1. @ 2012, Cengage Learning Completing the Accounting Cycle LO 2 – Preparing the Financial Statements

2. Income Statement The income statement for NetSolutions is prepared directly from the Income Statement or Adjusted Trial Balance columns of the end-of-period spreadsheet (work sheet) beginning with fees earned of $16,840. LO 2

3. 3 Account TitleDebitCreditDebitCreditDebitCredit Trial Balance Income Statement Balance Sheet 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 Adjusted Cash2,0652,065 Accounts Receivable2,7202,720 Supplies760760 Prepaid Insurance2,2002,200 Land20,00020,000 Office Equipment1,8001,800 Accumulated Depr.5050 Accounts Payable900900 Wages Payable250250 Unearned Rent240240 Capital Stock25,00025,000 Dividends4,0004,000 Fees Earned16,84016,840 Rent Revenue120120 Wages Expense4,5254,525 Rent Expense1,6001,600 Depreciation Expense5050 Utilities Expense985985 Supplies Expense2,0402,040 Insurance Expense200200 Miscellaneous Exp.455455 43,40043,4009,85516,96033,54526,440 Net income7,105 7,105 16,96016,96033,54533,545

4. to retained earnings statement LO 2 Income Statement

5. 5 Account TitleDebitCreditDebitCreditDebitCredit Trial Balance Income Statement Balance Sheet 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 Adjusted Cash2,0652,065 Accounts Receivable2,7202,720 Supplies760760 Prepaid Insurance2,2002,200 Land20,00020,000 Office Equipment1,8001,800 Accumulated Depr.5050 Accounts Payable900900 Wages Payable250250 Unearned Rent240240 Capital Stock25,00025,000 Dividends4,0004,000 Fees Earned16,84016,840 Rent Revenue120120 Wages Expense4,5254,525 Rent Expense1,6001,600 Depreciation Expense5050 Utilities Expense985985 Supplies Expense2,0402,040 Insurance Expense200200 Miscellaneous Exp.455455 43,40043,4009,85516,96033,54526,440 Net income7,105 7,105 16,96016,96033,54533,545

6. to retained earnings statement LO 2 Income Statement

7. Retained Earnings Statement  The first item presented on the retained earnings statement is the balance of the Retained Earnings account at the beginning of the period. LO 2

8. from the income statement to the balance sheet Retained Earnings Statement

9. Balance Sheet The balance sheet is prepared directly from the Balance Sheet or Adjusted Trial Balance columns of the end-of-period spreadsheet (or work sheet), beginning with Cash of $2,065. LO 2

10. Classified Balance Sheet  A classified balance sheet is a balance sheet that was expanded by adding subsections for current assets; property, plant, and equipment; current liabilities; and long-term liabilities. LO 2

11. Current Assets  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  Notes Receivable  Supplies LO 2

12. Fixed Assets  Property, plant, and equipment (also called fixed assets or plant 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 LO 2

13. from the retained earnings statement Balance Sheet LO 2

14. Current Liabilities  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 LO 2

15. Long-Term Liabilities  Liabilities not due for a long time (usually more than one year) are called long-term liabilities.  Long-term notes payable  Mortgage payable  Bond payable LO 2

16. Stockholders’ Equity  Stockholders’ equity is the stockholders’ right to the assets of the business. It is presented on the balance sheet below the liabilities section. LO 2  Capital stock  Retained earnings

17. from the retained earnings statement Balance Sheet LO 2