Preparing a Worksheet

4-3

2
Preparing a Worksheet
1. Prepare a Trial Balance on the Worksheet
4-4

3
 Preparing a Worksheet
3-18

Adjusting
Journal Entries

4
Preparing a Worksheet
2. Enter the Adjustments in the Adjustments Columns
4-7

5
Preparing a Worksheet
3. Complete the Adjusted Trial Balance Columns

Total the adjusted trial

balance columns and
check for equality.

6
Preparing a Worksheet
4. Extend Amounts to Financial Statement Columns

Extend all revenue and

expense account
balances to the income
statement columns.

Extend asset and

liability account
balances, as well as
Share Capital-Ordinary
and Dividends account
balances, to the
statement of financial
position columns..

7
Preparing a Worksheet
5. Computing Net Income and Net Loss

8
Compute Net Income or Net Loss.
Preparing Statements from a Worksheet
4-10

9
Preparing Statements from a Worksheet

10
Preparing Statements from a Worksheet

11
Closing Process
4-11

• The closing process (結帳) prepares

accounts for recording the transactions
and events of the next period.
Closing resets revenue,
Update expense, and dividends account Reset to
Retained begin the
balances to zero at the end of
Earnings next period
each period.

淡江公司10 月份損益表中顯示10月份總共賺了$103,000。公
司11 月會持續經營，如果公司希望看到11月份當月賺了多少
錢，則不能把10 月份的收入及費用，與11月份的收入及費用
混在一起，因此必須將10 月底的所有收入與費用帳戶一一結
束歸零，以便11 月初從零開始重新累計11月份所產生的收入
及所發生的費用。 12
Closing the Books
暫時性帳戶 永久性帳戶

• 損益表的會計科目結帳後餘額變為零，所以稱之為暫時性
帳戶（temporary account）。其他沒有結清的科目就被稱
為永久性帳戶（permanent account），它們是資產負債表
科目，即資產、負債與股東權益等三類科目。
• 暫時性帳戶在會計上又稱虛帳戶（ nominal account），永
久性帳戶則又稱為實帳戶（real account）。 13
Recording Closing Entries
• Closing entries (結帳分錄) transfer the end-of-period
balances in revenue, expense, and dividends accounts
(temporary accounts) to the permanent Retained
Earnings account.
➊ Revenue, expense, and dividends accounts must begin
each period with zero balances.
➋ Retained Earnings must reflect prior periods‘ revenues,
expenses, and dividends.

Expense Transfer Income Transfer Revenue

Accounts Summary Accounts
損益彙總

Temporary account only

14
used for closing
 Closing Process
➊
➌

➊ Close Revenues to Income Summary ➌ Close Income Summary to Retained Earnings

Dec.31 Consulting Revenues. XXX Dec.31 Income Summary XXX

Income Summary XXX Retained Earnings XXX

➋ Close Expenses to Income Summary ➍ Close Dividends to Retained Earnings

Dec.31 Income Summary XXX Dec.31 Retained Earnings XXX
Supplies Expense XXX Dividends XXX
Utilities Expense XXX
15
Closing the Books
4-13

Retained earnings is a
permanent account; all
other accounts are
temporary accounts.

16
Closing the Books

17
Closing the Books

18
 4-20

2
Analyze
1 transactions Journalize

Prepare post- Analyze transactions to Record accounts in a

9 closing trial prepare for journalizing journal

balance
Test clerical accuracy of
3 Post
the closing procedures Transfer debits and
credits from the journal

8 Accounting
to the ledger
Close
Prepare

Cycle 4 unadjusted
Journalize and post
entries to close trial balance
temporary accounts
Summarize unadjusted ledger
accounts and amounts
7 Prepare Financial
Statements
Adjust and post
Use adjusted trial balance
to prepare financial
Prepare adjusted 5 Record adjustments to
statements trial balance bring account balances

6 Summarize adjusted ledger

accounts and amounts
up to date

19
 1 Analyze
transactions
2 Journalize

On April 1, 2021, Jiro Nozomi created a new travel agency,

Adventure Travel. The following transactions occurred during the
company’s first month.
Apr.1 Nozomi invested $30,000 cash and computer equipment
worth $20,000 in the company in exchange for common stock.
4/1 Cash 30,000
Computer Equipment 20,000
Share Capital 50,000
2 The company rented furnished office space by paying
$1,800 cash for the first month’s (April) rent.
4/2 Rent Expense 1,800
Cash 1,800
3 The company purchased $1,000 of office supplies for cash.
4/3 Office Supplies 1,000
Cash 1,000 20
Apr.10 The company paid $2,400 cash for the premium on a 12-
month insurance policy. Coverage begins on April 11.
4/10 Prepaid Insurance 2,400
Cash 2,400

14 The company paid $1,600 cash for two weeks’ salaries

earned by employees.
4/14 Salaries Expense 1,600
Cash 1,600

24 The company collected $8,000 cash on commissions from

airlines on tickets obtained for customers.

4/24 Cash 8,000

Commission Earned 8,000

21
Apr. 28 The company paid $1,600 cash for two weeks’ salaries
earned by employees.
4/28 Salaries Expense 1,600
Cash 1,600
29 The company paid $350 cash for minor repairs to the
company’s computer.
4/29 Repairs Expense 350
Cash 350

30 The company paid $750 cash for this month’s telephone bill.
4/30 Telephone Expense 750
Cash 750

30 The company paid $1,500 cash in dividends.

4/30 Dividends 1,500
Cash 1,500
22
3 Post
Cash Rent Expense Commission Earned
4/1 30,000 4/2 1,800 4/2 1,800 4/24 8,000
4/24 8,000 4/3 1,000
4/10 2,400 Office supplies Repairs Expense
4/14 1,600 4/3 1,000 4/29 350
4/28 1,600
4/29 350
4/30 750 Prepaid Insurance Telephone Expense
4/30 1,500 4/10 2,400 4/30 750
Bal. 27,000
Salaries Expense Dividends
Computer Equipment
4/14 1,600 4/30 1,500
4/1 20,000 4/28 1,600
Bal. 3,200
Share Capital-Ordinary
4/1 50,000
23
4 Prepare unadjusted
trial balance
Adventure Travel
Unadjusted Trial Balance
April 30, 2021
Debit Credit

Cash $27,000
Office supplies 1,000
Prepaid insurance 2,400
Computer equipment 20,000
Share Capital-Ordinary $50,000
Dividends 1,500
Commissions earned 8,000
Salaries expense 3,200
Rent expense 1,800
Repairs expense 350
Telephone expense 750
Totals $58,000 $58,000

24
 Every adjusting entry will include one income statement
account and one balance sheet account (but never the
cash account).

➊ Prepaid Insurance Adjusting Entries

Prepaid
Expense Prepaid Insurance XXX Insurance Expense XXX
Cash XXX Prepaid Insurance XXX
➋ Supplies
Supplies XXX Supplies Expense XXX
Cash XXX Supplies XXX
➌ Plant Assets (Depreciation)
Equipment. XXX Depreciation Expense XXX
Cash XXX Accumulated Depreciation XXX

Unearned Revenue
Unearned
Revenue Cash XXX Unearned Revenue. XXX
Unearned Revenue. XXX Service Revenue XXX

25
 ➊ Accrued Salaries Expense
Accrued
expense Salaries Expense XXX Salaries Payable XXX
Salaries Payable XXX Cash XXX

➋ Accrued Interest Expense

Interest Expense XXX Interest Payable XXX

Interest Payable XXX Cash XXX

Accrued Service Revenue

Accrued Cash XXX
Revenue Accounts Receivable. XXX
Service revenue XXX Accounts Receivable. XXX

26
5 Adjust and post

Use the following information to journalize and post adjusting

entries for the month:
➀ Two-thirds (or $133) of one month’s insurance coverage
has expired.
4/30 Insurance Expense 133
Prepaid Insurance 133

➁ At the end of the month, $600 of office supplies are still

available. Supplies
1,000
4/30 Office Supplies Expense 400 400
Office Supplies 400
600

➂ This month’s depreciation on the computer equipment is $500.

4/30 Depreciation Expense 500
Accumulated Depreciation 500
27
➃ Employees earned $420 of unpaid and unrecorded
salaries as of month-end.
4/30 Salaries Expense 420
Salaries Payable 420

➄ The company earned $1,750 of commissions that are not

yet billed at month-end.

4/30 Accounts Receivable 1,750

Commissions Earned 1,750

28
 Prepaid Insurance Accumulated Depreciation Commission Earned
4/10 2,400 Adj. 133 Adj. 500 4/24 8,000
Bal. 2,267 Adj. 1,750
Bal. 9,750
Insurance Expense Depreciation Expense
Accounts Receivable
Adj. 133 Adj. 500
Adj. 1,750

Office supplies Salaries Expense

4/3 1,000 Adj. 400 4/14 1,600
4/28 1,600
Bal. 600
Adj. 420

Office Supplies Expense Bal. 3,620

Adj. 600 Salaries Payable
Adj. 420

29
6
Prepare adjusted
trial balance Adventure Travel
Adjusted Trial Balance
April 30, 2021
Debit Credit
Cash $27,000
Accounts receivable 1,750
Office supplies 600
Prepaid insurance 2,267
Computer equipment 20,000
Accumulated depreciation $ 500
Salaries payable 420
Share Capital-Ordinary 50,000
Dividends 1,500
Commissions earned 9,750
Depreciation expense 500
Salaries expense 3,620
Insurance expense 133
Rent expense 1,800
Office supplies expense 400
Repairs expense 350
Telephone expense 750
Totals $60,670 $60,670
30
7 Prepare Financial
Statements
Adventure Travel
Income Statement
For Month Ended April 30, 2021
Commissions earned $9,750
Expenses
Depreciation expense $ 500
Salaries expense 3,620
Insurance expense 133
Rent expense 1,800
Office supplies expense 400
Repairs expense 350
Telephone expense 750
Total expenses 7,553
Net income $2,197

Statement of
Retained Earnings

31
 Adventure Travel
Statement of Retained Earnings
For Month Ended April 30, 2021

Retained earnings, April 1, 2021 $ 0

Income
Add: Net Income Statement 2,197
2,197
Less: Dividends (1,500)
Retained earnings, April 30, 2021 $ 697

Balance Sheet

32
 Adventure Travel
Statement of Financial Position
April 30, 2021

Assets
Cash $ 27,000
Accounts receivable 1,750
Office supplies 600
Prepaid insurance 2,267
Computer equipment $20,000
Accumulated depreciation (500) 19,500
Total assets $51,117
Liabilities
Salaries payable $ 420
Equity
Share Capital-Ordinary 50,000 Statement of
Retained earnings 697 Retained
Earnings
Total equity 50,697
Total liabilities and equity $51,117

33
8 Close
4/30 Commissions Earned 9,750
Income Summary 9,750

4/30 Income Summary 7,553

Depreciation Expense 500
Salaries Expense 3,620
Insurance Expense 133
Rent Expense 1,800
Office Supplies Expense 400
Repairs Expense 350
Telephone Expense 750

4/30 Income Summary 2,197

Retained Earnings 2,197

4/30 Retained Earnings 1,500

Dividends 1,500
34
 Commission Earned Salaries Expense Income Summary
4/24 8,000 4/14 1,600 Clos. 3,620 Clos. 7,553 Clos. 9,750
Clos. 9,750 Adj. 1,750 4/28 1,600 Clos. 2,197
Bal. 0 Adj. 420
Bal. 0
Bal. 0
Insurance Expense Dividends
Repairs Expense
Adj. 133 Clos. 133 4/30 1,500 Clos. 1,500
4/29 350 Clos. 350
Bal. 0 Bal. 0
Bal. 0
Telephone Expense Retained Earnings
Office Supplies Expense
Adj. 600 Clos. 600 4/30 750 Clos. 750 Clos. 1,500 Clos. 2,197
Bal. 0 Bal. 0 Bal. 697

Depreciation Expense Rent Expense Ending Retained

Earnings
Adj. 500 Clos. 500 4/2 1,800 Clos. 1,800
Bal. 0 Bal. 0

35
9 Prepare post-closing
trial balance
Adventure Travel
Post-Closing Trial Balance
April 30, 2021
Debit Credit
Cash $27,000
Accounts receivable 1,750
Office supplies 600
Prepaid insurance 2,267
Computer equipment 20,000
Accumulated depreciation $ 500
Salaries payable 420
Share Capital 50,000
Retained Earnings 697
Totals $51,617 $51,617

36
Correcting Entries—An Avoidable Step
Case 1 4-21

On May 10, Mercato Co. journalized and posted a $500 cash

collection on account from a customer as a debit to Cash $500 and a
credit to Service Revenue $500. The company discovered the error
on May 20, when the customer paid the remaining balance in full.

Incorrect Cash 500

entry
Service revenue 500
Correct Cash 500
entry
Accounts receivable 500

Correcting Service revenue 500

entry Accounts receivable 500

37
Correcting Entries—An Avoidable Step
Case 2
On May 18, Mercato purchased on account equipment costing
$4500. The transaction was journalized and posted as a debit to
Equipment $450 and a credit to Accounts Payable $450. The error
was discovered on June 3.

Incorrect Equipment 450

entry
Accounts payable 450
Correct Equipment 4,500
entry
Accounts payable 4,500

Correcting Equipment 4,050

entry Accounts payable 4,050

38
 E4-12

Natt Spa discovered the following errors made in January 2020.

1. A payment of Salaries and Wages Expense of €700 was debited
to Equipment and credited to Cash, both for €700.
2. A collection of €1,500 from a client on account was debited to
Cash €150 and credited to Service Revenue €150.
3. The purchase of equipment on account for €670 was debited to
Equipment €760 and credited to Accounts Payable €760.

ƒ
39
Classified Statement of Financial Position
4-23

• A classified statement of financial

position organizes assets and
liabilities into subgroups that provide
more information to decision makers.

• One of the more important classifications is the

separation between current (流動) and noncurrent (非
流動) items for both assets and liabilities.

40
The Classified Statement of Financial Position

41
The Classified Statement of Financial Position
Intangible Assets
Intangible assets are long-term resources that benefit
business operations but lack physical form.

42
The Classified Statement of Financial Position
Property, Plant, and Equipment
They are tangible assets that are both long-lived and used
to produce or sell products and services.

43
The Classified Statement of Financial Position
Long-Term Investments
• Investments in ordinary shares and bonds of other companies.
• Investments in non-current assets such as land or buildings
that a company is not using in its operating activities.

44
The Classified Statement of Financial Position
Current Assets
• Assets that a company expects to convert to cash or use up
within one year or the operating cycle, whichever is longer.
• Operating cycle is the average time it takes from the
purchase of inventory to the collection of cash from customers.

45
The Classified Statement of Financial Position
Equity
Equity is the owner’s claim on assets. The equity section
is divided into two main subsections, contributed capital
(share capital) and retained earnings.

46
The Classified Statement of Financial Position
Non-Current Liabilities
Noncurrent liabilities (long-term liabilities) are obligations
not due within one year or the operating cycle, whichever
is longer.

47
 The Classified Statement of Financial Position
Current Liabilities
• Obligations company is to pay within the coming year or its
operating cycle, whichever is longer.
• Usually list notes payable first, followed by accounts payable.
Other items follow in order of magnitude.
• Liquidity - ability to pay obligations expected to be due within the
next year.

48
 EXERCISE

For each of the following items, select the letter that identifies
the balance sheet category as an (A) Current assets, (B) Long-
term investments, (C) Plant assets, (D) Intangible assets, (E)
Current liabilities, (F) Long-term liabilities.
1. Land not currently used in operations
2. Notes payable (due in five years)
3. Accounts receivable
4. Trademarks
5. Accounts payable
6. Store equipment
7. Wages payable
8. Cash
49