1. Completing the Accounting Cycle4
Completing the Accounting Cycle
Student Version

2. 1
Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements.
4-2

3. 1
Exhibit 1
End-of-Period Spreadsheet (Work Sheet)

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

5. 2 Exhibit 2 Financial Statements Prepared from Work Sheet
to retained earnings statement

6. 2 Exhibit 2 Financial Statements Prepared from Work Sheet (continued)
from the income statement
to the balance sheet

7. 2
Balance Sheet
A classified balance sheet is a balance sheet that was expanded by adding subsections for current assets; property, plant, and equipment; and current liabilities.

8. 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.
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.
(continued)

9. 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.
Liabilities not due for a long time (usually more than one year) are long-term liabilities.
Stockholders’ equity is the stockholders’ right to the assets of the business.

10. 2 Exhibit 2 Financial Statements Prepared from Work Sheet (continued)
from the retained earnings statement

11. Prepare closing entries.3
Prepare closing entries.
4-11

12. 3
Closing Entries
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.

13. 3
Flowchart of Closing Entries for NetSolutions (continued)
Exhibit 4
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

14. Miscellaneous Expense3
Flowchart of Closing Entries for NetSolutions (continued)
Exhibit 4
Wages Expense
Bal. 4,525
Bal ,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
Miscellaneous Expense
Bal. 455

15. 3
Flowchart of Closing Entries for NetSolutions (continued)
Exhibit 4
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 Retained Earnings.
Step 3
Retained Earnings
Bal. 0
Dividends
Bal. 4,000
7,105

16. 3
Flowchart of Closing Entries for NetSolutions (continued)
Exhibit 4
Retained Earnings
Bal. 25,000
7,105
Dividends
Bal. 4,000
Debit Retained Earnings for the balance of the dividends account, and credit the dividends account.
Step 4
4,000
4,000

17. 3 Exhibit 5 Closing Entries for NetSolutions Step 1 Step 2 Step 3

18. 3
Closing Entries
After the closing entries are posted, all of the temporary accounts have zero balances.

19. Post-Closing Trial Balance3
Post-Closing Trial Balance
A post-closing trial balance is prepared after the closing entries have been posted. The purpose of the PCTB is to verify that the ledger is in balance at the beginning of the next period.

20. 3
Exhibit 7
Post-Closing Trial Balance

21. Describe the accounting cycle.4
Describe the accounting cycle.
4-21

22. 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.

23. Transactions are analyzed and recorded in the journal.4
Accounting Cycle
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)

24. Accounting Cycle (continued)4
Accounting Cycle (continued)
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.

25. 5
Illustrate the accounting cycle for one period.
4-25

26. 5
Exhibit 9
Journal entries for April, Kelly Consulting, P.C. (continued)

27. 5
Exhibit 9
Journal entries for April, Kelly Consulting, P.C. (concluded)

28. 5
Exhibit 10
Unadjusted Trial Balance, Kelly Consulting

29. 5
Exhibit 11
End-of-Period Spreadsheet (Work Sheet)
4-29

30. 5
Exhibit 12
Adjusting Entries, Kelly Consulting, P.C.

31. 5
Adjusted Trial Balance, Kelly Consulting, P.C.
Exhibit 13

32. 5
Financial Statements, Kelly Consulting, P.C. (continued)
Exhibit 14

33. 5
Financial Statements, Kelly Consulting, P.C. (continued)
Exhibit 14

34. 5
Financial Statements, Kelly Consulting, P.C. (concluded)
Exhibit 14

35. 5
Exhibit 15
Closing Entries, Kelly Consulting, P.C.

36. 5
Post-Closing Trial Balance, Kelly Consulting, P.C.
Exhibit 16

37. 6
Explain what is meant by the fiscal year and the natural business year.
4-37

38. 6
Fiscal Year
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.

39. Financial History of a Business6
Financial History of a Business

40. End-of-Period Spreadsheet (Work Sheet)
Appendix 1:
End-of-Period Spreadsheet (Work Sheet)
4-40

41. 4-41 Cash 2,065 2,065 Accounts Receivable 2,220 2,720
Trial Balance Adjustments Trial Balance
Adjusted
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 2,
Prepaid Insurance 2, ,200
Land 20, ,000
Office Equipment 1, ,800
Accumulated Depr
Accounts Payable
Wages Payable
Unearned Rent
Capital Stock 25, ,000 Dividends 4, ,000
Fees Earned 16, ,840
Rent Revenue
Wages Expense 4, ,525
Rent Expense 1, ,600
Depreciation Expense
Utilities Expense
Supplies Expense ,040
Insurance Expense
Miscellaneous Exp
42,600 42, ,400 43,400
(d)
(a) 1,240
(b)
(f)
(c)
(d)
(c)
(e)
(f)
(a) 1,240
(b)
2,360
2,360
4-41

42. 4-42 The four columns are summed. Cash 2,065 2,065
Trial Balance Income Statement Balance Sheet
Adjusted
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 2,
Prepaid Insurance 2, ,200
Land 20, ,000
Office Equipment 1, ,800
Accumulated Depr
Accounts Payable
Wages Payable
Unearned Rent
Capital Stock 25, ,000 Dividends 4, ,000
Fees Earned 16, ,840
Rent Revenue
Wages Expense 4,275 4,525
Rent Expense 1,600 1,600
Depreciation Expense
Utilities Expense
Supplies Expense ,040
Insurance Expense 200
Miscellaneous Exp
42,600 42,600 9,855 16,960 33,545 26,440
4-42
The four columns are summed.

43. 9,855 16,960 33,545 26,440
7, ,105
16,960 16,960 33,545 33,545
Income Statement Balance Sheet
Net Income
The difference between the Income Statement columns totals is the net income (or net loss) for the period.

44. 4-44 Cash 2,065 2,065 Accounts Receivable 2,220 2,720
Trial Balance Income Statement Balance Sheet
Adjusted
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 2,
Prepaid Insurance 2, ,200
Land 20, ,000
Office Equipment 1, ,800
Accumulated Depr
Accounts Payable
Wages Payable
Unearned Rent
Capital Stock 25, ,000 Dividends 4, ,000
Fees Earned 16, ,840
Rent Revenue
Wages Expense 4,275 4,525
Rent Expense 1,600 1,600
Depreciation Expense
Utilities Expense
Supplies Expense ,040
Insurance Expense 200
Miscellaneous Exp
42,600 42,600 9,855 16,960 33,545 26,440
Net income 7, ,105
16,960 16,960 33,545 33,545
4-44