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ILLUSTRATION 4-33
Required steps in the
accounting cycle
THE ACCOUNTING CYCLE
1. ANALYZE BUSINESS TRANSACTIONS

Equation
Analysis
Assets = Liabilities + Stockholders’ Equity
Prepd. Equip- Notes Accounts Unearned Common Retained Earnings
Cash + Supplies + Insur. + ment = Pay. + Payable + Serv. Rev. + Stock + Rev. − Exp. − Div.
$19,700 $600 $5,000 $5,000 $1,200 $10,000 $10,000 $900
(8) +$2,500 +$2,500
$19,700 + $2,500 + $600 + $5,000 = $5,000 + $2,500 + $1,200 + $10,000 + $10,000 − $900

$27,800 $27,800

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9. PREPARE A POST-CLOSING TRIAL BALANCE 2. JOURNALIZE THE TRANSACTIONS

SIERRA CORPORATION GENERAL JOURNAL

Post-Closing Trial Balance Date Account Titles and Explanation Debit Credit
October 31, 2017
2017
Debit Credit Oct. 1 Cash 10,000
Cash $15,200 Common Stock 10,000
Supplies 2,500 (Issued
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Prepaid Insurance 600 1 Cash 5,000
Equipment 5,000 Notes Payable 5,000
Notes Payable $ 5,000 (Issued 3-month, 12% note payable for cash)
Accounts Payable 2,500
Unearned Service Revenue 1,200 2 Equipment 5,000
Common Stock 10,000 Cash 5,000
Retained Earnings 0 (Purchased equipment for cash)

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8. JOURNALIZE AND POST CLOSING ENTRIES 3. POST TO THE LEDGER ACCOUNTS

GENERAL JOURNAL
GENERAL LEDGER
Date Account Titles and Explanation Debit Credit
Cash Unearned Service Revenue
Closing Entries
Oct. 1 10,000 Oct. 2 5,000 Oct. 2 1,200
2017 (1) 1 5,000 3 900
Oct. 31 Service Revenue 10,600 Bal. 1,200
2 1,200 4 600
Income Summary 10,600 3 10,000 20 500
(To close revenue account) 26 4,000
(2)
31 Income Summary 7,740 Bal. 15,200
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/202/WB01539/9781118552551/ch04/text_s 5,200 Supplies Common Stock
Supplies Expense 1,500
Rent Expense 900 Oct. 5 2,500 Oct. 1 10,000
Insurance Expense 50 Bal. 2,500 Bal. 10,000
Interest Expense 50

7. PREPARE FINANCIAL STATEMENTS

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4. PREPARE A TRIAL BALANCE
SIERRA CORPORATION SIERRA CORPORATION
Income Statement c04AccrualAccountingConcepts.indd Page 168 01/06/15 4:29 PM f-0161 Trial Balance /DATA-2/lalit%20don't%20del/WB01539:202
For the Month Ended October 31, 2017 October 31, 2017
Revenues Debit Credit
Service revenue SIERRA CORPORATION$10,600
Cash $15,200
Retained Earnings Statement
For the Month Ended October 31, 2017 Supplies 2,500
Prepaid Insurance 600
Equipment 5,000
SIERRA CORPORATION Notes Payable $ 5,000
Balance Sheet Accounts Payable 2,500
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Unearned Service Revenue
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Common Stock 10,000

Assets
Retained Earnings 0
Cash $15,200 Dividends 500
Accounts receivable 200
Service Revenue 10,000
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6. PREPARE AN ADJUSTED TRIAL BALANCE 5. JOURNALIZE AND POST ADJUSTING

SIERRA CORPORATION
ENTRIES: DEFERRALS/ACCRUALS
Adjusted Trial Balance
October 31, 2017
GENERAL JOURNAL
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Debit Credit
Date Account Titles and Explanation Debit Credit
Cash $ 15,200
2017 Adjusting Entries
Accounts Receivable 200
Supplies 1,000 Oct. 31 Supplies Expense 1,500
Supplies 1,500
Prepaid Insurance 550
(To record supplies used)
Equipment 5,000
31 Insurance Expense GENERAL
50 LEDGER ,
Accumulated Depreciation—Equipment $ 40
Prepaid Insurance Supplies 50 Supplies Expense
Notes Payable 5,000 (To record insuranceOct.
expired)
5 2,500 Oct. 31 1,500 Oct. 31 1,500
Accounts Payable 2,500
31 Depreciation Expense 40
Interest Payable 50 Oct. 31 Bal. 1,000
Accumulated Depreciation—Equipment
Oct. 31 Bal. 1,500
40
Unearned Service Revenue 800 Prepaid Insurance Rent Expense
(To record monthly depreciation)
Salaries and Wages Payable 1,200 Oct. 4 600 Oct. 31 50 Oct. 3 900

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