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Completing The Accounting Cycle
Completing The Accounting Cycle
Completing The Accounting Cycle
Completing the
Accounting Cycle
Accounting, 21st Edition
Warren Reeve Fess
√ Accounts payable
√ Wages payable
√ Interest payable
√ Unearned fees
Liabilities
Liabilities not
not due
due for
for
more
more than
than aa year
year usually
usually
are
are long-term
long-term liabilities.
liabilities.
Mortgage note
payable
Mortgage payable
Bond payable
The
The work
work sheet
sheet isis aa useful
useful
device
device forfor understanding
understanding the the
flow
flow of
of accounting
accounting datadata from
from
the
the unadjusted
unadjusted trial
trial balance
balance toto
the
the financial
financial statements.
statements.
The Work Sheet
Prepared
Prepared from
from thethe general
general ledger.
ledger.
Accounts
Accounts are
are listed
listed in
in the
the following
following
order:
order: assets,
assets, liabilities,
liabilities, owner’s
owner’s
equity,
equity, revenues,
revenues, andand expenses.
expenses.
The Work Sheet
Adjustments
Adjustments are are entered
entered here.
here.
Two
Two possibilities:
possibilities:
1.
1. Deferrals
Deferrals –– Existing
Existing balances
balances are
are
changed.
changed.
2.
2. Accruals
Accruals –– New
New information
information isis
entered.
entered.
The Work Sheet
Adjustments
Adjustments are are combined
combined with
with
the
the trial
trial balance.
balance. Account
Account
balances
balances areare now
now adjusted.
adjusted.
NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Adjusted
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220
3 Supplies 2,000
4 Prepaid Insurance 2,400
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360 The
The Unadjusted
Unadjusted
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000 Trial
Trial Balance
Balance
11 Fees Earned 16,340
12 Wages Expense 4,275
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800
16 Miscellaneous Expense 455
17 42,600 42,600
18
19
20
21
22
(a)
(a) The
The Supplies
Supplies account
account has
has aa debit
debit ofof
$2,000.
$2,000. A A count
count of
of supplies
supplies atat the
the end
end of
of
the
the period
period reveals
reveals that
that $760
$760 isis on
on hand.
hand.
Therefore,
Therefore, $1,240
$1,240 inin supplies
supplies was
was used
used
during
during the
the two-month
two-month period.
period.
NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Adjusted
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220
3 Supplies 2,000 (a) 1,240
4 Prepaid Insurance 2,400
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,340
12 Wages Expense 4,275
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800 (a) 1,240
16 Miscellaneous Expense 455
17 42,600 42,600
18
19
20
21
22
(b)
(b)The
The Prepaid
Prepaid Insurance
Insurance account
account has has aa
debit
debit balance
balance ofof $2,400,
$2,400, which
which
represents
represents prepayment
prepayment ofof insurance
insurance forfor
24
24 months
months beginning
beginning December
December 1. 1.
Thus,
Thus, the
the insurance
insurance expense
expense for
for this
this
month
month isis $100
$100 ($2,400
($2,400 ÷÷ 24).
24).
NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Adjusted
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220
3 Supplies 2,000 (a) 1,240
4 Prepaid Insurance 2,400 (b) 100
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,340
12 Wages Expense 4,275
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800 (a) 1,240
16 Miscellaneous Expense 455
17 42,600 42,600
18 Insurance Expense (b) 100
19
20
21
22
Accounts are added as needed.
(c)
(c) The
The Unearned
Unearned RentRent account
account hashas aa credit
credit
balance
balance of
of $360,
$360, which
which represents
represents the the
receipt
receipt of
of three-months’
three-months’ rent
rent beginning
beginning
with
with December
December 1. 1. Thus,
Thus, the
the rent
rent revenue
revenue
for
for December
December isis $120.
$120.
FOR
REN
T
NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Adjusted
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220
3 Supplies 2,000 (a) 1,240
4 Prepaid Insurance 2,400 (b) 100
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360 (c) 120
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,340
12 Wages Expense 4,275
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800 (a) 1,240
16 Miscellaneous Expense 455
17 42,600 42,600
18 Insurance Expense (b) 100
19 Rent Revenue (c) 120
20
21
22
(d)
(d) Wages
Wages accrued
accrued but
but not
not paid
paid at
at
the
the end
end of
of December
December total
total $250.
$250.
NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Adjusted
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220
3 Supplies 2,000 (a) 1,240
4 Prepaid Insurance 2,400 (b) 100
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360 (c) 120
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,340
12 Wages Expense 4,275 (d) 250
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800 (a) 1,240
16 Miscellaneous Expense 455
17 42,600 42,600
18 Insurance Expense (b) 100
19 Rent Revenue (c) 120
20 Wages Payable (d) 250
21
22
(e)
(e) Fees
Fees accrued
accrued at
at the
the end
end of
of
December,
December, butbut not
not recorded,
recorded,
total
total $500.
$500.
NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Adjusted
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220 (e) 500
3 Supplies 2,000 (a) 1,240
4 Prepaid Insurance 2,400 (b) 100
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360 (c) 120
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,340 (e) 500
12 Wages Expense 4,275 (d) 250
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800 (a) 1,240
16 Miscellaneous Expense 455
17 42,600 42,600
18 Insurance Expense (b) 100
19 Rent Revenue (c) 120
20 Wages Payable (d) 250
21
22
(f)
(f) Depreciation
Depreciation ofof the
the office
office
equipment
equipment isis $50
$50 for
for December.
December.
NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Adjusted
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220 (e) 500
3 Supplies 2,000 (a) 1,240
4 Prepaid Insurance 2,400 (b) 100
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360 (c) 120
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,340 (e) 500
12 Wages Expense 4,275 (d) 250
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800 (a) 1,240
16 Miscellaneous Expense 455
17 42,600 42,600
18 Insurance Expense (b) 100
19 Rent Revenue (c) 120
20 Wages Payable (d) 250
21 Depreciation Expense (f) 50
22 Accum. Depreciation (f) 50
NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Adjusted
To
Trial Balance
To make
make more
Adjustments
more Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065 space,
space, let’s
let’s remove
remove
2 Accounts Receivable 2,220 (e) 500
3 Supplies 2,000 the
the heading.
heading. (a) 1,240
4 Prepaid Insurance 2,400 (b) 100
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360 (c) 120
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,340 (e) 500
12 Wages Expense 4,275 (d) 250
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800 (a) 1,240
16 Miscellaneous Expense 455
17 42,600 42,600
18 Insurance Expense (b) 100
19 Rent Revenue (c) 120
20 Wages Payable (d) 250
21 Depreciation Expense (f) 50
22 Accum. Depreciation (f) 50
Adjusted 31
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220 (e) 500
3 Supplies 2,000 (a) 1,240
4 Prepaid Insurance 2,400 (b) 100
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360 (c) 120
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,340 (e) 500
12 Wages Expense 4,275 (d) 250
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800 (a) 1,240
16 Miscellaneous Expense 455
17 42,600 42,600
18 Insurance Expense (b) 100
19 Rent Revenue (c) 120
20 Wages Payable (d) 250
Depreciation Expense (f) 50
21
Accum. Depreciation
Summed
Summed (f) 50
22
23 and
and 2,260 2,260
24
25
ruled
ruled
Next,
Next, the
the unadjusted
unadjusted Trial
Trial
Balance
Balance columns
columns andand the
the
Adjustments
Adjustments columns
columns areare
combined
combined to to determine
determine thethe
amounts
amounts displayed
displayed inin the
the
Adjusted
Adjusted Trial
Trial Balance.
Balance.
Adjusted 33
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220 (e) 500
3 Supplies 2,000 (a) 1,240
4 Prepaid Insurance 2,400 (b) 100
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360 (c) 120
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,340 (e) 500
12 Wages Expense 4,275 (d) 250
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800 (a) 1,240
16 Miscellaneous Expense 455
17 42,600 42,600
18 Insurance Expense (b) 100
19 Rent Revenue (c) 120
20 Wages Payable (d) 250
21 Depreciation Expense (f) 50
22 Accum. Depreciation (f) 50
23 2,260 2,260
24
25
Adjusted 34
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065 2,065
2 Accounts Receivable 2,220 (e) 500 2,720
3 Supplies 2,000 (a) 1,240 760
4 Prepaid Insurance 2,400 (b) 100 2,300
5 Land 20,000 20,000
6 Office Equipment 1,800 1,800
7 Accounts Payable 900 900
8 Unearned Rent 360 (c) 120 240
9 Chris Clark, Capital 25,000 25,000
10 Chris Clark, Drawing 4,000 4,000
11 Fees Earned 16,340 (e) 500 16,840
12 Wages Expense 4,275 (d) 250 4,525
13 Rent Expense 1,600 1,600
14 Utilities Expense 985 985
15 Supplies Expense 800 (a) 1,240 2,040
16 Miscellaneous Expense 455 455
17 42,600 42,600
18 Insurance Expense (b) 100 100
19 Rent Revenue (c) 120 120
20 Wages Payable (d) 250 250
21 Depreciation Expense (f) 50 50
22 Accum. Depreciation (f) 50 50
23 2,260 2,260 43,400 43,400
24
25
The Work Sheet
Revenue
Revenue and
and expense
expense balances
balances in
in
the
the Adjusted
Adjusted Trial
Trial Balance
Balance column
column
are
are extended
extended to
to the
the Income
Income
Statement
Statement column.
column.
The Work Sheet
Asset,
Asset, liability,
liability, owner’s
owner’s equity,
equity, and
and
drawing
drawing balances
balances in
in the
the Adjusted
Adjusted
Trial
Trial Balance
Balance column
column areare extended
extended
to
to the
the Balance
Balance Sheet
Sheet column.
column.
To
To make
make room
room on
on the
the slides
slides for
for
the
the Income
Income statement
statement andand
Balance
Balance Sheet
Sheet columns,
columns, thethe
Trial
Trial Balance
Balance and
and Adjustments
Adjustments
columns
columns havehave been
been removed.
removed.
Adjusted
Trial Balance Income Statement Balance Sheet
38
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,720
3 Supplies 760
4 Prepaid Insurance 2,300
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 240
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,840
12 Wages Expense 4,525
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 2,040
16 Miscellaneous Expense 455
17
18 Insurance Expense 100
19 Rent Revenue 120
20 Wages Payable 250
21 Depreciation Expense 50
22 Accum. Depreciation 50
23 43,400 43,400
24
25
Now,
Now, let’s
let’s extend
extend the
the balances
balances
from
fromthe
the Adjusted
Adjusted Trial
Trial
Balance
Balance column.
column.
Adjusted 40
Trial Balance Income Statement Balance Sheet
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065 2,065
2 Accounts Receivable 2,720 2,720
3 Supplies 760 760
4 Prepaid Insurance 2,300 2,300
5 Land 20,000 20,000
6 Office Equipment 1,800 1,800
7 Accounts Payable 900 900
8 Unearned Rent 240 240
9 Chris Clark, Capital 25,000 25,000
10 Chris Clark, Drawing 4,000 4,000
11 Fees Earned 16,840 16,840
12 Wages Expense 4,525 4,525
13 Rent Expense 1,600 1,600
14 Utilities Expense 985 985
15 Supplies Expense 2,040 2,040
16 Miscellaneous Expense 455 455
17
18 Insurance Expense 100 100
19 Rent Revenue 120 120
20 Wages Payable 250 250
21 Depreciation Expense 50 50
22 Accum. Depreciation 50 50
23 43,400 43,400
24
25
These
These four
four
columns
columns are
are
summed.
summed.
Adjusted 42
Trial Balance Income Statement Balance Sheet
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065 2,065
2 Accounts Receivable 2,720 2,720
3 Supplies 760 760
4 Prepaid Insurance 2,300 2,300
5 Land 20,000 20,000
6 Office Equipment 1,800 1,800
7 Accounts Payable 900 900
8 Unearned Rent 240 240
9 Chris Clark, Capital 25,000 25,000
10 Chris Clark, Drawing 4,000 4,000
11 Fees Earned 16,840 16,840
12 Wages Expense 4,525 4,525
13 Rent Expense 1,600 1,600
14 Utilities Expense 985 985
15 Supplies Expense 2,040 2,040
16 Miscellaneous Expense 455 455
17
18 Insurance Expense 100 100
19 Rent Revenue 120 120
20 Wages Payable 250 250
21 Depreciation Expense 50 50
22 Accum. Depreciation 50 50
23 43,400 43,400 9,755 16,960 33,645 26,440
24
25
The
The difference
difference between
between the
the
Income
Income Statement
Statement column
column
totals
totals isis the
the net
net income
income (or
(or net
net
loss)
loss) for
for the
the period.
period.
The
The difference
difference between
between the
the
Balance
Balance Sheet
Sheet column
column totals
totals
isis also
also the
the income
income (or(or net
net
loss)
loss) for
for the
the period.
period.
Income Statement Balance Sheet
OWNER’S CAPITAL
4
Drawings are transferred to
Owner’s Capital
Adjusting
Adjusting and
and Closing
Closing Entries
Entries
Income Summary
Expenses are Revenues are
2 transferred to
Income Summary 1 transferred to
Income Summary
3
The
Net Income
The IncomeorSummary
Income Net Loss is
Summary
account does
does not
transferred
account appear
to Owner’s
not on
appearCapital
on
the
the financial
financial statements.
statements.
OWNER’S CAPITAL
4
Drawings are transferred to
Owner’s Capital
The
The Closing
Closing Process
Process
Wages Expense Fees Earned
Current
Ratio = $7,845 ÷ $1,390
Current
= 5.6
Ratio
Financial
Financial Analysis
Analysis for
for
NetSolutions
NetSolutions
This
This ratio
ratio implies
implies that
that
NetSolutions
NetSolutions isis able
able to
to pay
pay
its
its current
current liabilities.
liabilities.
Financial
Financial Analysis
Analysis for
for
NetSolutions
NetSolutions
Current Current Current
ratio = Assets ÷ Liabilities
Current
= $7,845 ÷ $1,390
ratio
Current
= 5.6
ratio
Financial
Financial Analysis
Analysis for
for
NetSolutions
NetSolutions
NetSolutions
NetSolutions can
can use
use the
the current
current ratio
ratio
to
to make
make comparisons
comparisons across
across
companies
companies and
and with
with industry
industry averages.
averages.
Chapter 4
The
The End
End