1. The Accounting Cycle: A Mini Case Action Slides Only – No supporting content
Original concept published as:
Yopp, M., & Kitchel, A. (2007). Incorporating an Accounting Unit in a Business Plan Project. NBEA Business Education Forum, 61(3),
Presentations & Curriculum prepared by:
Allen Kitchel, Ph.D.
Assistant Professor
Business & Marketing Teacher Education
University of Idaho

2. Case Development-Step 1: Your Own Business
Decide on a service business
A service business
Sells services, not merchandise
Less complex and thus is a preferred scenario when time is limited
For purposes of the provided case, the service business is:
“LightSpeed Networks: A Gaming Service”

3. Case Development-Step 2: Assets
Determine what “things” are needed to start the business
“Things” that a business has possession and control of; we call these “things” ASSETS.

4. Case Development-Step 3: Liabilities
Determine what liabilities the business may need to incur.
Plan to purchase at least one item “on-account.”
This entails the use of a liability account, representing the amount owed for a purchase. The amount owed is called a LIABILITY.

5. Case Development-Step 4: Revenues & Expenses
Anticipate Revenues & Expenses for the business.
What are some examples of different revenues and expenses?
Brainstorm time!

6. Case Development-Step 5: Chart of Accounts
Assign appropriate account numbers to each identified account
Assets (100), Liabilities (200), Owners Equity (300), Revenues (400), & Expenses (500)
Create a Chart of Account based on the numbered accounts
See the next slide for the accounts associated with the sample case.

7. Chart of Accounts for the Sample Case
Assets
101 Cash
102 Office Equipment
103 Supplies
104 Office Furniture
Revenue
401 Sales Revenue
Liabilities
201 Accounts Payable/Computer’s Inc.
Expenses
501 Rent Expense
502 Supplies Expense
503 Telephone Expense
504 Electricity Expense
Owner’s Equity
301 <Owner’s Name>, Capital
302 <Owner’s Name>, Drawing
310 Income Summary

8. Case Development-Step 6: General Ledger
Create the General Ledger Accounts
Use the General Ledger forms provided
Beginning balances should be recorded for those accounts that have them.
Sample case: Three accounts have a beginning balance:
Cash (debit) $10,000
Supplies (debit) $500
Owners Name, Capital (credit) $10,500.
All other accounts begin with a zero balance.

9. Case Development-Step 7: Journalizing Business Transactions
Account names need to be entered ONLY if there is NOT a special column.
Mini-Case
One line is sufficient for most transactions.
Exception - purchasing a computer system on account from Computers, Inc. requires two entry lines in the general columns.
If two special columns are used, such as debiting CASH and crediting REVENUE, a check mark is placed in the ACCOUNT column

10. Case Development-Step 7: Journalizing Transactions (continued)
Record the given transactions within the journal.
Use the current month and year.
Date
Transaction 1
Purchased Office Furniture for $5,000. Issued Check 101. 5
Rent Expense for month is $800. Issued Check 102. 8
Sales Revenue equaled $4,500. 14
Purchased Supplies for $250. Issued Check 103. 15
Purchased Office Equipment for $2,500 on account from Computers, Inc. 20
Telephone Expense for month is $75. Issued Check 104. 27
Sales Revenue equaled $2,800. 28
Paid Computers, Inc. $500 on account. Issued Check 105. 29
Personal withdrawal of $750 by the owner. Issued Check 106. 30
Electricity expense for month is $100. Issued Check 107.

11. Case Development-Step 8: Posting
After recording the transactions in the journal, they need to be posted to the General Ledger.
Before posting the journal entries, ensure the Cash (debit), Supplies (debit), and <Owner’s Name>, Capital (credit) ledger accounts have a Beginning Balance.
Post only the totals of the three special columns (Revenue, Cash debit, and Cash credit).
For the General column, each transaction must be posted individually

12. Case Development-Step 9: Trial Balance
Record the end of period General Ledger account balances in the Trial Balance columns of the worksheet
Use the blank Worksheet file

13. Case Development-Step 10: Adjusting Entries
The sample case has one adjusting entry.
In the Multicolumn Journal write “Adjusting Entries” as a heading in the Item Column
The rows that follow are used to record any necessary adjusting entries
An inventory of supplies reveals $150 of supplies used during the month.
Which account needs to be Debited and for how much?
Which account needs to be Credited and for how much?

14. Case Development-Step 10: Adjusting Entries (continued)
Post the two adjusting entries to the General Ledger.
Remember to put the Ledger account numbers in the PR (post reference) column
After posting - record the adjusting entries in the Adjustment Columns of the eight-column worksheet.

15. Case Development-Step 11: Adjusted Balances
Use the adjusting entry values to update the account balances for each adjusted account
Place the adjusted account balances, as well as all others, in the Balance Sheet or the Income Statement Columns within the worksheet

16. Case Development-Step 12: Income or Loss
After the adjusted Trial Balance account totals are extended to the worksheet’s Balance Sheet and Income Statement Columns, it is time to determine whether the business made a profit or suffered a loss during the financial period.
Total the Revenue & Expense worksheet columns

17. Case Development-Step 12: Income or Loss (continued)
Subtract total expenses from total revenue (Revenue minus Expenses = Net Income (profit) or Net Loss.
Enter this value into the worksheet below TOTALS to balance the Income Statement and Balance Sheet Columns.
This entry will be either a debit (Net Income) or credit (Net Loss) in the Income Statement columns; and either a debit (Net Loss) or credit (Net Income) in the Balance Sheet columns.
The amount of the Net Income or Net Loss is important for preparing financial statements and closing entries.

18. Case Development-Step 13: Closing Entries
Complete all closing entries for the fiscal period
In the Multicolumn Journal write “Closing Entries” as a heading in the Item Column
The rows that follow are used to record any necessary closing entries
All closing entries should be dated the last day of the fiscal period.

19. Case Development-Step 13: Closing Entries (continued)
Journalize all closing entries for the sample case
Once the closing entries are recorded in the journal, post them to the General Ledger and determine the ending balances for each account.

20. Case Development-Step 14: Balance Sheet & Income Statement
Use the completed eight-column worksheet to prepare the Balance Sheet and Income Statement

21. Case Development-Step 15: Owner’s Equity Statement
Use the completed eight-column worksheet to prepare the Owner’s Equity Statement

22. Case Development-Step 16: Review & Critique
Review the completed financial statements.
Is this business a good candidate for a business loan?
Why / why not?
Would you invest your savings into this business?
What else needs to be known?
Determine missing transactions not accounted for.
Discuss “Vertical” and “Horizontal” analysis.
Vertical: Each amount on a financial statement as a percentage of another item. Allows comparison to other businesses.
Horizontal: Compares financial statements across fiscal periods. Is also referred to as “Trend Analysis.”

23. SUMMARY
Understanding the basics of double entry accounting will help you with future entrepreneurial plans or business projects.
We hope this project enables you with a better grasp of financial management – the backbone of any effective business plan.
The End