A100 Chapter 6 – Bella’s Beauty Salon Adjusting Journal Entries

GENERAL JOURNAL Page 1

POST
DATE ACCOUNT REF DEBIT CREDIT
12/31 Insurance expense A 1,240

Prepaid insurance 1,240

Shop supplies expense B 780

12/31
Shop supplies 780

Depreciation expense: C 350

12/31 Shop equipment
Accumulated Depreciation: 350
Shop equipment
12/31 Depreciation expense: Building D 2,220

Accumulated Depreciation: 2,220

Building
12/31 Rental fees receivable E 200

Rental fee revenue 200

12/31 Unearned rent F 800

Rental fee revenue 800

12/31 Wages expense G 200

Wages payable 200

12/31 Interest expense H 1,000

Interest payable 1,000

12/31 Income tax expense I 1,800

Income tax payable 1,800

1
A100 Chapter 7 
2
 Bella’s Beauty Salon: GENERAL LEDGER (select accounts after adjustment)

____Prepaid insurance__ _______Shop supplies______ Rental fees receivable

Bal. 1,480 Bal. 990 Bal. 0

1,240 AJE A 780 AJE B AJE E 200
Bal. 240 Bal. 210 Bal. 200

Accum. Deprec-shop equip _____Accum Deprec-building ____Unearned rent

770 Bal. 3,840 Bal.

1,600 Bal.
350 AJE C 2,220 AJE D AJE
F 800
1,120 Bal. 6,060 Bal
800 Bal.

_____Wages payable_____ _____Interest payable______ Income taxes payable

200 AJE G 1,000 AJE H

1,800 AJE I
200 Bal. 1,000 Bal. 1,800
Bal.

 ___ Rental fee revenue
   _____            _____
   Insurance expense
    ____  
      ____Shop supplies expense   

2,400 Bal.
200 AJE E AJE A 1,240 AJE B 780
800 AJE F
3,400 Bal. Bal. 1,240 Bal. 780

    __
____Wages expense       ___ Interest expense
   ______       ____Income tax expense
     

Bal. 3,200
AJE G 200 AJE H 1,000 AJE I 1,800
Bal. 3,400 Bal. 1,000 Bal. 1,800

 Depreciation expense:  Shop Equipment       __  
_Depreciation expense:  Building  
3
A100 Chapter 7 
AJE C 350 AJE D 2,220

4
Bal. 350 Bal. 2,220A100
Chapter 7 – Completion of the Accounting Cycle

The Accounting Cycle

Steps performed during the accounting period:

Step 1 Analyze daily transactions

Step 2 Journalize transactions (record in the general journal)

Step 3 Post journal entries to the general ledger

Steps performed at the end of the accounting period:

Step 4 Prepare a trial balance

Step 5 Journalize and post adjusting entries

Step 6 Prepare an adjusted trial balance - list all general ledger accounts in order with
the balance appearing in the appropriate column for debits and credits.

5
A100 Chapter 7 
Step 7 Prepare the financial statements:

Income statement
Retained earnings statement
Balance sheet
Statement of cash flows

Step 8 Journalize and post closing entries - close all temporary (revenues, expenses
and dividends) accounts and transfer the effect to retained earnings.

Step 9 Prepare post-closing trial balance

A worksheet may be used to facilitate steps 4 – 7. (See page 10 of the handouts.)

6
Step 7:
Bella’s Beauty Salon
Income Statement
FYE 12/31
Revenue:

              Total revenue
Expenses:

              Total expenses
Net income before tax             __________

                                       Net income $_________

Bella’s Beauty Salon
Statement of Changes in Retained Earnings
FYE 12/31

Retained earnings, 1/1 $       
Add:
           Net income __________
Subtotal
Deduct:
          Dividends

Retained earnings, 12/31 $_________
7
A100 Chapter 7 
 Bella’s Beauty Salon
Balance Sheet
12/31
Assets
Current assets:

         Total current assets
Property, Plant and Equipment

    Total property, plant and equipment
Total assets

Liabilities & Stockholders’ Equity
Current liabilities:

     Total current liabilities
Long­term liabilities:

Total liabilities

Stockholders’ equity:

Total stockholders’ equity
8
Total Liabilities & Stockholders’  Equity

9
A100 Chapter 7 
 Bella’s Beauty Salon
Adjusted Trial Balance
12/31
Debit Credit
Cash $ 4,200
Rental fees receivable 200
Prepaid insurance 240
Shop supplies 210
Shop equipment 3,860
Accumulated depreciation-shop $ 1,120
equipment
Building 57,500
Accumulated depreciation-building 6,060
Land 55,000
Unearned rent 800
Wages payable 200
Interest payable 1,000
Income tax payable 1,800
Long-term notes payable 50,000
Common stock 25,000
Retained earnings 24,860
Rental fee revenue 3,400
Service fee revenue 23,400
Wages expense 3,400
Utilities expense 690
Advertising expense 600
Property tax expense 4,350
Insurance expense 1,240
Shop supplies expense 780
Depreciation exp: shop equip 350
Depreciation exp: building 2,220
Income tax expense 1,800
Interest expense 1,000
Total $137,640 $137,640

10
Step 8: Prepare the closing entries for Bella’s Beauty Salon.
The Adjusted Trial Balance is used to prepare the closing entries. For the closing process you will need to create a
new account, Income Summary. Closing is a 4-part process:

1: Close the expense account(s).

Date Account Post Debit Credit
Ref

2: Close the revenue account(s).

3: Close the Income Summary account to update Retained Earnings.

4: Close the Dividend account.

11
A100 Chapter 7 
These journal entries are posted to the general ledger and a post-closing trial balance is prepared.

12
Step 9: Prepare the Post-Closing Trial Balance to assure that the general ledger is in balance and that the
total of the debit account balances equals the total of the credit account balances.

Bella’s Beauty Salon
Post­Closing Trial Balance
12/31
Account Debit Credit

Cash $  4,200
Prepaid insurance 240
Rental fees receivable 200
Shop supplies 210
Shop equipment 3,860
Accumulated depreciation:  shop equipment  $  1,120
Building 57,500
Accumulated depreciation: building 6,060
Land 55,000
Unearned rent 800
Income tax payable 1,800
Interest payable           1,000
Wages payable 200
Long­term notes payable 50,000
Common stock 25,000
Retained earnings 35,230
_______ _______
                         Totals $121,210  $121,210

13
A100 Chapter 7 
A100 Chapter 7 – Closing Entries
Hillcrest Campgrounds, Inc. rents out campsites in a wooded park. The adjusted trial balance for Hillcrest
Campgrounds on March 31, 20X2 the end of the fiscal year, follows:
Hillcrest Campgrounds
Adjusted Trial Balance
March 31, 20X2
Debit Credit
Cash $ 2,040
Accounts Receivable 3,660
Supplies 114
Prepaid Insurance 594
Land 15,000
Building 45,900
Accumulated Depreciation, Building $ 10,500
Accounts Payable 1,725
Income Tax Payable 3,500
Wages Payable 825
Common Stock 30,000
Retained earnings, 4/1/X1 16,535
Dividends 18,000
Campsite Rental Revenue 44,100
Wages Expense 11,925
Income Tax Expense 3,500
Insurance Expense 1,892
Utilities Expense 900
Supplies Expense 660
Depreciation Expense: Buildings 3,000
Totals $107,185 $107,185
Required:
Prepare the closing entries for Hillcrest Campgrounds.
Account Debit Credit

14
Steps 4, 5 and 6: Bella’s Beauty Salon
Worksheet 
December 31

Adjustments Adjusted Trial Balance Income Statement Balance Sheet

Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash $  4,200 $  4,200
Rental fees receivable (e     200 200 200
Prepaid insurance $1,240 a 240 240
Shop supplies 780 b 210 210
Shop equipment 3,860 3,860
Accumulated depreciation­ $    770 350 c $ 1,120 $ 1,120
shop equipment
Building 57,500 57,500
Accumulated depreciation­ 3,840 2,220 d 6,060 6,060
building
Land 55,000 55,000
Unearned rent 1,600 (f      800 800 800
Wages payable 200 g 200 200
Interest payable 1,000 h 1,000 1,000
Income tax payable 1,800 i 1,800 1,800
Long­term notes payable 50,000 50,000 50,000
Common stock 25,000 25,000 25,000
Retained earnings 24,860 24,860 24,860
Rental fee revenue 2,400 200 e  3,400 3,400
800  f
Service fee revenue 23,400 23,400 23,400
Wages expense (g     200 3,400 3,400
Utilities expense 690 690
Advertising expense 600 600
Property tax expense 4,350 4,350
Insurance expense (a  1,240 1,240 1,240
Shop supplies expense (b     780 780 780
Depreciation exp: shop equip (c     350 350 350
Depreciation exp: building (d  2,220 2,220 2,220
Income tax expense (i  1,800 1,800 1,800
Interest expense (h  1,000 1,000    1,000
Sub­Total 16,430 26,800 121,210 110,840

15
A100 Chapter 7 
Net income (loss) 10,370 10,370
Total $131,870 $ 8,590  $8,590   $137,640 $137,640 $26,800 $26,800 $121,210 $121,210
Intentionally left blank.

16
A100 Chapter 7