Learning Guide: Accounts and Budget Service

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Training, Teaching and Learning Materials
ACCOUNTS AND BUDGET SERVICELEVEL IV
Learning Guide
Unit of CompetencePrepare Financial Reports
Module TitlePreparing Financial Reports
LG Code: BUF ACB405 0812
TTLM Code: BUF ACB4M05 0812
TTLM Development Manual Date: October 12,2013

Compiled by: Acct department
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INTRODUCTION
Welcome to the module “Prepare Financial Reports”. This learner’s

guide was prepared to help you achieve the required competence in “Accounts and
Budget Support Level IV”. This will be the source of information for you to
acquire knowledge attitude and skills in this particular occupation with minimum
supervision or help from your trainer.
Summary of Learning Outcomes
After completing this learning guide, you should be able to:

Lo1:- . Maintain asset register
Lo2:- . . Record general journal entries for balance day adjustments
Lo3:- . Prepare final general ledger accounts
Lo4:- Prepare end of period financial reports
How to Use this TTLM
o Read through the Learning Guide carefully. It is divided into sections

that cover all the knowledge, skills and attitude that you need.
o Read Information Sheets and complete the Self-Check at the end of
each section to check your progress
o Read and make sure to Practice the activities in the Operation Sheets.
Ask your trainer to show you the correct way to do things or talk to
more experienced person for guidance.
o When you are ready, ask your trainer for institutional assessment and
provide you with feedback from your performance.

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Lo1:- . Maintain asset register
Information sheet
Financial Statements
One of the main purposes for keeping financial records is to report the financial progress and
condition of a business. The journals and ledgers are used to record, classify, and sort data about
financial transactions. The work sheet is used to organize and summarize the financial data about
the operation of a business. All of these activities are done, however, so that the financial
progress and condition of the business can be reported. Most businesses report their progress and
condition by preparing three financial statements: (1) the income statement, (2) the capital
statement, and (3) the balance sheet.
3.2.1 PREPARING INCOME STATEMENT
An income statement reports the revenue, the expenses of operating the business, and the net
income. Normally an owner compares the current income statement with income statements for
previous fiscal periods, to determine if net income is increasing or decreasing. The owner also
may determine whether the costs and expenses are reasonable when compared to the total
revenue.
Data in the Account title column and the Income Statement columns of the work sheet are used
to prepare the income statement. The income statement has two main sections: (1) revenue
section, and (2) expenses section.
The steps in preparing the income statement are:
1. Write the heading of the income statement on three lines.
2. Prepare the revenue section. Use the data from the Income statement Credit column of the
work sheet.
 Write the name of this section, Revenue, at the extreme left of the wide column on the
first line.
 Write the title of the revenue account, Sales, on the next line, indented about one-half
inch (about 1.3 centimeters).
 Write the balance of the sales account in the second amount column. This amount is
the total of the revenue section.
If there is more than one source of revenue, each revenue account title is listed in the wide
column indented about one-half inch (about 1.3 centimeters). The balance of each account is
written in the first amount column. The words Total Revenue are written in the wide column
on the next line below the last revenue account title. The total amount of revenue is written
in the second amount column.

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3. Prepare the expenses section. Use the data from the Income Statement Debit column of the
work sheet.
 Write the name of this section, Expenses, at the extreme left of the wide column.
 Indent about one-half inch (about 1.3 centimeters) and list the expense account titles
in the order in which they appear on the work sheet. Write the amount of each
expense account balance in the first amount column.
 Write the words Total Expenses in the wide column on the next line below the last
expense account title. Total the individual expenses and write the total in the second
amount column on the total line.
4. Figure the net income
 Write the words Net Income on the next line at the extreme left of the wide column.
 Subtract the total expenses, from the total revenue to find the net income. Write this
amount in the second amount column on the work sheet. The two amounts must be
the same.
 Compare the amount of net income figured on the income statement, with the amount
on the work sheet. The two amounts must be the same.
 Rule double lines across both amount columns on the income statement to show that
the statement has been completed.
The Income Statement for Net Service Company for the period ended December 31, 2001
extracted from the work sheet is presented as follows:
Net Service Company

Income Statement
For the Month Ended December 31, 2001
Revenues:
Free Earned $16340
Rent Income 120
Total Revenue $16460
Operating Expenses:
Wages Expense $4775
Rent Expense 1600
Supplies Expense 2000
Insurance Expense 100
Depreciation Expense 30
Utilities Expense 985
Miscellaneous Expense 455
Total Expenses 9945
Net Income 6515

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PREPARING OWNERS EQUITY STATEMENT

The amount of net income earned by the business is important to the owner. The owner also is
interested in changes that occur in the capital during the fiscal period. A financial statement that
summarizes the changes in capital during a fiscal period is called a capital statement. An owner
of a business can review the capital statement to determine if and why the capital is increasing or
decreasing. Changes in the amount of capital occur:
1. When additional capital is invested.
2. When cash, merchandise, or other assets are withdrawn
3. When the business earns a profit or incurs a loss from its operation.
4. Write the words Ending Capital at the extreme left of the wide column. On the same line
write the total, in the second amount column. (The beginning capital, plus the net increase).
5. Make sure that all figures on the capital statement have been transferred correctly from the
capital account and the work sheet to the capital statement. Recheck the addition and the
subtraction. Rule double lines across both amount columns on the capital statement to show
that the statement has been completed. In some businesses the data on the capital statement
may be included as part of the balance sheet.
The statement of Owner’s Equity for Net Service Company for the period ended December 31,
2001 extracted from the work sheet is presented as follows:
Net Service Company

Statement of Owner’s Equity
For the Month Ended December 31, 2001
Beginning Balance, December 1, 2001 $15000
Add: Net income for the period $6515
Less: Withdrawal 4000
Net increase in capital 2515
Ending Balance, December 31, 2001 $17515
Preparing the capital statement

Data needed to prepare the capital statement are obtained from the capital account in the general
ledger and from the Balance Sheet columns of the work sheet. Data from the general ledger
capital account include (1) the beginning balance of capital and (2) additional investments made
during the fiscal period. Data from the work sheet include (1) the withdrawals during the fiscal
period and (2) the net income or net loss for the fiscal period.
The steps in preparing the capital statement are:
1. Write the heading of the capital statement on three lines as shown above.
2. Write the words beginning capital at the extreme left of the wide column. Write the amount
of the beginning capital in the second amount column on the same line. This amount is
obtained from the capital account in the general ledger.
3. Calculate the net increase in capital.
 Write the words Net Income for the Period at the extreme left of the wide column. On
the same line write the amount of net income for the period in the first amount
column. This amount is obtained from the work sheet.
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 Write the words LessWithdrawals for the Period at the extreme left of the wide
column. On the same line write the withdrawals for the month, in the first amount
column. This amount is obtained from the balance sheet debit column of the work
sheet.
 Write the words Net increase in Capital at the extreme left of the wide column.
Subtract the withdrawals from the net income. On the same line write the amount in
the second amount column.

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Lo2: Record general journal entries for balance day

adjustments
The transactions occurred during the month were summarized as follows:
January
1. Paid three-month’s rent in advance Br. 2250 Prepaid rent.
2. Paid the premiums on property and casualty insurance policies, Br. 1,740 prepaid
insurance.
4. Purchased additional service equipment on a accounts from Omedad Br. 2,500
6. Received cash from customers on account Br. 500
9. Paid cash for a news paper advertisement, Br. 110
11. Paid Omedad for the part of liability incurred on January 4, Br. 1, 250
12. Record service revenue on account? Br. 1000
1. Paid laborers for two weeks salary Br. 500
17. Recorded cash from cash customers for service revenue earned during the first half of
January Br. 1, 100
17. Purchased supplies for cash Br. 950
20. Recorded service revenue on account for the period January 13- 20, Br. 700
24. Recorded cash from customers for service revenue earned for the period January 17-
24 Br. 1, 850
27. Received cash from customers on account, Br. 1,200
27. Paid labourers for two weeks salary Br. 500
30. Paid telephone bill for January Br. 75
30. Paid electricity bill for January Br. 140
30. Recorded cash from cash customers for services revenues earned for the period
January 25- 30, Br. 950
30. Recorded sales on account for the remaindar of January, Br. 800
30. Rahel and Robel withdrew Br. 1,500 for their personal use

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Instructions:
1. Open a ledger of four- column for accounts of “2R – lovers shopping service” using the
following titles and account numbers;
Cash, 11; accounts receivable, 12; supplies 14; prepaid rent15; prepaid insurance, 16; service
equipment, 18; accumulated depreciation, 19; accounts payable, 21; salaries payable, 22; 2R-
lovers, capital, 31; 2R lovers Drawing, 32; income summary, 33, service revenue. 41; salary
expense, 51; Rent expense, 52; supplies expense, 53; depreciation expense, 54’ insurance
expense, 55; miscellaneous expense, 59.
2. Record the transactions in a two-column journal
3. Post the journal to the ledger, extending the month-end balances to the appropriate
balance columns after all posting is completed
4. Prepare a trial balance as of January 31, on a ten-column work sheet, listing all the
accounts in the order given in the ledger. Complete the worksheet, using the following
adjustment data:
a. Insurance expired during January ---------------Br. 145
b. Inventory of supplies on January31-------------1520
c. Depreciation of service equipment for January 100
d. Accrued salary on January 31 ------------------ 100
e. Rent expired during September ------------------- 750
5. Prepares an income statement, a statement of owners’ equity, balance sheet to the

organization
6. Journalize and post the adjusting entries
7. Journalize and post the closing entries
8. Prepare a post closing trial balance
Solution: Dear learner! The answers for the problem are presented step-by-step by explaining
the accounting procedures involved in the accounting cycle. Therefore, the steps, the answers
depending on the steps are illustrated as follows

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Procedure /steps: 1. Collecting data about economic events

Business transactions are economic events that they need recording. Bills, invoices etc could be
used as source documents to record the transaction. The transactions involved from
January1 - January 31 in the example, above, are the data for the economic events.
Procedure / step 2 single analyzing the data about economic events
The ability to analyze the effects of transactions on financial statements is an essential skill for a
successful career in a business. Double accounting system is very powerful tool in this regard.
Analyzing transactions involve the following steps.
a. Determine whether an assets, a liability, owner’s equity, revenue of an expense account is
affected by the transaction
b. For each account affected by the transaction, determine whether the accounts increases or
decreases
c. Determine whether each increase or decrease should be recorded as a debit or a credit
To illustrate this analysis let’s consider two transactions from the example given. Transaction
(January 2 and January 9) is taken randomly. The others effect is left to you.
January 2 paid the premiums on property and casualty insurance policies, Br. 1, 740
Analysis: advance payments of expenses such as
a. Insurance are prepaid expenses, which are assets. Hence the accounts involved are assets
(prepaid insurance) and cash (an asset).
b. The asset cash decreases and another asset prepaid insurance increases
c. Cash is credited and prepaid insurance debited.
January 9: paid cash for a newspaper advertisement.Br.110
Analysis:
a. The accounts involved are cash (asset) and advertisement expense (could simply be
charged to miscellaneous expense)
b. Cash decreases and miscellaneous expense increases
c. Cash is credited and miscellaneous expense debited

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Step 3 Journalizing: is the process of recording transactions in a business book called journal.
This recording transaction in a chronological order is done, after collecting the source documents
and annualizing the transaction
The following is called a two – column Journal used to record transactions
Journal Page 1
Date Description Post Ref Debit Credit Used to
Year/mont Date record the
h credit
account
amount
Used to write the Used to Refers Used to

date (year, month describe the where the record the
and date) the items to be transaction debited
transaction is recorded is posted accounts
involved amount
Procedure / step4 posting: is the process of transferring debits and credits from the journal to
the accounts in the ledger. There are different types of accounts. T- Account, two columns, three-
column and four- column accounts.
There are two types of ledgers-general and subsidiary. A general ledger is the principal ledger when
used in conjunction with the subsidiary ledgers that contains all accounts. It is containing account.
Subsidiary ledger is a ledger containing individual accounts with common characteristic
In the accounting procedures the journalizing and posting processes are actions taken simultaneously.
Therefore, these procedure are presented together using a journal form and a ledger (an account) form
A four-column account form is depicted below
Used to write the account ID

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Account title Account No

Date Item Post ref Debit Credit Balance
Debit Credit
To record the Description about Refers from Used to record Used to show
date (year, the item which page of the the debit or
month, date) the journal the increase/decease credit balance of
the transaction on the account the account
due to a
transaction is comes
transaction
posted
After these steps using the forms (General Journal and a ledger) let’s return back
to the transactions and record and post them. To do that first let us open the
ledgers given and use a general journal.

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Journal page 1
Post
Date Description Ref Debit Credit
2002
Jan 1 Prepaid rent 15 Br.2250 00
Cash 11 2250 00
2 Prepaid insurance 16 1740 00
Cash 11 1740 00
4 Service equipment 18 2500 00
Accounts payable 21 2500 00
6 Cash 11 500 00
Accounts receivable 12 500 00
9 Miscellaneous expe. 59 110 00
Cash 11 110 00
11 Accounts payable 21 1250 00
Cash 11 1250 00
12 Accounts receivable 12 1000 00
Service revenue 41 1000 00
13 Salary expense 51 500 00
Cash 11 500 00
17 Cash 11 1100 00
17 Supplies 14 950 00
Cash 11 950 00
20 Accounts receivable 12 700 00
24 Cash 11 1850 00
Three lines are requiring in recording a transaction in a journal:

1. For recording debit part
2. For recording credit part
3. Reason for recording the transaction
Journal page 2

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Post
2002
Jan 27 Cash 11 1200 00
Accounts receivable 12 1200 00
27 Salary expense 51 500 00
Cash 11 500 00
30 Miscellaneous expense 59 75 00
Cash 11 75 00
30 Miscellaneous expense 59 140 00
Cash 11 140 00
30 Cash 11 950 00
30 Account receivable 12 800 00
30 2R- Drawing 32 1500 00
Cash 11 1500 00
31 Adjusting entries
Insurance expense 55 145 00
Prepaid insurance 16 145 00
Supplies expense 53 680 00
Supplies 14 680 00
Depreciation ex. Stor.eq. 54 100 00
Accumulated dep.exp. 19 100 00
Salary expense 51 100 00
Salary payable 22 100 00
Rent expense 750 00
Prepaid rent 15 750 00
Three lines are require in recording atransaction in a journal:

4. For recording debit part
5. For recording credit part
6. Reason for recording the transaction

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Journal page 3
Post
2002 Closing entries:
Jan 31 Income summary 33 3100 00
Insurance expense 55 145 00
Supplies expense 53 680 00
Rent expense 52 750 00
Dep. Exp. Store eq 54 100 00
Salary expense 51 1100 00
Miscene. Expense 59 325 00
To close expenses
Service Revenue 41 6400 00
Income summary 33 6400 00
To close revenue
2R capital 31 1500
2R drawing 32 1500 00
To close drawing
Income summary 33 3200 00
2R – capital 31 3200 00
To close income sum.
(Net income of the period)
Lo3:- . Prepare final general ledger accounts

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(The above Journal shows an answer to question # 2 which is journalizing transaction in a

Journal)
This is a general journal of 2R- shopping service consisting all the transaction occurred and
recorded during the month of January
The debit and credit section shows the amount debited and credited and the post reference
represents where the amount is posted to (the account number)
These accounts which are described in the following few pages are answers to question # 1 and 3
opening an account and posting. All are completed accounts at the end of the month after the
adjusting and the closing entries are posted.
Cash account no 11
Post ref Balance
Date Item Debit Credit Debit Credit
2002 Balance 7500 00
Jan 1 1 2250 00 5270 00
2 1 1740 00 3510 00
6 1 500 00 4010 00
9 1 110 00 3900 00
11 1 1250 00 2650 00
13 1 500 00 2150 00
17 1 1100 00 3250 00
17 1 950 00 2300 00
24 1 1850 00 4150 00
27 1 1200 00 5350 00
27 2 500 00 4850 00
27 2 75 00 4775 00
30 2 140 00 4635 00
30 2 950 00 5585 00
30 1500 00 4085 00
Ending balance 4085 00
Account receivable 12
Balance
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Date Item Post ref Debit Credit Dr. Cr.

2002 Balance 900
Jan 1 500 400
6 1 1000 1400
12 1 700 2100
20 2 1200 9000
27 2 800 1700
30
Ending balance 1700
Supplies 14
Balance

Before
2002 Balance 1250 adjustm
Jan 17 1 950 2200 ent
31 Adjusting entry 2 680 1520 balance
1520
After adjustment
Prepaid Rent 15
Balance
Date Item Post ref Debit Credit Dr. Cr. Before

2002 2250 adjustm
Jan 1 1 2250 750 1500 ent
31 Adjusting entry 2 balance
1500
After adjustment
Prepaid insurance 16
Balance
Before
Date Item Post ref Debit Credit Dr. Cr. adjustm
ent
2002
balance
Jan 2 1 1740 1740
31 Adjusting entry 145 1595
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1595
After adjustment
Service equipment 18
Balance

2002 Balance 11,000
Jan 4 Purchase of equip. 1 2500 13,500
145
Ending balance 13500
Accumulated depreciation service equipment 19

Balance

2002
Jan Adjusting entry 2 100 100
Accounts payable 21
Balance

2002
Jan 4 1 2500 2500
11 1250 1250
1250
Salary Payable 22
Balance

2002
Jan 31 Adjusting entry 2 100 100
100
2R - Capital 31

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Balance
Date Item Post Debit Credit Dr. Cr.

ref
2002 Balance 20650
Jan 31 Closing Drawings 3 1500 1700
31 Closing net income 3 3200
22350
2R drawing 32
Balance

2002
Jan 33 2 1500 1500
31 Closing entry 3 1500 -
Income summary 33
Balance

2002
Jan 31 Closing expense 3 3200 3200
31 Closing revenue 3 6400 3200
31 Closing net income 3 3200
(Income summary)
Service revenue 41
Balance

2002 12 1 1000 1000
Jan 17 1 1100 2100
20 1 700 2800
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24 1 1850 4650
30 2 950 5600
30 2 800 6400
31 Closing entry 3 6400
Salary Expense 51
Balance

2002 13 Payment 1 500 500
Jan 27 payment 2 500 1000
31 Adjusting entry 2 100 1100
31 Closing entry 3 1100 -
Rent expense 52
Balance

2002
31 Closing entry 3 750 _
Supplies expense 53
Balance

2002
Depreciation expense- service equipment 54

Balance

2002
31 Closing entry 3 100
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Insurance expense 55
Balance

2002
Miscellaneous expense 59
Balance

2002
Jan 6 1 110 110
30 2 75 185
30 2 140 325
Procedure/ step 5: preparation of a trial balance

The equality of debits and credits in a ledger must be proved at the end of each accounting period. This
is made by preparing a trial balance. Trial balance is a list of tittles and related balances of the accounts
in the ledger.
After posting all the entries, including adjusting and closing, the end balances and tittles of 2R-
shopping service using the trial balance is shown as below.
2R –shopping service
Trial balance
On January 31, 2002
Title Debit Credit
Cash 4085 00
Accounts receivable 1700 00
Supplies 2200 00
Prepaid rent 2250 00

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Prepaid insurance 1740 00

Service equipment 13500 00
Accounts payable 1250 00
2R- lovers capital 20650 00
2R- drawing 1500 00
Service revenue 6400 00
Salary expense 1000 00
Miscellaneous expense 325 00
Total 28,300 00 28,300 00
(The above trial balance which is computed and completed is is an answer to question # 4)
The trial balance does not provide the complete proof of accuracy of the ledger. It indicates only
that debits and credits are equal.
If the two totals of the trial balance are not equal it is probably due to the following errors.
 Errors in preparing the trial balance was incorrectly added: it may be due to one of the
following activates
 One of the columns of the trial balance may be incorrectly determined
 Omitting balance of an account
 Incorrect listing of an account
 Error in computing account balance such as:

 Omitting to add/deduct a given figure
 Entering account balance to wrong column
 Error in posting such as

 Posting wrong debit or credit
 Posting debit as credit or vice versa
 Omitting debit /credit entry
 Error in Journalizing such as

 Journalize wrong debit /credit figure
 Journalizing a debit as a credit or vice versa
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 Omitting debit/credit entry
The following errors cannot be detected by the trial balance

 Failure to record or post a transaction
 Journalizing or posting erroneous but equal amounts of debit and credit
 Recording the same transaction more than one
 Posting a part of a transaction correctly as a debit or credit but to the wrong accounts
Note: two other common types of errors are known as transpositions and slides. Transportation is the
erroneous rearrangement of digits, such as writing Br. 625 as Br. 265 or Br. 652. In a slid error type the
entire number is erroneously moved one or more spaces to the right or the left, such as writing Br. 625 as
Br. 62.50 or 6.25
Detecting errors: There are no standard rules for searching errors. Errors can be detected by trial and
error, by auditing, by chance, etc.
Some of the procedures used to locate an error include the following

 Recalculate the debit and credit totals of the trial balance
 Compare amounts in the trial balance with the balance of accounts in the general ledger
 Recalculate the balance of accounts
 Check postings from the journal
 Check the equality of debit and credit entries in the journal
Correction of errors: For incorrect journal entry but not yet posted or for incorrect amounts posted draw
a single line through the error and write the correct title or amount
-For incorrect Journal entry which is posted or for posting to the wrong account journalizing and posting a
correcting entry.
Procedure / step 6: adjusting process

Before directly involving in to the adjusting procedure and the adjusting entries it is important to
introduce some basic concepts such as the following:

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i. Accounting period concept: according to this concept reports should be prepared at periodic
intervals such as monthly, quarterly or yearly called accounting periods. The annual accounting
period adopted by a business enterprise is called fiscal/ accounting year. Financial statements
prepared for less than one-year period are called interim financial statements
ii. Accrual concept: there are two revenue and expense recording methods
Cash basis: under this method revenues are recorded and reported in which cash is collected; and
expenses are recorded and reported in the period in which cash is paid
Accrual basis: under this method of accounting revenues are recorded and reported in the period in
which they are earned (goods are sold or services are performed regardless of collection of cash).
Expenses are recorded and reported in the period in which they are incurred (assets are consumed or
expired; services are received regardless of payment of cash).
Activity: an enterprise has provided services to a customer in March and the customer paid for the service
in April. When should the revenue be recorded and reported using cash basis? Or Accrual basis?
iii. Matching principle: this principle states that in determining net income / net loss for a given period,
all expenses incurred in that period should be deducted from the revenues earned in that period, i.e. the
income statement should match the revenues earned and the expenses incurred in a certain period to
determine net income/ net loss of that period.
At the end of an accounting period, many of the balances of accounts in the ledger can be reported, with
out change, in the financial statements. Some accounts in the ledger, however, require updating. The
process of updating the balances of accounts by recording unrecorded transactions at the end of the
accounting period is called an adjusting process; and the journal entries needed are called adjusting
entries. By their nature, all adjusting entries affect at least one income statement and one balance sheet
account. Thus, an adjusting entry will always involve revenue or an expense account and an asset or a
liability account.
Some items that require adjusting entries include the following
Prepaid expenses (deferred expenses):- initially recorded as assets but are expected to become expenses
over time in the business. Examples include prepaid rent, prepaid insurance, supplies etc
Accruals: are created by failure to record an expense that has been incurred or revenue that has been
earned. Examples include unrecorded wage (accrued expense/ accrued liabilities) and unrecorded fees
earned (accrued revenue often called accrued assets)

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Plant assets: the expired cost of plant assets due to usage and passage of time is called depreciation.
‘Accumulated depreciation’ is a contra plant asset account whose balance must be deducted from the
original cost of a plant asset.
Unearnedrevenues: are liabilities created by receiving cash in advance for provision of goods or services
Note: deferrals are cash received or paid in the current period but revenues or expanse recorded in the
future period
-Accruals are revenues or expenses recorded in the current period but cash received or paid is the future
period.
- Journalizing and posting adjusting entries is used to bring the balance of accounts in the general ledger
in to agreement with the balances shown on the financial statements, i.e. to update balances. The entries
should be recorded on the Journal and posted to the respective ledgers.
For the example given above, 2R- shopping service the adjustment data is given. From the adjustment
data adjusting entries are recorded on the journal at the end of the month (January 31) and posted to the
respected ledgers on that time. Let’s see the effect, of the adjusting entries using a worksheet
(Answers for question 4- adjusting entries are recorded on the Journal)
Procedure/ step 7: worksheet completion: it is a working paper used by an accountant. It is a
multicolumn sheet of paper used to collect and summarize data needed for preparation of financial
statements, adjusting and closing entries
The worksheet of 2R –shopping service is presented as follows using the given data. The beginning data
on the worksheet is the trial balance prepared above, then the adjusting entries recorded (from the given
data) helps for the adjustment column. In the adjustment column similar items (debits or credits) are
added and different items are deducted. To begin the completion of the column worksheet for 2R-
shopping service, let we inset the figures on a ten-column worksheet as follows complete it
2R shopping service

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Worksheet
For the month ended January 31, 2002
Account title Trial balance Adjustments Adjusted trial In come Balance sheet
balance statement
Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Cash 4085 4085 4085
Acco/Receivable 1700 1700 1700
Supplies 2200 b) 680 1520 1520
Prepaid Rent 2250 e) 750 1500 1500
Prepaid insurance 1740 a) 145 1595 1595
1250 1250 1250
Service. Equip. 13500 13,500 13500
20,650 20,650 20650
Acc. Payable
2R-capital
6400 6400 6400
d) 100 1100 1500
2R,drawing 1500 1500 325
Service Revenue
28,300
Salary expense 1000 1100
Misce. Expense 325 a) 145 325 145
b) 680 680
c) 100 100
Total 28,30 100 100
0 100 100
e) 750 c) 100 750
Insurance Expe. 1875 d) 100 145 28,500 3,200 6,400 22,200
Supplies. Exp. 680 3,200 3,200
1875 6,400 6,400 25,400 25,400
Deprecation Exp. 100
Accumulated dep. 25,400
Salary payable
Rent expense 751
28,500
Adjustment
b) Supplies used Br. 650 (2200-1520)

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a) Insurance expired Br. 145

e) Rent expired Br. 750
d) Salary accrued but not paid Br. 100
c) Depreciation of service equipment Br. 100
Lo4:- Prepare end of period financial reports
Explanation for the adjustment column:

Cross-referencing the debit and credit of each adjustment by letters is useful in reviewing the worksheet.
If the tittles of some of the accounts to be adjusted do not appear in the trial balance, they should be
inserted in the account title column, below the trial balance totals, as needed. On the adjustment column
let’s see the adjustment given by letter
a) Prepaid insurance: The prepaid insurance as of January the beginning of the month has a balance of
Br. 1,740, which represents advance payment for the year. For the month of January out of the total
balance Br. 145 was expired. Therefore as January 31 of the total balance 145 was expensed but the
remaining 1595 (1740-145) is entered by writing (a) insurance expenses in the account title column and
(a) in the adjustments debit column
b) Supplies: The supplies account including the purchase has a balance of Br. 2200. But after physical
inventory or count the supplies on hand was found Br. 1520, therefore, Br. 680 (2200-1520) i.e. the
expired or consumed amount which is supplies expense. The adjustment is entered by writing (b) Br. 680
in the adjustments debit column on the same line as supplies expense ad (b) Br. 680 in the line as supplies
c) Depreciation expense: Depreciation for the equipment for the month is Br. 100. The adjustment is
entered by writing(c) depreciation expense in the account title column Br. 100 adjustment debit column
the same line as depreciation expense but accumulated depreciation in the account title column Br. 100 in
the adjustment credit column on the same line as accumulated depreciation
d) Accrued salary: The amount Br. 100 for January is an increase in expense and increase in liabilities.
The adjustment is entered by writing (d) Br. 100 in the adjustments debit column on the same line as
salary expenses (d) salary payable in the account title column, and (d) Br. 100 in the adjustment credit
column on the same line as salary payable.
e) Prepaid rent: Of the total amount paid in advance for three months Br. 750 (2250/3) is expired, rent
expense. The adjustment is entered as rent expense Br. 750 in the same line in the debit side of the
adjustment column and (e) Br. 750 in the credit side of the adjustment column the same line as the
prepaid rent line moth adjustment column
The adjustment columns are totaled to verify the mathematical accuracy of the adjustment data. The total
of the debit column must equal the total of the credit column

QUEENS’ college
Note: The adjusted trial balance amounts are determined by extending the trial balance amounts plus or
minus the adjustments. For example, supplies account debit balance Br. 1520 on the adjusted trial balance
is the trial balance amount of Br. 2200 minus the Br.680 of the adjustment credit. Accordingly, the
worksheet is completed as shown in the worksheet. (Procedure 7 is completed)
Procedures /step 8: financial statements preparation. The financial statements are directly derived
from the work sheet. The statements are, therefore, prepared as follows
2R- shopping service
Income statement
For the month ended January 31, 2002
Service revenue ------------------------------------------------Br. 6400

Less: Expenses
Salary expenses Br. 1100
Insurance expense 145
Supplies expense 680
Rent expense 750
Depreciation expense 100
Miscellanies expense 325 3200
Net income Br. 3200
2R shopping service
Statement of owner’s equity
For month ended January 31, 2002
2R- capital, January 2002 ------------------Br. 20650
Add. Net income for the month 3200
Less with drawl 1500
Increase in capital 1700
2R –capital, January 31,2002 22,350
Balance sheet
On January 31, 2002
Asset s:

QUEENS’ college
Current assets:
Cash -----------------Br.4085
A/R 1700
Supplies 1520
Prepaid rent 1500
Total current assets Br. 10400
Plane assets:
Service equipment 13500
Less accumulate. Depreciation ( 200) 13300
Total assets 23,700
Liabilities and capital:
Account payable 1250
Salary payable 100
Total liability 1350
2R- capital 22,350
Total liab& capital 23,700
Procedure /step 9: closing entries

Revenues, expenses and drawing /dividend account are temporary accounts used to accumulated effects
of some transaction on owner’s equity account for a specific period. At the end of the accounting period
the balances of revenue and expense accounts are summarized in one another temporary account called
the income summary. The balance in the income summary is transferred/closed to the capital (owner’s
equity) account. The balance on the drawing /divided account is directly closed to the capital (retained
earnings account).
The process of transferring balances of temporary accounts to the capital account is called closing entry;
and these entries should be posted to the respective ledgers after journalization.
This closing of accounts is used to transfer net income or net loss and drawing /dividend to
capital/retained earning, account. Moreover; it is used to reduce the balance of temporary accounts to zero
so that they will be ready for the next accounting period.
For our example, 2R-shopping service, the closing entries are journalized on the journal and posted to the
respective ledgers. See them on the journal and on their respective ledgers.
Procedure / step 10: post closing trial balance: It is a trial balance prepared after all adjusting and
closing entries are posted. It is prepared to check the equality of the total debit and the total credit of the
QUEENS’ college
balance of the real accounts. It is the last step on the accounting cycle/ process the post-closing trial
balance for the 2R-shopping service is prepared and presented as follows.
Post closing trial balance
On January 31, 2002
Account title Debit Credit
Cash Br.4085
Accounts receivable 1700
Supplies 1520
Prepaid rent 1500
Service equipment 13500 200
1250
Accumulated dep. Service 100
Accounts payable 22,350
Salary payable 23,800
2R- capital 23,800

Total
Self check
1. If the supplies account, before adjustment on May 31, indicated a balance of Br. 2,250 and
an inventory of supplies on hand at May 31, totaled Br. 950, the adjusting entry would be:
A. debit supplies, Br. 950; credit supplies Expense, Br. 950.
B. debit supplies, Br. 1,300; credit supplies Expense, Br. 1,300.
C. debit supplies, Expense, Br. 950; credit supplies, Br. 950.
D. debit supplies, Expense, Br. 1,300; credit supplies, Br. 1,300.
2. If the estimated amount of depreciation on equipment for a period is Br. 2,000 the adjusting
entry to record depreciation would be:
A. debit depreciation Expense, Br. 2,000; credit Equipment, Br. 2,000
B. debit Equipment, Br. 2,000; credit depreciation Expense, Br. 2,000
C. debit depreciation Expense, Br. 2,000; credit Accumulated Depreciation, Br. 2,000

QUEENS’ college
D. debit Accumulated Depreciation, Br. 2,000; credit depreciation Expense, Br. 2,000
3. If the equipment account has a balance of Br. 22,500 and its accumulated depreciation
account has a balance of Br. 14,000, the book value of the equipment is:
A. Br. 36, 500 C. Br. 14, 000
B. Br. 22,500 D. Br. 8,500
4. Which of the following accounts would be closed to the income summary account at the end
of a period?
A. sales C. both sales and salary expense
B. salary Expense D. Neither sales nor salary expense
5. The post closing trial balance would include which of the following accounts?
A. cash C. salary expense
B. sales D. all of the above
Self Test-2
1. Why are adjusting entries needed at the end of the accounting period? Why are closing entries
needs?
2. How are revenues & expenses reported on the income statement under:
a) Cash basis accounting?
b) Accrual basis accounting?
3. Define deferrals & accruals
4. What is the nature of the balance in the prepaid insurance account at the end of the accounting
period?
a) Before adjustment?
b) After adjustment?
5. If the worksheet a substitute for the financial statements? Discuss.
6. In accounting for depreciation on equipment, what is the name of the account that would be
referred to as a contra asset account?
7. Which of the following accounts in the ledger of a corporation will ordinarily appear in the
post closing trial balance?
a) Accounts Receivable g) equipment
b) Accumulated depreciation h) Retained earnings

QUEENS’ college
c) Cash i) Dividends
d) Supplies j) Capital stock
e) Depreciation expense k) wages expense
f) Wages payable l) Sales
8. A business enterprise pays weekly salaries of Br.12,000 on Friday for a five-day week ending
on that day, Journalize the necessary adjusting entry at the end of the fiscal period, assuming
that the fiscal period ends. (a) On Monday (b) On Wednesday
9. The balance in the supplies account, before adjustment at the end of the year, is Br.2,750. The
inventory of supplies at the end of the year was determined to be Br.600. The estimated
depreciation on equipment used during the year is Br.1,600. Journalize the adjusting entries
required at the end of the year to recognize a) supplies used during the year and b)
depreciation expense for the year.
10. The trial balance of west side Laundromat at July 31,1991, the end of the fiscal year, and the
data needed to determine year-end adjustments are as follows.
Westside Laundromat
Trial balance
July 31, 1991
Account Title Debit Credit
Cash Br. 7,790
Laundry supplies 4,750
Prepaid insurance 2,825
Laundry equipment 85,600
Accumulated depreciation Br. 55,700
Accounts payable 4,950
Ana Perez, capital 30,900
Ana Perez, Drawing 18,000
Laundry Revenue 76,900
Wages expense 24,500
QUEENS’ college
Rent expense 15,575

Utilities expense 8,500
Miscellaneous expense 910
Total Br. 168,450 Br. 168,450
Adjustment data:
(a) Inventory of Laundry supplies at July 31 ............................................. Br. 1,840
(b) Insurance premiums expired during the year ....................................... 1,500
(c) Depreciation on equipment during the year .......................................... 5,720
(d) Wages accrued but not paid at July 31 .................................................. 850
Instructions:
1. Record the trial balance on a ten-column worksheet and complete the worksheet.
2. Prepare an income statement, a statement of owner’s equity and a balance sheet. (No
additional investments were made during the year).
3. On the basis of the adjustment data in the worksheet, journalize the adjusting & closing
entries.
11. J. F. M. D. Outz has been practicing as a cardio list for three years. During April Outz
completed the following transactions in her practice of cardiology.
April 1. Paid office rent for April, Br.800

3. Purchase equipment on account, Br.2,100
5. Received cash on account from patients, Br.3,150
8. Purchase X-ray film and other supplies on account, Br.245
9. One of the item of equipment purchase on April 3 was defective. If was returned with
the permission of the supplier, who agreed to reduce the account for the amount
charged for the item, Br.325.
12. Paid cash to creditors on account, Br.1,250.
17. Paid cash for renewal of a six-month property Insurance policy, Br.370.

QUEENS’ college
20. Discovered that the balances of the cash account and of the accounts payable account
as of April were overstated by Br.200. A payment of that amount of creditor in
March had not been recorded. Journalize the Br.200 payment as of April 20.
24. Paid cash for laboratory analysis, Br.545
27. Paid cash for business bank account for personal and family expense. Br.1,250..
30. Recorded the cash received in payment of service (on a cash basis) to patients during
April, Br.1,720.
30. Paid salaries of receptionist and nurses, Br.1,725.
30. Paid various utility expenses, Br.260.
30. Recorded fees charge to patients on account for service performed in April,
Br.5,145.
30. Paid miscellaneous expenses, Br.132.
Outz’s account title, members and business as of April 1 (all normal balances) are listed as
follows:
Cash, 11, Br.4,123; Accounts Receivable, 12, Br.6,725; Supplies, 13, Br.290; Prepaid Insurance,
14, Br.465; Equipment, 18, Br.19,745; Accounts payable, 22, Br.765; J.F. outz, Capital, 31,
Br.30,583, J.F. Outz, Drawing, 32, Professional Fees, 41, Salary expense, 51, Rent Expense, 53,
Laboratory expense, 55, Utility expense, 56, Miscellaneous Expense,, 59.
Instructions
5. Open a ledger of standard four-column accounts for Dr. Outz as of April 1 of the current year.
Enter the balances in the appropriate balance columns and place a check mark () in the
posting reference column. (it is advisable to verify the equality of the debit and credit
balances in the ledger before proceeding with the next instruction).
6. Journalize each transaction in a two-column journal.
7. Post the journal to the ledger, extending the month-end balance to the appropriate balances
columns after each posting.
8. Prepare a trial balance as of April 30.


Learning Guide: Accounts and Budget Service

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QUEENS’ college

Training, Teaching and Learning Materials

ACCOUNTS AND BUDGET SERVICELEVEL IV

TTLM Code: BUF ACB4M05 0812

TTLM Development Manual Date: October 12,2013

Welcome to the module “Prepare Financial Reports”. This learner’s

Summary of Learning Outcomes

After completing this learning guide, you should be able to:

o Read through the Learning Guide carefully. It is divided into sections

TTLM Development Manual Date: October 12,2013

Lo1:- . Maintain asset register

TTLM Development Manual Date: October 12,2013

Net Service Company

TTLM Development Manual Date: October 12,2013

PREPARING OWNERS EQUITY STATEMENT

Net Service Company

Preparing the capital statement

TTLM Development Manual Date: October 12,2013

Lo2: Record general journal entries for balance day

TTLM Development Manual Date: October 12,2013

5. Prepares an income statement, a statement of owners’ equity, balance sheet to the

TTLM Development Manual Date: October 12,2013

Procedure /steps: 1. Collecting data about economic events

TTLM Development Manual Date: October 12,2013

Used to write the Used to Refers Used to

A four-column account form is depicted below

Used to write the account ID

TTLM Development Manual Date: October 12,2013

Account title Account No

TTLM Development Manual Date: October 12,2013

Three lines are requiring in recording a transaction in a journal:

TTLM Development Manual Date: October 12,2013

Three lines are require in recording atransaction in a journal:

TTLM Development Manual Date: October 12,2013

Lo3:- . Prepare final general ledger accounts

TTLM Development Manual Date: October 12,2013

(The above Journal shows an answer to question # 2 which is journalizing transaction in a

Date Item Post ref Debit Credit Dr. Cr.

Date Item Post ref Debit Credit Dr. Cr.

Date Item Post ref Debit Credit Dr. Cr. Before

Date Item Post ref Debit Credit Dr. Cr.

Ending balance 13500

Accumulated depreciation service equipment 19

Date Item Post ref Debit Credit Dr. Cr.

Date Item Post ref Debit Credit Dr. Cr.

Date Item Post ref Debit Credit Dr. Cr.

TTLM Development Manual Date: October 12,2013

Date Item Post Debit Credit Dr. Cr.

Date Item Post ref Debit Credit Dr. Cr.

Date Item Post ref Debit Credit Dr. Cr.

Date Item Post ref Debit Credit Dr. Cr.

Date Item Post ref Debit Credit Dr. Cr.

Date Item Post ref Debit Credit Dr. Cr.

Date Item Post ref Debit Credit Dr. Cr.

Depreciation expense- service equipment 54

Date Item Post ref Debit Credit Dr. Cr.

Date Item Post ref Debit Credit Dr. Cr.

Date Item Post ref Debit Credit Dr. Cr.

Procedure/ step 5: preparation of a trial balance

TTLM Development Manual Date: October 12,2013

Prepaid insurance 1740 00

 Error in computing account balance such as: