Financial Accounting: The Accounting Cycle: End of The Period

Financial Accounting Fifth Edition
The Accounting Cycle:

End of the Period
CHAPTER
3 Spiceland • Thomas • Herrmann
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 3-1
Last Class: Six Steps
!! Debit and credit don’t mean anything!
DEALOR
Debit, Credit : Dividends, expenses, assets
Credit, Debit : Liabilities, shareholders’ equity, revenue
Step 1 • Use source documents to identify accounts
affected by an external transaction.
Step 2 • Analyze the impact of the transaction on the
accounting equation.
Step 3 • Assess whether the transaction results in a debit
or credit to account balances.
Step 4 • Record the transaction in a journal using debits
and credits.
Step 5 • Post the transaction to the general ledger.
Step 6 • Prepare a trial balance.
Part A
ACCRUAL-BASIS ACCOUNTING
Learning Objective 1
LO3–1 Understand when revenues and expenses

are recorded.
Revenue and Expense Recognition
• Revenue recognition
 Revenue is recorded in the period in which goods and
services are provided to customers.
 Revenue recognition principle
• Expense recognition
 Any costs used to help generate revenues are
recorded as expenses in the same period as those
revenues.
 Matching expenses with the revenues they help to
generate allows net income to provide a more useful
measure of a company’s operating performance.
Key Point
The revenue recognition principle states that we
record revenue in the period in which we
provide goods and services to customers, NOT
necessarily in the period in which we receive
cash.
As long as we provide the services, other payment will also be recorded
Expense Recognition
Its not the expense in

mar as the service is
not yet provided
e.g. if it lasts for 2 yrs

We record it at the last month of the period
Key Point
Most expenses are recorded in the same
period as the revenues they help to
generate. Other expenses indirectly related
to producing revenues are recorded in the
period they occur.
e.g. the rent of warehouse, marketing cost
Record period by period
Concept Check 3–1
Which statement best describes when
expenses should be recorded?
a. Expenses are recorded when paid.
b. Expenses are recorded the day a company
promises to pay.
c. Expenses are recorded when the cost is
used to help produce revenue.
d. None of the above
Any costs used to help generate revenues are recorded as expenses in the
same period as those revenues.
LO3–2 Distinguish between accrual-basis and

cash-basis accounting.
Accrual-Basis Compared with Cash-
Basis Accounting No matter when we provide good
Point of
Difference
Accrual-Basis Cash-Basis
Revenue In the period goods and At the time we
Recognition services are provided to receive cash
customers
Expense In the period costs are At the time we
Recognition presumed to have been pay cash
used in operations
GAAP Part of GAAP Not part of
GAAP
Illustration 3–2
Accrual-Basis Revenue
versus Cash-Basis Revenue
Service Revenue Cash Revenue
Transaction Description Provided Recorded Received Recorded
(6) Dec. 12 Provide soccer training P $4,300 P $4,300
to customers for cash,
$4,300.
(7) Dec. 17 Provide soccer training P $2,000 x $0

to customers on account, Defer revenue
$2,000. until cash
received
(8) Dec. 23 Receive cash in advance x P $600
$0 liabilities
for 12 soccer training Defer revenue
sessions to be given in until service
the future, $600. provided
Illustration 3–3 Cash to prepaid expense
The amount hasn’t been used
Accrual-Basis Expense So it is assets (like inventory)
You still have the right to use $
versus Cash-Basis Expense
Cost Expense Cash Expense
Transaction Description Used Recorded Paid Recorded
(4) Dec. 1 Pay one year of rent in x $0 P $6,000
advance, $6,000 Defer expense until
($500 per month). end of each month
($500/month)
Prepaid rent  assets
(5) Dec. 6 Purchase supplies on x $0 x $0
account, $2,300. Defer expense until Defer expense
supplies used until cash paid
(9) Dec. 28 Pay salaries to P $2,800 P $2,800

employees, $2,800.
At the end of the period – pay for their work in dec should record it
Key Point
The difference between accrual-basis accounting and
cash-basis accounting is timing. Under accrual-basis
accounting, we record revenues when we provide
goods and services to customers, and we record
expenses when costs are used in company
operations. Under cash-basis accounting, we record
revenues when we receive cash, and we record
expenses when we pay cash. Cash-basis accounting is
not allowed for financial reporting purposes for
most major companies.
D. It is recorded to be asset
Concept Check 3–2 but not expenses

more assets (equipment)
Which of the following would be recorded as an expense

under accrual-basis accounting?
a. The company purchases office supplies with cash and
does not use the supplies.
b. The company uses utilities in the current period but
does not pay cash.
c. The company provides services to customers for cash.
It is revenue!!!
d. The company purchases equipment by borrowing
from the bank. Capital investment
An accrual-basis expense is recorded when a cost is used to help produce
revenue. A company that uses utilities has incurred a cost that helped to
produce revenue in the current period and would therefore record
Utilities Expense under accrual-basis accounting.
Concept Check 3–3
Which of the following would be recorded as an expense
under cash-basis accounting?
a. The company purchases office supplies with cash and
does not use the Itsupplies.
doesn’t matter
b. The company uses utilities in the current period but
does not pay cash.
c. The company provides services to customers
revenue
for cash.
d. The company purchases equipment by borrowing
from the bank.
Investing activity but not operation(expenses)
A cash-basis expense is recorded when cash is paid for a cost of operating
the business. The company paid cash for supplies and would therefore
record Supplies Expense under cash-basis accounting.
Part B
THE MEASUREMENT PROCESS
LO3–3 Demonstrate the purposes and recording

of adjusting entries.
Illustration 3–3
The Accounting Cycle
Jan. 1 Dec.31
During the Year End of the Year

Record and post Record and post
external transactions adjusting entries Measurement
(Chapter 2) (Chapter 3, LO3–3, 3–4) Process
Prepare
financial statements Reporting
(Chapter 3, LO3–5) Process
Record and post

closing entries
Closing
(Chapter 3, LO3–6, 3–7) Process
Illustration 3–4
Types of Adjusting Entries
• Some transactions have occurred during the period but have not
been recorded by the end of the period
• Often include activities that occur daily
 For example: using supplies, earning interest, and rent expiring
• Four types:
Prepayments / Deferrals
assets Prepaid Expenses—Pay cash (or have an obligation to pay cash) to
purchase an asset in the current period that will be recorded as an
expense in a future period.
liabilities Deferred Revenues—Receive cash in the current period that will be
recorded as a revenue in a future period.
Accruals When goods/services are provided, it needs to be adjusted
Accrued Expenses—Record an expense in the current period that will be
paid in cash in a future period.
Accrued Revenues—Record a revenue in the current period that will be
collected in cash in a future period.
End of the period sin give money to them e.g. salary
Illustration 3–5
External Transactions
When you buy the equipment, and supplies, you use it later  prepaid expenses
Transaction Description
(1) Dec. 1 Sell shares of common stock for $25,000 to obtain the funds
necessary to start the business.
(2) Dec. 1 Borrow $10,000 from the local bank and sign a note
promising to repay the full amount of the debt in three years.
(3) Dec. 1 Purchase equipment necessary for giving soccer training,
$24,000 cash.
(4) Dec. 1 Pay one year of rent in advance, $6,000 ($500 per month).
(5) Dec. 6 Purchase supplies on account, $2,300.
(6) Dec. 12 Provide soccer training to customers for cash, $4,300.
(7) Dec. 17 Provide soccer training to customers on account, $2,000.
(8) Dec. 23 Receive cash in advance for 12 soccer training sessions to be
given in the future, $600.
Pay salaries to employees, $2,800.
(9) Dec. 28 Pay cash dividends of $200 to shareholders.
(10) Dec. 30
Prepaid Expenses
• Prepaid expenses are the costs of assets
acquired in one period that will be recorded as
an expense in a future period
• Costs are initially recorded as assets because
they provide future benefits
• We expense these costs in future periods as
the assets are used
• Adjusting entry: Debit an expense account and
credit an asset account
Prepaid Expense—Rent
• Purchased one year of rent in advance for $6,000 ($500 per month).
• By December 31, one month of rent has expired.
$6,000 $5,500
Cash paid for Remaining
prepaid rent prepaid rent
Dec. 1 Dec. 31
Adjusting
Prepaid rent expires entry
$500
December 31 Debit Credit

Rent Expense (+E, −SE) ………………………………… 500
Prepaid Rent (−A) ……………………………………. 500
(Reduce prepaid rent due to the passage of time)
Prepaid Expense—Supplies
• Purchased supplies for $2,300 on account on December 6.
• At the end of December a count of supplies reveals that only $1,300 of supplies
remains.
$2,300 $1,300
Purchase of supplies Remaining
on account supplies
Dec. 6 Dec. 31
Adjusting
Supplies used entry
$1,000

Supplies Expense (+E, −SE) ……………………… 1,000
Supplies (−A) ………………………………………. 1,000
(Consume supplies during the current period)
Prepaid Expense—Depreciable Assets
• Purchased equipment for $24,000 cash on December 1.
• By December 31, one month of the equipment’s use has expired.
$24,000 $23,600
Cash paid to Remaining equipment cost
purchase equipment to be allocated
Dec. 1 Dec. 31
Adjusting
Printing paper –supplies(expenses) Equipment cost entry
Computer, printer (use for many yrs) allocated $400
– depreciation expense

Depreciation Expense (+E, −SE) ………………………. 400
Accumulated Depreciation (−A) …………………
400
(Depreciation
We don creditexpense = $24,000 ÷ For
equipment 5 years = $400 per month )
60 months
Concept Check 3–4
Which of the following is recorded with an
adjusting entry associated with a prepaid
expense?
a. Credit an asset
b. Debit a liability
c. Credit an expense
d. Debit an asset
The adjusting entry involving a prepaid expense always involves a
debit to an expense and a credit to an asset or a contra account.
Illustration 3–6
Reporting Depreciation of Property
and Equipment
FEDERAL EXPRESS
Balance Sheet (partial)
($ in millions)
Property and Equipment, at Cost
Aircraft and related equipment $18,833
Package handling and ground support equipment 8,989
Information technology 5,396
Vehicles 6,961
Facilities and other 10,447
50,626
Less accumulated depreciation (24,645)
Net property and equipment $25,981
Minus how much hv u used
Concept Check 3–5
Which of the following is equivalent to the book
value of an asset(Net property and equipment )?
a. Cost of the asset plus the accumulated
depreciation
b. Cost of the asset less the accumulated
depreciation
c. The estimate of time that the asset will last
d. Cost of the asset divided by its useful life
The book value of the asset is the asset’s original cost less its
accumulated depreciation. Another common word that is
synonymous with book value is carrying value.
Deferred Revenues
• Deferred revenues occur when a company
receives cash in advance from customers
• Cash received is initially recorded as a liability
because there is an obligation to the customer
• Once the obligation is met, revenue can be
recorded
• Adjusting entry: Debit a liability account and
credit a revenue account
Deferred Revenues
• Company received $600 cash in advance from customers on
December 23.
• By December 31, $200 of services have been provided.
$600 $400
Cash received in Deferred
advance revenue remains
Dec. 23 Dec. 31
Adjusting
Services Provided entry
$200

Deferred Revenue (−L) …………………………………. 200
Service Revenue (+R, +SE) ………………………..
200
(Provide services to customers who paid in advance)
Illustration 3–7
Reporting Deferred Revenues and
Other Current Liabilities
LOWE’S COMPANIES, INC.
Balance Sheet (partial)
($ in millions)
Current liabilities: Short term

Short-term borrowings $ 510
Current maturities of long-term debt 795
Accounts payable 6,651
Accrued compensation 790
Deferred revenue (short term liability) 1,253
Other current liabilities 1,975
Total current liabilities $11,974
Accrued Expenses
• Accrued expenses are recorded when a
company has a cost that is used to help
produce revenue but hasn’t yet paid cash for
that cost
• Cost is recorded as an expense, and the
amount owed is recorded as a liability
• Adjusting entry: Debit an expense account and
credit a liability account
Accrued Expenses—Salaries
By December 31, $300 in salaries have been earned by employees
for the final three days of the month.
These salaries are not paid by December 31.
$300 $700
Salaries owed Cash paid for salaries
Dec. 28 Dec. 31 Jan. 4
Employees
Employees Adjusting
earn salaries earn additional
entry
salaries
$300
$400

Salaries Expense (+E, −SE) …………………………. 300
Salaries Payable (+L) ……………………………… 300
(Salaries incurred, but not paid, in the current period)
Concept Check 3–6
If a company pays an employee $100 per day for a
five-day work week that runs from Monday to
Friday, and December 31 is a Tuesday, what is the
amount of the salaries adjustment, assuming that
Friday is payday?
a. $500
b. $400 Since the employee worked two days in the last week of
December (Monday and Tuesday), the amount of the
c. $300 accrual should be for $200 (= $100 per day × 2 days). The
adjusting entry on December 31 would be:
d. $200 Salaries Expense 200
Salaries Payable 200
Worked for 2 days – $200
Accrued Expenses—Utilities
By December 31, utilities costs of $900 have been incurred but have
not been paid
$900 $900
Utilities owed Cash paid for utilities
Dec. 1 Dec. 31 Jan. 6
Utilities used
Adjusting
$900
entry

Utilities Expense (+E, −SE) …………………………. 900
Utilities Payable (+L) ……………………………… 900
(Utilities incurred, but not paid, in the current period)
Accrued Expenses—Interest
By December 31, one month of interest has been charged for
borrowing $10,000 at 12% interest (= $10,000 × 12% × 1/12)
$100 $1,200
Interest owed Cash paid for interest
Dec. 31 (one year later)
Dec. 1 Dec. 1
Interest incurred Additional

Adjusting
$100 Interest incurred
entry
$1,100

Interest Expense (+E, −SE) …………………………. 100
Interest Payable (+L) ……………………………… 100
(Interest incurred, but not paid, in the current period)
Common Mistake
When recording the interest payable on a
borrowed amount, students sometimes
mistakenly credit the liability associated
with the principal amount (Notes Payable).
We record interest payable in a separate
account (Interest Payable) to keep the
balance owed for principal separate from
the balance owed for interest.
Concept Check 3–7
If a company borrowed $20,000 on November 1 at
the rate of 6% annually, how much interest expense
should be accrued at the year-end date of
December 31, assuming no accrual has yet been
made this year?
a. $1,200 The formula to calculate interest for November and
December (two months) is:
b. $200 Note Payable × Annual Interest Rate × Fraction of the Year
c. $600 $200 = $20,000 × 6% × 2/12
d. $400 The adjusting entry on December 31 would be:

Interest Expense 200
Interest Payable 200
Accrued Revenues
• When a company provides products or
services to customers but hasn’t yet received
cash, it records the revenue and an asset for
the amount expected to be received
• Adjust entry: Debit an asset account and
credit a revenue account
Accrued Revenues—Services
By December 31, services of $700 have been provided to customers
but have not yet been billed.
$700 $700
Receivable Cash received
from customers from customers
Dec. 28 Dec. 31 Jan. 8–14
Services provided
Adjusting
$700
entry

Accounts Receivable (+A) ………………………………. 700
Service Revenue (+R, +SE) …………………………. 700
(Bill customers for services provided during the current period)
Concept Check 3–8
An adjusting entry would be needed for which
of the following transactions?
a. Accrued salaries
b. Services provided but unbilled
c. Interest accrued on a loan payable
d. All of the above
All of the transactions listed would necessitate an adjusting entry.
Key Point
Adjusting entries are unnecessary for two
types of transactions:
1. Transactions that do not involve the
recognition of revenues or expenses
 Such as borrowing, repaying debt, issuing
common stock, and paying dividends
2. Transactions in which we receive cash at
the same time we record revenue or pay
cash at the same time we record an
expense
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 42
LO3–4 Post adjusting entries and prepare an

adjusted trial balance.
Illustration 3–10
Adjusted Trial Balance EAGLE SOCCER ACADEMY
Adjusted Trial Balance
December 31, 2021
• Lists all account Account

Cash
l Debit
$ 6,900
Credit
balances after Accounts Receivable

Supplies
2,700
1,300
Prepaid Rent 5,500
updating them for Equipment 24,000
Accumulated Depreciation $ 400
adjusting entries Accounts Payable
Deferred Revenue
2,300
400
• Prepared after Salaries Payable

Utilities Payable
300
900
posting the Notes Payable
Common Stock
10,000
25,000
adjusting entries to Retained Earnings

Dividends 200
0
Service Revenue 7,200

the general ledger Rent Expense
Supplies Expense
500
1,000
Depreciation Expense 400
Although debit = credit Salaries Expense 3,100
Doesn’t mean it is correct Utilities Expense 900
Total Total Interest Expense 100
Debits =
Credits Totals $46,600 $46,600
Part C
THE REPORTING PROCESS:
FINANCIAL STATEMENTS
LO3–5 Prepare financial statements using the adjusted

trial balance.
Illustration 3–11 (Partial)
Relationship between Adjusted Trial
Balance and Financial Statements
EAGLE SOCCER ACADEMY
Adjusted Trial Balance
December 31, 2021
Accounts Debit Credit

Cash $ 6,900
Accumulation depreciation Accounts Receivable 2,700
Supplies 1,300 BALANCE SHEET
– assest!!! Prepaid Rent 5,500
Equipment 24,000 Assets
Accounts Payable 2,300
=
Deferred Revenue 400 Liabilities
Salaries Payable 300 +
Utilities Payable 900 Stockholders’
Interest Payable 100 Equity
STATEMENT OF Notes Payable 10,000
STOCKHOLDERS’ Common Stock 25,000
Retained Earnings 0
EQUITY Dividends 200
Common Stock Service Revenue 7,200 INCOME
Rent Expense 500
+ Supplies Expense 1,000
STATEMENT
Retained Earnings Depreciation Expense 400 Revenues
(Beg. RE + NI – Div) Salaries Expense 3,100 −
= Utilities Expense 900 Expenses
Interest Expense 100 =
Stockholders’ Equity Totals $46,600 $46,600 Net Income
Illustration 3–12
Income Statement
Income Statement
For the period ended December 31, 2021
Revenues
Service revenue $7,200
Expenses
Rent expense 500
Supplies expense 1,000
Depreciation expense 400
Salaries expense 3,100
Utilities expense 900
Interest expense 100
Total expenses 6,000
Net income $1,200
Illustration 3–13
Statement of Stockholders’ Equity
Statement of Stockholders’ Equity
For the period ended December 31, 2021
Total
Common Retained Stockholders’
Stock Earnings Equity
Beginning balance (Dec. 1) $ -0- $ -0- $ -0-
Issuance of common stock 25,000 25,000
Add: Net income for the period 1,200 1,200
Less: Dividends (200) (200)
Ending balance (Dec. 31) $25,000 $ 1,000 $ 26,000
Illustration 3–14
Classified Balance Sheet
Balance Sheet
December 31, 2021
Assets Liabilities
Current assets: Current liabilities:
Cash $ 6,900 Accounts payable $ 2,300
Accounts receivable 2,700 Deferred revenue 400
Supplies 1,300 Salaries payable 300
Prepaid rent 5,500 Utilities payable 900
Total current assets 16,400 Interest payable 100
Total current liabilities 4,000
Long-term assets:
Equipment 24,000 Long-term liabilities:
Less: Accum. depr. (400) Notes payable 10,000
Total liabilities 14,000
Stockholders’ Equity
Common stock 25,000
Retained earnings 1,000
Total stockholders’
equity 26,000
Total liabilities and
Total assets $40,000 stockholders’ equity $40,000
Statement of Cash Flows
• Measures activities involving cash receipts
and cash payments
• Reflects a company’s operating, investing,
and financing activities
Concept Check 3–9
Which financial statement would include a
line for net income?
a. Income statement
b. Statement of stockholders’ equity
c. Balance sheet
d. Both a and b
Net income is the final result in the income statement. This
amount is also transferred from the income statement to the
statement of stockholders’ equity. So, the line item for net income
would appear in both the income statement and the statement of
stockholders’ equity.
Part D
THE CLOSING PROCESS
LO3–6 Demonstrate the purposes and recording of

closing entries.
Closing Entries
• To transfer the balances of all temporary
accounts to the balance of Retained Earnings
• To reduce the balances of these temporary
accounts to zero to prepare them for the next
period
Retained Earnings
Illustration 3–15 6,000

0
7,200
Before closing
Closing Entries 200

1,000 After closing

(a) Service Revenue.......................................................... 7,200
Retained Earnings................................................... 7,200
(Close revenues to retained earnings)
(b) Retained Earnings........................................................ 6,000
Rent Expense........................................................... 500
Supplies Expense..................................................... 1,000
Depreciation Expense.............................................. 400
Salaries Expense...................................................... 3,100
Utilities Expense...................................................... 900
Interest Expense...................................................... 100
(Close expenses to retained earnings)
(c) Retained Earnings......................................................... 200

Dividends................................................................. 200
(Close dividends to retained earnings)
Common Mistake
Students sometimes believe that closing
entries are meant to reduce the balance of
Retained Earnings to zero. Retained Earnings
is a permanent account, representing the
accumulation of all revenues, expenses, and
dividends over the life of the company.
Concept Check 3–10
Which account would NOT be closed during
the closing process?
a. Retained Earnings
b. Dividends
c. Interest Expense
d. Interest Revenue
Only temporary accounts are closed. Temporary accounts include

all revenues, expenses, and dividends. Balances of temporary
accounts are transferred to the balance of Retained Earnings,
which is a permanent account that is not closed.
LO3–7 Post closing entries and prepare a

post-closing trial balance.
Post-Closing Trial Balance
• Lists all account balances after updating for
closing entries
• Helps verify that closing entries were prepared
and posted correctly and that the accounts are
now ready for the next period’s transactions
Illustration 3–18
December 31, 2021
Accounts Debit Credit
Cash $ 6,900
Accounts Receivable 2,700
Supplies 1,300
Prepaid Rent 5,500
Equipment 24,000
Accounts Payable 2,300
Deferred Revenue 400
Salaries Payable 300
Utilities Payable 900
Notes Payable 10,000
Common Stock 25,000
Retained Earnings 1,000
Totals $40,400 $40,400
Concept Check 3–11
Which of the following accounts would you find on
a post-closing trial balance?
a. Dividends
b. Retained Earnings
c. Rent Expense
d. Service Revenue
The only one of these four accounts that would remain on a trial
balance after all of the revenues, expenses, and dividends were
closed would be Retained Earnings. Dividends, rent expense, and
service revenue would have been closed during the closing
process and therefore would not be on the post-closing trial
balance.
Summary
1. LO3–1 Understand when revenues and
expenses are recorded.
2. LO3–2 Distinguish between accrual-basis and
cash-basis accounting.
3. LO3–3 Demonstrate the purposes and
recording of adjusting entries.
4. LO3–4 Post adjusting entries and prepare an
adjusted trial balance.
Summary
1. LO3–5 Prepare financial statements using
the adjusted trial balance.
2. LO3–6 Demonstrate the purposes and
recording of closing entries.
3. LO3–7 Post closing entries and prepare a
post-closing trial balance.
End of Chapter 3

Financial Accounting: The Accounting Cycle: End of The Period

Uploaded by

Copyright:

Available Formats

You might also like

Financial Accounting: The Accounting Cycle: End of The Period

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Financial Accounting: The Accounting Cycle: End of The Period

Uploaded by

Copyright:

Available Formats

Financial Accounting Fifth Edition

The Accounting Cycle:

3 Spiceland • Thomas • Herrmann

Step 6 • Prepare a trial balance.

LO3–1 Understand when revenues and expenses

Its not the expense in

e.g. if it lasts for 2 yrs

LO3–2 Distinguish between accrual-basis and

(7) Dec. 17 Provide soccer training P $2,000 x $0

(9) Dec. 28 Pay salaries to P $2,800 P $2,800

Concept Check 3–2 but not expenses

Which of the following would be recorded as an expense

LO3–3 Demonstrate the purposes and recording

During the Year End of the Year

Record and post

December 31 Debit Credit

December 31 Debit Credit

December 31 Debit Credit

December 31 Debit Credit

Current liabilities: Short term

December 31 Debit Credit

Worked for 2 days – $200

December 31 Debit Credit

Interest incurred Additional

December 31 Debit Credit

d. $400 The adjusting entry on December 31 would be:

December 31 Debit Credit

All of the transactions listed would necessitate an adjusting entry.

LO3–4 Post adjusting entries and prepare an

• Lists all account Account

balances after Accounts Receivable

• Prepared after Salaries Payable

adjusting entries to Retained Earnings

Service Revenue 7,200

LO3–5 Prepare financial statements using the adjusted

Accounts Debit Credit

Net income $1,200

LO3–6 Demonstrate the purposes and recording of

Illustration 3–15 6,000

Closing Entries 200

December 31 Debit Credit

(c) Retained Earnings......................................................... 200

Only temporary accounts are closed. Temporary accounts include

LO3–7 Post closing entries and prepare a

You might also like