1. C4 - 1 Learning Objectives Power Notes Completing the Accounting Cycle Completing the Accounting Cycle 1.Work Sheet 2.Financial Statements 3.Adjusting and Closing Entries 4.Accounting Cycle 5.Fiscal Year 6.Financial Analysis and Interpretation Chapter F4 C4

2. C4 - 2 The Work Sheet Financial Statements The Closing Process Post-Closing Trial Balance Accounting Cycles Working Capital and Current Ratio Slide #Power Note Topics 3 18 22 28 31 43 Note: To select a topic, type the slide # and press Enter. Power Notes Chapter F4 Completing the Accounting Cycle Completing the Accounting Cycle

3. C4 - 3 Trial Balance Adjustments Adj. Trial Balance NetSolutions - Work Sheet - Two Months Ended 12/31/02 AccountDebitCreditDebitCreditDebitCredit 11 Cash2,065 2,065 12 Accounts Receivable2,220 (e) 500 2,720 14 Supplies2,000 (a) 1,240 760 15 Prepaid Insurance2,400 (b) 100 2,300 17 Land 20,00020,000 18 Office Equipment 1,800 1,800 19 Accumulated Depr. 0 (f) 50 50 21 Accounts Payable 900 900 22 Wages Payable 0 (d) 250 250 23 Unearned Rent 360 (c) 120 240 31 Capital Stock25,00025,000 33 Dividends4,000 4,000 41 Fees Earned16,340 (e) 50016,840 42 Rent Revenue 0 (c) 120120 51 Wages Expense4,275 (d) 250 4,525 52 Rent Expense1,600 1,600 53 Depreciation Expense 0 (f) 50 50 54 Utilities Expense 985 985 55 Supplies Expense 800 (a) 1,240 2,040 56 Insurance Expense 0 (b) 100 100 59 Misc. Expense 455 455 42,60042,600 2,260 2,26043,40043,400

4. C4 - 4 Adj. Trial Balance Income Statement Balance Sheet AccountDebitCreditDebitCreditDebitCredit 11 Cash2,065 2,065 12 Accounts Receivable2,720 2,720 14 Supplies 760 760 15 Prepaid Insurance2,300 2,300 17 Land 20,00020,000 18 Office Equipment1,800 1,800 19 Accumulated Depr. 50 50 21 Accounts Payable 900 900 22 Wages Payable 250 250 23 Unearned Rent 240 240 31 Capital Stock 25,00025,000 33 Dividends 4,000 4,000 41 Fees Earned16,84016,840 42 Rent Revenue 120 120 51 Wages Expense4,525 4,525 52 Rent Expense1,600 1,600 53 Depreciation Expense 50 50 54 Utilities Expense 985 985 55 Supplies Expense2,040 2,040 56 Insurance Expense 100 100 59 Misc. Expense 455 455 43,40043,400 9,75516,96033,64526,440 Net Income 7,205 7,205 16,96016,96033,64533,645 NetSolutions - Work Sheet - Two Months Ended 12/31/02

5. C4 - 5 NetSolutions Income Statement For Two Months Ended December 31, 2002 Fees earned$16,840 Rent revenue120 Total revenues$16,960 Expenses: Wages expense$ 4,525 Supplies expense2,040 Rent expense1,600 Utilities expense985 Insurance expense100 Depreciation expense50 Miscellaneous expense455 Total expenses9,755 Net income $ 7,205

6. C4 - 6 NetSolutions Retained Earnings Statement For Two Months Ended December 31, 2002 Net income for November and December$7,205 Less dividends4,000 Retained earnings, December 31, 2002$3,205

7. C4 - 7 NetSolutions Balance Sheet December 31, 2002 ASSETS Current assets: Cash$ 2,065 Accounts receivable2,720 Supplies760 Prepaid insurance2,300 Total current assets$ 7,845 Property, plant, and equipment: Land$20,000 Office equipment1,800 Less accum. depr.(50) Total property, plant, and equipment 21,750 Total assets$29,595

8. C4 - 8 NetSolutions Balance Sheet December 31, 2002 LIABILITIES Current liabilities: Accounts payable $ 900 Wages payable 250 Unearned rent 240 Total liabilities $ 1,390 STOCKHOLDERS’ EQUITY Capital stock $25,000 Retained earnings 3,205 Total stockholders’ equity 28,205 Total liabilities and stockholders’ equity $29,595

9. C4 - 9 The Work Sheet Trial Balance AccountsDrCrDrCrDrCr AdjustmentsAdjusted TB Prepared from general ledger. Accounts are listed in order: A, L, OE, R, E

10. C4 - 10 NetSolutions Post-Closing Trial Balance December 31, 2002 11Cash2,065 12Accounts Receivable2,720 14Supplies760 15Prepaid Insurance2,300 17Land20,000 18Office Equipment1,800 19Accum. Depreciation50 21Accounts Payable900 22Wages Payable250 23Unearned Rent240 31Capital Stock25,000 32Retained Earnings3,20529,645 Stockholders’Equity

11. C4 - 11 The Work Sheet Adjustments are entered here. Two possibilities: 1. Deferrals – Existing balances are changed. 2. Accruals – New information is entered. Trial Balance AccountsDrCrDrCrDrCr AdjustmentsAdjusted TB

12. C4 - 12 The Work Sheet Adjustments are combined with the trial balance. Account balances are now adjusted. Trial Balance AccountsDrCrDrCrDrCr AdjustmentsAdjusted TB

13. C4 - 13 Trial Balance Adjustments Adj. Trial Balance NetSolutions - Work Sheet - Two Months Ended 12/31/02 AccountDebitCreditDebitCreditDebitCredit 11Cash2,0652,065 12Accounts Receivable2,220(e) 5002,720 14Supplies2,000(a) 1,240760 15Prepaid Insurance2,400(b) 1002,300 17Land20,00020,000 18Office Equipment1,8001,800 19Accumulated Depr.0(f) 5050 21Accounts Payable900900 22Wages Payable0(d) 250250 23Unearned Rent360(c) 120240 31Capital Stock25,00025,000 33Dividends4,0004,000 41Fees Earned16,340(e) 50016,840 42Rent Revenue 0(c) 120120 51Wages Expense4,275(d) 2504,525 52Rent Expense1,6001,600 53Depreciation Expense0(f) 5050 54Utilities Expense985985 55Supplies Expense800(a) 1,2402,040 56Insurance Expense0(b) 100100 59Misc. Expense455455 42,60042,600 2,2602,26043,40043,400

14. C4 - 14 Trial Balance Adjustments Adj. Trial Balance AccountDebitCreditDebitCreditDebitCredit NetSolutions - Work Sheet - Two Months Ended 12/31/02 11Cash2,0652,065 12Accounts Receivable2,220(e) 5002,720 14Supplies2,000(a) 1,240760 15Prepaid Insurance2,400(b) 1002,300 17Land20,00020,000 18Office Equipment1,8001,800 19Accumulated Depr.0(f) 5050 21Accounts Payable900900 22Wages Payable0(d) 250250 23Unearned Rent360(c) 120240 31Capital Stock25,00025,000 33Dividends 4,0004,000 41Fees Earned16,340(e) 50016,840 42Rent Revenue 0(c) 120120 51Wages Expense4,275(d) 2504,525 52Rent Expense1,6001,600 53Depreciation Expense0(f) 5050 54Utilities Expense985985 55Supplies Expense800(a) 1,2402,040 56Insurance Expense0(b) 100100 59Misc. Expense455455 42,60042,600 2,2602,26043,40043,400

15. C4 - 15 Trial Balance Adjustments Adj. Trial Balance AccountDebitCreditDebitCreditDebitCredit 11Cash2,0652,065 12Accounts Receivable2,220(e) 5002,720 14Supplies2,000(a) 1,240760 15Prepaid Insurance2,400(b) 1002,300 17Land20,00020,000 18Office Equipment1,8001,800 19Accumulated Depr.0(f) 5050 21Accounts Payable900900 22Wages Payable0(d) 250250 23Unearned Rent360(c) 120240 31Capital Stock 25,00025,000 33Dividends 4,0004,000 41Fees Earned16,340(e) 50016,840 42Rent Revenue0(c) 120120 51Wages Expense4,275(d) 2504,525 52Rent Expense1,6001,600 53Depreciation Expense0(f) 5050 54Utilities Expense985985 55Supplies Expense800(a) 1,2402,040 56Insurance Expense0(b) 100100 59Misc. Expense455455 42,60042,600 2,2602,26043,40043,400 NetSolutions - Work Sheet - Two Months Ended 12/31/02

16. C4 - 16 Trial Balance Adjustments Adj. Trial Balance AccountDebitCreditDebitCreditDebitCredit 11Cash2,0652,065 12Accounts Receivable2,220(e) 5002,720 14Supplies2,000(a) 1,240760 15Prepaid Insurance2,400(b) 1002,300 17Land20,00020,000 18Office Equipment1,8001,800 19Accumulated Depr.0(f) 5050 21Accounts Payable900900 22Wages Payable0(d) 250250 23Unearned Rent360(c) 120240 31Capital Stock 25,00025,000 33Dividends 4,0004,000 41Fees Earned16,340(e) 50016,840 42Rent Revenue 0(c) 120120 51Wages Expense4,275(d) 2504,525 52Rent Expense1,6001,600 53Depreciation Expense0(f) 5050 54Utilities Expense985985 55Supplies Expense800(a) 1,2402,040 56Insurance Expense0(b) 100100 59Misc. Expense455455 42,60032,600 2,2602,26043,40043,400 NetSolutions - Work Sheet - Two Months Ended 12/31/02

17. C4 - 17 Trial Balance Adjustments Adj. Trial Balance AccountDebitCreditDebitCreditDebitCredit 11Cash2,0652,065 12Accounts Receivable2,220(e) 5002,720 14Supplies2,000(a) 1,240760 15Prepaid Insurance2,400(b) 1002,300 17Land20,00020,000 18Office Equipment1,8001,800 19Accumulated Depr.0(f) 5050 21Accounts Payable900900 22Wages Payable0(d) 250250 23Unearned Rent360(c) 120240 31Capital Stock 25,00025,000 33Dividends 4,0004,000 41Fees Earned16,340(e) 50016,840 42Rent Revenue 0(c) 120120 51Wages Expense4,275(d) 2504,525 52Rent Expense1,6001,600 53Depreciation Expense0(f) 5050 54Utilities Expense985985 55Supplies Expense800(a) 1,2402,040 56Insurance Expense0(b) 100100 59Misc. Expense455455 42,60042,600 2,2602,26043,40043,400 NetSolutions - Work Sheet - Two Months Ended 12/31/02

18. C4 - 18 Trial Balance Adjustments Adj. Trial Balance AccountDebitCreditDebitCreditDebitCredit 11Cash2,0652,065 12Accounts Receivable2,220(e) 5002,720 14Supplies2,000(a) 1,240760 15Prepaid Insurance2,400(b) 1002,300 17Land10,00010,000 18Office Equipment1,8001,800 19Accumulated Depr.0(f) 5050 21Accounts Payable900900 22Wages Payable0(d) 250250 23Unearned Rent360(c) 120240 31Capital Stock 15,00015,000 33Dividends 4,0004,000 41Fees Earned16,340(e) 50016,840 42Rent Revenue 0(c) 120120 51Wages Expense4,275(d) 2504,525 52Rent Expense1,6001,600 53Depreciation Expense0(f) 5050 54Utilities Expense985985 55Supplies Expense800(a) 1,2402,040 56Insurance Expense0(b) 100100 59Misc. Expense455455 32,60032,600 2,2602,26033,40033,400 NetSolutions - Work Sheet - Two Months Ended 12/31/99

19. C4 - 19 11Cash2,0652,065 12Accounts Receivable2,220(e) 5002,720 14Supplies2,000(a) 1,240760 15Prepaid Insurance2,400(b) 1002,300 17Land20,00020,000 18Office Equipment1,8001,800 19Accumulated Depr.0(f) 5050 21Accounts Payable900900 22Wages Payable0(d) 250250 23Unearned Rent360(c) 120240 31Capital Stock 25,00025,000 33Dividends 4,0004,000 41Fees Earned16,340(e) 50016,840 42Rent Revenue 0(c) 120120 51Wages Expense4,275(d) 2504,525 52Rent Expense1,6001,600 53Depreciation Expense0(f) 5050 54Utilities Expense985985 55Supplies Expense800(a) 1,2402,040 56Insurance Expense0(b) 100100 59Misc. Expense455455 42,60042,600 2,2602,26043,40043,400 Trial Balance Adjustments Adj. Trial Balance AccountDebitCreditDebitCreditDebitCredit NetSolutions - Work Sheet - Two Months Ended 12/31/02

20. C4 - 20 11Cash2,0652,065 12Accounts Receivable2,220(e) 5002,720 14Supplies2,000(a) 1,240760 15Prepaid Insurance2,400(b) 1002,300 17Land20,00020,000 18Office Equipment1,8001,800 19Accumulated Depr.0(f) 5050 21Accounts Payable900900 22Wages Payable0(d) 250250 23Unearned Rent360(c) 120240 31Capital Stock 25,00025,000 33Dividends 4,0004,000 41Fees Earned16,340(e) 50016,840 42Rent Revenue 0(c) 120120 51Wages Expense4,275(d) 2504,525 52Rent Expense1,6001,600 53Depreciation Expense0(f) 5050 54Utilities Expense985985 55Supplies Expense800(a) 1,2402,040 56Insurance Expense0(b) 100100 59Misc. Expense455455 42,60042,600 2,2602,26043,40043,400 Trial Balance Adjustments Adj. Trial Balance AccountDebitCreditDebitCreditDebitCredit NetSolutions - Work Sheet - Two Months Ended 12/31/02

21. C4 - 21 Adj. Trial Balance Income Statement Balance Sheet AccountDebitCreditDebitCreditDebitCredit 11Cash2,0652,065 12Accounts Receivable2,7202,720 14Supplies760760 15Prepaid Insurance2,3002,300 17Land20,00020,000 18Office Equipment1,8001,800 19Accumulated Depr.5050 21Accounts Payable900900 22Wages Payable250250 23Unearned Rent240240 31Capital Stock 25,00025,000 33Dividends 4,0004,000 41Fees Earned16,84016,840 42Rent Revenue 120120 51Wages Expense4,5254,525 52Rent Expense1,6001,600 53Depreciation Expense5050 54Utilities Expense985985 55Supplies Expense2,0402,040 56Insurance Expense100100 59Misc. Expense455455 43,40043,400 9,75516,96033,64526,440 Net Income7,2057,205 16,96016,96033,64533,645 NetSolutions - Work Sheet - Two Months Ended 12/31/02

22. C4 - 22 Adj. Trial Balance Income Statement Balance Sheet AccountDebitCreditDebitCreditDebitCredit 11Cash2,0652,065 12Accounts Receivable2,7202,720 14Supplies760760 15Prepaid Insurance2,3002,300 17Land10,00020,000 18Office Equipment1,8001,800 19Accumulated Depr.5050 21Accounts Payable900900 22Wages Payable250250 23Unearned Rent240240 31Capital Stock 25,00025,000 33Dividends 4,0004,000 41Fees Earned16,84016,840 42Rent Revenue 120120 51Wages Expense4,5254,525 52Rent Expense1,6001,600 53Depreciation Expense5050 54Utilities Expense985985 55Supplies Expense2,0402,040 56Insurance Expense100100 59Misc. Expense455455 43,40043,400 9,75516,96033,64526,440 Net Income7,2057,205 16,96016,96033,64533,645 NetSolutions - Work Sheet - Two Months Ended 12/31/02

23. C4 - 23 Wages Expense Bal. 4,525 Rent Expense Bal. 1,600 Depreciation Expense Bal. 50 Utilities Expense Bal. 985 Supplies Expense Bal. 2,040 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 Fees Earned Bal. 16,840 Rent Revenue Bal. 120 Retained Earnings Bal. 0 Dividends Bal. 4,000 Income Summary Note: Note: The balances shown are adjusted balances before closing. The following sequence demonstrates the closing process. The Closing Process

24. C4 - 24 Wages Expense Bal. 4,525 Rent Expense Bal. 1,600 Depreciation Expense Bal. 50 Utilities Expense Bal. 985 Supplies Expense Bal. 2,040 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 Fees Earned Bal. 16,840 Rent Revenue Bal. 120 16,840 120 120 Income Summary 16,960 16,960 Retained Earnings Close Revenues Close Revenues Bal. 0 Dividends Bal. 4,000 Total Revenues The Closing Process

25. C4 - 25 Wages Expense Bal. 4,525 Rent Expense Bal. 1,600 Depreciation Expense Bal. 50 Utilities Expense Bal. 985 Supplies Expense Bal. 2,040 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 4,5251,600 50 985 2,040 100 455 Fees Earned Bal. 16,840 Rent Revenue Bal. 120 16,840 120 120 Income Summary 16,960 16,9609,755 Retained Earnings Close Revenues Close Revenues Bal. 0 Dividends Bal. 4,000 Close Expenses Close Expenses Total Expenses Total Revenues The Closing Process

26. C4 - 26 Wages Expense Bal. 4,525 Rent Expense Bal. 1,600 Depreciation Expense Bal. 50 Utilities Expense Bal. 985 Supplies Expense Bal. 2,040 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 4,5251,600 50 985 2,040 100 455 Fees Earned Bal. 16,840 Rent Revenue Bal. 120 16,840 120 120 Income Summary 16,960 16,9609,755 Retained Earnings Close Revenues Close Revenues Bal.0 Dividends Bal. 4,000 Close Expenses Close Expenses The Closing Process 7,205 7,205 7,205 Close Income Summary Net Income Closed

27. C4 - 27 Wages Expense Bal. 4,525 Rent Expense Bal. 1,600 Depreciation Expense Bal. 50 Utilities Expense Bal. 985 Supplies Expense Bal. 2,040 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 4,5251,600 50 985 2,040 100 455 Fees Earned Bal. 16,840 Rent Revenue Bal. 120 16,840 120 120 Income Summary 16,960 16,9609,755 Retained Earnings Close Revenues Close Revenues Bal. 0 Dividends Bal. 4,000 Close Expenses Close Expenses The Closing Process 7,205 7,205 7,205 Close Income Summary Close Income Summary Net Income 4,000 4,000 Close Dividends Close Dividends Dividends Closed

28. C4 - 28 Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Expense Fees Earned Rent Revenue Income Summary Retained Earnings Bal.0 Dividends Net Income Net Income Dividends Dividends Bal. 3,205 All temporary accounts now have zero balances and are ready for the next accounting period. 7,205 7,205 4,000 The Closing Process

29. C4 - 29 NetSolutions Post-Closing Trial Balance December 31, 2002 11Cash2,065 12Accounts Receivable2,720 14Supplies760 15Prepaid Insurance2,300 17Land20,000 18Office Equipment1,800 19Accum. Depreciation50 21Accounts Payable900 22Wages Payable250 23Unearned Rent240 31Capital Stock25,000 32Retained Earnings3,20529,645 Assets

30. C4 - 30 NetSolutions Post-Closing Trial Balance December 31, 2002 11Cash2,065 12Accounts Receivable2,720 14Supplies760 15Prepaid Insurance2,300 17Land20,000 18Office Equipment1,800 19Accum. Depreciation50 21Accounts Payable900 22Wages Payable250 23Unearned Rent240 31Capital Stock25,000 32Retained Earnings3,20529,645 Liabilities

31. C4 - 31 Manual Accounting Cycle 1.Transactions are analyzed and recorded in journal. Documents Journal

32. C4 - 32 Manual Accounting Cycle 1.Transactions are analyzed and recorded in journal. Documents Journal 2.Transactions are posted from journal to ledger. Journal Ledger

33. C4 - 33 Manual Accounting Cycle 1.Transactions are analyzed and recorded in journal. Documents Journal 2.Transactions are posted from journal to ledger. Journal Ledger 3.Trial balance is prepared, adjustment data is organized, work sheet is completed. Work Sheet

34. C4 - 34 Manual Accounting Cycle 1.Transactions are analyzed and recorded in journal. Documents Journal 2.Transactions are posted from journal to ledger. Journal Ledger 3.Trial balance is prepared, adjustment data is organized, work sheet is completed. Work Sheet 4.Financial statements are prepared and distributed. Financial Statements IS SOE BSSCF

35. C4 - 35 5.Adjusting entries are journalized and posted to ledger. Journal Ledger Manual Accounting Cycle

36. C4 - 36 5.Adjusting entries are journalized and posted to ledger. Journal 6.Closing entries are journalized and posted to ledger. Journal Ledger Manual Accounting Cycle

37. C4 - 37 5.Adjusting entries are journalized and posted to ledger. 7.Post-closing trial balance is prepared. Journal 6.Closing entries are journalized and posted to ledger. Journal Post-closing Trial Balance Assets Liabilities Owner’s Equity Ledger Manual Accounting Cycle

38. C4 - 38 5.Adjusting entries are journalized and posted to ledger. 7.Post-closing trial balance is prepared. Journal 6.Closing entries are journalized and posted to ledger. Journal Post-closing Trial Balance 8.Reports are analyzed and interpreted for decision- making purposes. Assets Liabilities Owner’s Equity ? Ledger Manual Accounting Cycle

39. C4 - 39 Computer Accounting Cycle 1.Transactions are analyzed and entered in the computer. Documents Computer

40. C4 - 40 Computer Accounting Cycle 1.Transactions are analyzed and entered in the computer. Documents Computer 2.Preliminary reports are analyzed, adjustments are prepared and entered in the computer. Computer Reports Computer

41. C4 - 41 Computer Accounting Cycle 1.Transactions are analyzed and entered in the computer. Documents Computer 2.Preliminary reports are analyzed, adjustments are prepared and entered in the computer. Computer Reports 3.Financial statements are printed and distributed. Financial Statements IS SOE BSSCF Computer

42. C4 - 42 Computer Accounting Cycle 1.Transactions are analyzed and entered in the computer. Documents Computer 2.Preliminary reports are analyzed, adjustments are prepared and entered in the computer. Computer Reports 3.Financial statements are printed and distributed. Financial Statements IS SOE BSSCF Computer 4.Reports are analyzed and interpreted for decision- making purposes. ?

43. C4 - 43 Solvency Analysis Solvency is the ability of a business to meet its financial obligations (debts) as they are due. Solvency analysis focuses on the ability of a business to pay or otherwise satisfy its current and noncurrent liabilities. This ability is normally assessed by examining balance sheet relationships.

44. C4 - 44 Solvency Measures — The Short-Term Creditor Current assets $550,000$533,000 Current liabilities 210,000 243,000 Working Capital and Current Ratio 2001 2002

45. C4 - 45 Solvency Measures — The Short-Term Creditor Working Capital and Current Ratio Use:To indicate the ability to meet currently maturing obligations. 2001 2002 Current assets $550,000$533,000 Current liabilities 210,000 243,000 Working capital$340,000$290,000

46. C4 - 46 Solvency Measures — The Short-Term Creditor Current assets $550,000$533,000 Current liabilities 210,000 243,000 Working capital$340,000$290,000 Current ratio2.6 to 12.2 to 1 Working Capital and Current Ratio Use:To indicate the ability to meet currently maturing obligations. 2001 2002 Divide current assets by current liabilities

47. C4 - 47 Working Capital and Current Ratio Working Capital (WC) Objective: Analyze and interpret the financial solvency of a business by computing the working capital and the current ratio. Current Assets minus Current Liabilities NetSolutions Example WC = $7,845 - $1,390 = $6,455 Current Ratio (CR) Current Liabilities Current Assets CR = $7,845 / $1,390 = 5.6

48. C4 - 48 Note: To see the topic slide, type 2 and press Enter. This is the last slide in Chapter F4. Power Notes Completing the Accounting Cycle Completing the Accounting Cycle Chapter F4