,160 1,160 Closing Balance - CAPITAL ACCOUNT + DECREASE (DR) INCREASE (CR) 1,160 6,700 Opening Balance 6,000

Each expense account must be listed separately in the journal entry. JOURNAL Page 3 DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT Jan 31 Capital Account 1,160 Depreciation Expense 60 Insurance Expense 100 Rent Expense 800 Telephone Expense 200 Close expense accounts + VARIOUS EXPENSES - INCREASE (DR) DECREASE (CR) 1,160 1,160 Closing Balance - CAPITAL ACCOUNT + DECREASE (DR) INCREASE (CR) 1,160 6,700 Opening Balance 6,000

When owner’s drawings are closed to the capital account, the capital account decreases in value. Adjusted Trial Balance Account Debit Credit Cash $4,000 Prepaid Insurance 1,100 Property, Plant & Equipment 8,000 Accumulated Depreciation $60 Unearned Revenue 1,000 Bank Loan 2,000 Capital Account 6,700 Owner’s Drawings 1,500 Service Revenue 6,000 Depreciation Expense 60 Insurance Expense 100 Rent Expense 800 Telephone Expense 200 Total $15,760 + OWNER’S DRAWINGS - INCREASE (DR) DECREASE (CR) 1,500 1,500 Closing Balance - CAPITAL ACCOUNT + DECREASE (DR) INCREASE (CR) 1,160 6,700 Opening Balance 1,500 6,000

The journal entry for closing the owner’s drawings account is shown below: + OWNER’S DRAWINGS - INCREASE (DR) DECREASE (CR) JOURNAL Page 3 DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT Jan 31 Capital Account 1,500 Owner’s Drawings Close owner’s drawings 1,500 1,500 Closing Balance - CAPITAL ACCOUNT + DECREASE (DR) INCREASE (CR) 1,160 6,700 Opening Balance 1,500 6,000

After all the closing entries, the capital account has a new balance, which matches the ending value on the Statement of Owner’s Equity. Statement of Owner's Equity For the Month Ended January 31, 2014 Capital Account, January 1 $6,700 Add: Net Income 4,840 Subtotal 11,540 Less: Owner's Drawings 1,500 Capital Account, January 31 $10,040 - CAPITAL ACCOUNT + DECREASE (DR) INCREASE (CR) 1,160 6,700 Opening Balance 1,500 6,000 10,040 Closing Balance

Closing Using the Income Summary
Instead of closing directly to the capital account, revenues and expenses can be closed to the Income Summary account, which indicates the income or loss the company earned. - REVENUE + DECREASE (DR) INCREASE (CR) + EXPENSES - INCREASE (DR) DECREASE (CR) 21,800 7,500 4,600 13,600 6,200 3,900 8,100 5,100 21,800 13,600 - INCOME SUMMARY + DECREASE (DR) INCREASE (CR) 13,600 21,800 8,200 Closing Balance

When revenue is closed to the income summary, the income summary account increases in value. Adjusted Trial Balance Account Debit Credit Cash $4,000 Prepaid Insurance 1,100 Property, Plant & Equipment 8,000 Accumulated Depreciation $60 Unearned Revenue 1,000 Bank Loan 2,000 Capital Account 6,700 Owner’s Drawings 1,500 Service Revenue 6,000 Depreciation Expense 60 Insurance Expense 100 Rent Expense 800 Telephone Expense 200 Total $15,760 - SERVICE REVENUE + DECREASE (DR) INCREASE (CR) 6,000 6,000 Closing Balance - INCOME SUMMARY + DECREASE (DR) INCREASE (CR) 6,000

The journal entry for closing the service revenue account is shown below: - SERVICE REVENUE + DECREASE (DR) INCREASE (CR) 6,000 6,000 Closing Balance - INCOME SUMMARY + DECREASE (DR) INCREASE (CR) 6,000 JOURNAL Page 3 DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT Jan 31 Service Revenue 6,000 Income Summary Close revenue account

When expenses are closed to the income summary, the income summary account decreases in value. . Adjusted Trial Balance Account Debit Credit Cash 4,000 Prepaid Insurance 1,100 Property, Plant & Equipment 8,000 Accumulated Depreciation 60 Unearned Revenue 1,000 Bank Loan 2,000 Capital Account 6,700 Owner’s Drawings 1,500 Service Revenue 6,000 Depreciation Expense Insurance Expense 100 Rent Expense 800 Telephone Expense 200 Total 15,760 + VARIOUS EXPENSES - INCREASE (DR) DECREASE (CR) 1,160 1,160 Closing Balance - INCOME SUMMARY + DECREASE (DR) INCREASE (CR) 1,160 6,000

Each expense account must be listed separately in the journal entry. + VARIOUS EXPENSES - INCREASE (DR) DECREASE (CR) JOURNAL Page 3 DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT Jan 31 Income Summary 1,160 Depreciation Expense 60 Insurance Expense 100 Rent Expense 800 Telephone Expense 200 Close expense accounts 1,160 1,160 Closing Balance - INCOME SUMMARY + DECREASE (DR) INCREASE (CR) 1,160 6,000

The income summary account now has a credit balance, which is the same value as the net income shown in the Income Statement. To close the income summary, we will have to debit the account to remove the net income. - INCOME SUMMARY + DECREASE (DR) INCREASE (CR) Income Statement For the Month Ended January 31, 2014 Service Revenue $6,000 Expenses Depreciation Expense $60 Insurance Expense 100 Rent Expense 800 Telephone Expense 200 Total Expenses 1,160 Net Income (Loss) $4,840 1,160 6,000 4,840

Transfer the balance from the income summary to the capital account - INCOME SUMMARY + DECREASE (DR) INCREASE (CR) JOURNAL Page 3 DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT Jan 31 Income Summary 4,840 Capital Account Close revenue account 1,160 6,000 4,840 4,840 Closing Balance - CAPITAL ACCOUNT + DECREASE (DR) INCREASE (CR) 6,700 Opening Balance 4,840

Closing the owner’s drawings account is done the same way as shown earlier. + OWNER’S DRAWINGS - INCREASE (DR) DECREASE (CR) JOURNAL Page 3 DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT Jan 31 Capital Account 1,500 Owner’s Drawings Close owner’s drawings 1,500 1,500 Closing Balance - CAPITAL ACCOUNT + DECREASE (DR) INCREASE (CR) 1,500 6,700 Opening Balance 4,840

As before, once the capital account is updated, the balance will match the final value shown on the Statement of Owner’s Equity. Statement of Owner's Equity For the Month Ended January 31, 2014 Capital Account, January 1 $6,700 Add: Net Income 4,840 Subtotal 11,540 Less: Owner's Drawings 1,500 Capital Account, January 31 $10,040 - CAPITAL ACCOUNT + DECREASE (DR) INCREASE (CR) 1,500 6,700 Opening Balance 4,840 10,040 Closing Balance

Closing the Books - Question
Which one of the following types of entries is required to close an expense account? Debit the expense account Credit the expense account Credit the income summary account Debit the owner’s drawings account

Closing the Books - Question
Which one of the following types of entries is required to close the owner’s drawings account? Debit the owner’s drawings account Debit the capital account Debit the revenue account Credit the capital account

Post-Closing Trial Balance
After updating equity, it is important to ensure that the balance sheet is still in balance. Another trial balance must be generated, which will be dated the first day of the new fiscal period. Since the income statement and owner’s drawings balances are now zero, the post-closing trial balance will only include balance sheet balances.

Post-Closing Trial Balance
List the assets, liabilities and capital account. Assets = Liabilities + Owner’s Equity Post-Closing Trial Balance February 1, 2014 Account Debit Credit Cash $4,000 Prepaid Insurance 1,100 Property, Plant & Equipment 8,000 Accumulated Depreciation $60 Unearned Revenue 1,000 Bank Loan 2,000 Capital Account 10,040 Total $13,100

Post-Closing Trial Balance - Question
Which accounts have zero balances in the post-closing trial balance? Owner’s drawings Revenues Expenses All of the above

Complete the following exercise.

Unadjusted Trial Balance
Exercise A company has prepared the following unadjusted trial balance at the end of March, The following adjustments must be made: Unadjusted Trial Balance Account Debit Credit Cash $4,000 Prepaid Rent 3,200 Property, Plant & Equipment 8,000 Accumulated Depreciation $0 Unearned Revenue 1,000 Bank Loan 2,000 Capital Account 8,100 Owner’s Drawings 1,500 Service Revenue 6,000 Advertising Expense 300 Depreciation Expense Rent Expense Telephone Expense 100 Total $17,100 Rent of $800 has been used. Depreciation was $120. Unearned revenue of $400 has now been earned.

Exercise ·Rent of $800 has been used · Depreciation was $120 · Unearned revenue of $400 has now been earned Create the Worksheet. $4,000 $800 2,400 8,000 120 $120 $400 600 2,000 8,100 1,500 400 6,400 300 800 100 $1,320 $17,220 $6,400 $15,900 $10,820 5,080 Worksheet March 31, 2011 Unadjusted Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet & Equity Account Debit Credit Cash 4,000 Prepaid Rent 3,200 Property, Plant & Equipment 8,000 Accumulated Depreciation Unearned Revenue 1,000 Bank Loan 2,000 Capital Account 8,100 Owner’s Drawings 1,500 Service Revenue 6,000 Advertising Expense 300 Depreciation Expense Rent Expense Telephone Expense 100 Total 17,100 Net Income (Loss)

Exercise Based on the adjusted trial balance, create the Income Statement. Adjusted Trial Balance Account Debit Credit Cash $4,000 Prepaid Rent 2,400 Property, Plant & Equipment 8,000 Accumulated Depreciation $120 Unearned Revenue 600 Bank Loan 2,000 Capital Account 8,100 Owner’s Drawings 1,500 Service Revenue 6,400 Advertising Expense 300 Depreciation Expense 120 Rent Expense 800 Telephone Expense 100 Total $17,220 Service Revenue $6,400 Expenses Advertising Expense $300 Depreciation Expense 120 Rent Expense 800 Telephone Expense 100 Total Expenses 1,320 Net Income (Loss) $5,080 Income Statement For the Month Ended March 31, 2011

Exercise Based on the adjusted trial balance, create the Statement of Owner’s Equity. Adjusted Trial Balance Account Debit Credit Cash $4,000 Prepaid Rent 2,400 Property, Plant & Equipment 8,000 Accumulated Depreciation $120 Unearned Revenue 600 Bank Loan 2,000 Capital Account 8,100 Owner's Drawings 1,500 Service Revenue 6,400 Advertising Expense 300 Depreciation Expense 120 Rent Expense 800 Telephone Expense 100 Total $17,220 Capital Account, March 1 $8,100 Add: Net Income 5,080 Subtotal 13,180 Less: Owner's Drawings 1,500 Capital Account, March 31 $11,680 Statement of Owner's Equity For the Month Ended March 31, 2011

Exercise Based on the adjusted trial balance, create the Balance Sheet. Adjusted Trial Balance Account Debit Credit Cash $4,000 Prepaid Rent 2,400 Property, Plant & Equipment 8,000 Accumulated Depreciation $120 Unearned Revenue 600 Bank Loan 2,000 Capital Account 8,100 Owner’s Drawings 1,500 Service Revenue 6,400 Advertising Expense 300 Depreciation Expense 120 Rent Expense 800 Telephone Expense 100 Total $17,220 Assets Cash $4,000 Prepaid Rent 2,400 Property, Plant & Equipment $8,000 Less: Accumulated Depreciation (120) 7,880 Total Assets $14,280 Liabilities Unearned Revenue $600 Bank Loan 2,000 Total Liabilities 2,600 Owner's Equity 11,680 Total Liabilities and Equity Balance Sheet As at March 31, 2011

Exercise Based on the adjusted trial balance, close the revenue and expense accounts using the Income Summary account. Adjusted Trial Balance Account Debit Credit Cash $4,000 Prepaid Rent 2,400 Property, Plant & Equipment 8,000 Accumulated Depreciation $120 Unearned Revenue 600 Bank Loan 2,000 Capital Account 8,100 Owner’s Drawings 1,500 Service Revenue 6,400 Advertising Expense 300 Depreciation Expense 120 Rent Expense 800 Telephone Expense 100 Total $17,220 Mar 31 Service Revenue 6,400 Income Summary Close service revenue 1,320 Advertising Expense 300 Depreciation Expense 120 Rent Expense 800 Telephone Expense 100 Close expense accounts JOURNAL Page 3 DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT

Exercise Based on the adjusted trial balance, close the income summary account and owner’s drawings. Calculate the new balance of the capital account. Adjusted Trial Balance Account Debit Credit Cash $4,000 Prepaid Rent 2,400 Property, Plant & Equipment 8,000 Accumulated Depreciation $120 Unearned Revenue 600 Bank Loan 2,000 Capital Account 8,100 Owner’s Drawings 1,500 Service Revenue 6,400 Advertising Expense 300 Depreciation Expense 120 Rent Expense 800 Telephone Expense 100 Total $17,220 Mar 31 Income Summary 5,080 Capital Account Close income summary 1,500 Owner’s Drawings Close owner’s drawings JOURNAL Page 3 DATE ACCOUNT TITLE & EXPLANATION DEBIT CREDIT - CAPITAL ACCOUNT + DECREASE (DR) INCREASE (CR) 1,500 8,100 Opening Balance 5,080 11,680 Closing Balance

Exercise Based on the adjusted trial balance and the balance of the capital account, prepare a post-closing trial balance. Adjusted Trial Balance Account Debit Credit Cash $4,000 Prepaid Rent 2,400 Property, Plant & Equipment 8,000 Accumulated Depreciation $120 Unearned Revenue 600 Bank Loan 2,000 Capital Account 8,100 Owner’s Drawings 1,500 Service Revenue 6,400 Advertising Expense 300 Depreciation Expense 120 Rent Expense 800 Telephone Expense 100 Total $17,220 Cash $4,000 Prepaid Rent 2,400 Property, Plant & Equipment 8,000 Accumulated Depreciation $120 Unearned Revenue 600 Bank Loan 2,000 Capital Account 11,680 $14,400 Post-Closing Trial Balance April 1, 2011 Account Debit Credit Total - CAPITAL ACCOUNT + DECREASE (DR) INCREASE (CR) 1,500 8,100 Opening Balance 5,080 11,680 Closing Balance

End of Chapter 6

CHAPTER 6 Business Accounting Cycle Part II.

Similar presentations

Presentation on theme: "CHAPTER 6 Business Accounting Cycle Part II."— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

CHAPTER 6 Business Accounting Cycle Part II.

Similar presentations

Presentation on theme: "CHAPTER 6 Business Accounting Cycle Part II."— Presentation transcript:

Similar presentations

About project

Feedback