Accounting: Tools for Business

Decision Making
Eighth Edition

Kimmel ● Weygandt ● Mitchell

Chapter 4

Accrual Accounting Concepts

Prepared by
Diane Tanner
University of North Florida
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Chapter Outline
Learning Objectives
LO 1 Explain the accrual basis of accounting and the
reasons for adjusting entries.
LO 2 Prepare adjusting entries for deferrals.
LO 3 Prepare adjusting entries for accruals.
LO 4 Prepare an adjusted trial balance and closing
entries.
Learning Objective 1
Explain the Accrual Basis of Accounting
and the Reasons for Adjusting Entries

LO 1
Accrual-Basis Accounting and
Adjusting Entries
Periodicity Assumption
• Accounting divides the
economic life of a
business into artificial
time periods.
o Generally a month, a
quarter, or a year
• Fiscal year is an
accounting period one
year in length

LO 1
The Revenue Recognition Principle
• Requires that companies
recognize revenue in the
accounting period in
which the performance
obligation is satisfied
• Performance obligation is
satisfied by performing a
service or providing a
good to a customer

LO 1
Recognizing Revenue
Conrad Window Cleaners performs cleaning services
for $100 on June 30, but customers do not pay until
July 5.
Entry to record the performance
Accounts Receivable 100
Service Revenue 100
Entry to record the collection
Cash 100
Accounts Receivable 100

LO 1
Five-Step Revenue Recognition
Process

LO 1
Knowledge Check: Revenue Recognition
Determine when to recognize revenue for each of the following transactions
assuming the companies make monthly adjusting entries.
1. CBS sells advance payment advertising services on End of June
May 1 for services to be provided during June. adjusting entry
2. PetTown sells specialty cat food on June 29. The When delivered on
cat food is delivered on July 3. July 3
3. Ace Airlines receives payment on May 1 for a flight On the flight date,
scheduled for July 16. July 16
4. Dell receives an order for a computer on March 1. On the delivery
The computer was delivered on March 18. date, March 18

5. Microsoft sells a 1-year subscription to Excel At the end of each

starting June 1. Payment for the subscription is month beginning
received on June 1. with June 30

LO 1
The Expense Recognition Principle
In recognizing expenses, a simple rule is:
“Let the expenses follow the revenues.”
• Requires that companies recognize expenses in
the period when they make efforts (consume
assets or incur liabilities) to generate revenue
• Tied to revenue recognition
• Sometimes referred to as matching
• Critical issue in expense recognition
o Is determining when the expense makes its
contribution to revenue
o May not be the same period the expense is paid

LO 1
GAAP Relationships in Revenue and
Expense Recognition

LO 1
Knowledge Check: Expense
Recognition
Identify each of the following statements as true or false.
1. The expense recognition principle requires that
companies recognize expenses in the period in which they
pay for the expenses. False
2. The critical issue in expense recognition is determining
when the expense makes its contribution to revenue. True
3. In recognizing expenses, a simple rule is followed, “Let the
revenue follow the expenses”. False

LO 1
Investor Insight: Apple Inc.
Reporting Revenue Accurately
At one time, Apple was required to spread the revenues
from iPhone sales over the two-year period following the
sale of the phone. Accounting standards required this
because Apple was obligated to provide software updates
after the phone was sold. Since Apple had service
obligations after the initial date of sale, it was forced to
spread the revenue over a two-year period.
As a result, the rapid growth of iPhone sales was not
fully reflected in the revenue amounts reported in Apple’s
income statement. A change in an accounting standard
now enables Apple to report much more of its iPhone
revenue at the point of sale. It was estimated that under
the new rule revenues would have been about 17%
higher and earnings per share almost 50% higher.

LO 1
Accrual versus Cash Basis of
Accounting
• Two bases of accounting
o Accrual basis
• Is required by generally accepted accounting principles
o Cash basis
• Not in accordance with GAAP
• Produces misleading financial statements
• Differ due to the timing of when revenues and
expenses are recognized

LO 1
Accrual Basis of Accounting
• Implies that transactions that change a
company's financial statements are
recorded in the periods in which the events
occur, even if cash is not exchanged
• Requires that companies:
o Follow the revenue recognition principle
• Recognize revenues when they satisfy the
performance obligation even if cash was not
received
o Follow the expense recognition principle
• Recognize expenses when incurred even if
cash was not paid
LO 1
Cash Basis Accounting
• Occurs when companies
o Record revenue at the time they receive cash
o Record expenses at the time they pay out cash
• Not in accordance with generally accepted accounting
principles (GAAP)
• Fails to record revenue for a company that has
performed services but has not yet received payment

LO 1
Accrual versus Cash Accounting Example

Fresh Colors paints a large building in 2024 and incurs and pays
total expenses (salaries and paint costs) of $50,000. It bills the
customer $80,000 in 2024 and receives payment in 2025.

LO 1
Knowledge Check: Accrual and Cash
Basis
Indicate which statements pertain to the accrual-basis of
accounting and which pertain to the cash-basis of accounting.
1. Transactions that change a company’s
financial statements are recorded in the Accrual-basis
periods in which the events occur.
2. Companies recognize expenses when paid. Cash-basis
3. Often produces misleading financial
statements Cash-basis

4. Companies recognize revenues when they

Accrual-basis
perform the services.

LO 1
The Need for Adjusting Entries
Adjusting entries
• Ensure that the revenue recognition and
expense recognition principles are followed
• Are necessary because the trial balance may
not contain up-to-date and complete data
due to:
1. Events that occur daily but recording daily is
inefficient
2. Events that expire with the passage of time
3. Events that have occurred that are
unrecorded due to unreceived documents

LO 1
Adjusting Entries
• Are required every time a company prepares
financial statements
• Are classified as either deferrals or accruals
• Contain one income statement account and one
balance sheet account
• Are based on an analysis of each account in the trial
balance to determine if the account is complete and
up-to-date for financial statement purposes

LO 1
Knowledge Check: Need for Adjusting
Entries
Identify if each statement is true or false.
1. Adjusting entries are required every time a
True
company prepares financial statements.
2. Every adjusting entry will include either
False
income statement accounts or balance sheet
accounts.
3. Adjusting entries ensure that the revenue True
recognition and expense recognition
principles are followed.

LO 1
Types of Adjusting Entries
Adjusting entries are classified as either deferrals or accruals
and each class has two subcategories.
Deferrals Accruals
Prepaid expenses Accrued revenues
• Expenses paid in cash and • Revenues for services
recorded as assets before performed but not yet
they are used or consumed received in cash or recorded
Unearned revenues Accrued expenses
• Cash received and recorded • Expenses incurred but not
as liabilities before revenue yet paid in cash or recorded
is earned

LO 1
Knowledge Check: Adjusting Entry
Types
Indicate the type of adjusting entry for each of the
following.
1. Interest of $200 has been incurred and unpaid on a
note payable. Accrued expense
2. Rent collected in advance totaling $1,100 has not
been earned. Unearned revenue
3. Supplies of $400 are on hand. Supplies account
shows $1,600 balance. Prepaid expense
4. Services performed but unbilled total $700.
Accrued revenue

LO 1
Knowledge Check: Timing Concepts

Identify the name of each of the four concepts being described.

Accountants divide the economic life of a business into

artificial time periods. Periodicity assumption
An accounting time period that starts on January 1 and
ends on December 31. Calendar year
An accounting period that is one year long. Fiscal year
Companies record transactions in the period in which the
events occur. Accrual-basis accounting

LO 1
Learning Objective 2
Prepare adjusting entries for deferrals.

LO 2
Adjusting Entries for Deferrals
Deferrals are costs or revenues that are recognized at a date
later than the point when cash was originally exchanged.
• Require adjusting entries
o To recognize the portion of the expense that was incurred
during the period
o To recognize service revenue performed during the period
• Two types of deferrals
o Prepaid expenses
o Unearned revenues

LO 2
Prepaid Expenses
• Are expenses paid in cash and
recorded as assets before they are
used or consumed
• Often called prepayments
• Relate to payments that will benefit
more than one accounting period
• Expire with the passage of time or
through use and consumption
• Have an asset-expense account
relationship
LO 2
Adjusting Entries for Prepaid Expenses

• Prior to adjustment, assets are overstated and

expenses are understated
• Adjusting entry transfers a portion of the asset to an
expense

LO 2
Prepaid Expenses: Supplies

• Must count remaining supplies at the end of the

accounting period
o Difference between unadjusted balance in the Supplies
(asset) account and the actual cost of supplies on hand
represents supplies used (an expense)
LO 2
Adjusting Entries for Prepaid
Expenses: Supplies
Insert new animation video (This video is just a
sample idea. Storyboard will need to be created)
• https://www.youtube.com/watch?v=AzLyIAzxFQg

LO 2
Adjusting Entry for Supplies
Sierra Corporation purchased supplies costing $2,500 on
October 5 and recorded it by increasing the asset Supplies,
which the $2,500 balance at October 31. An October 31
physical count reveals that $1,000 of supplies are still on hand.

Cost of supplies used = $2,500 − $1,000 = $1,500

LO 2
Prepaid Expenses: Insurance

• Purchased to protect from losses due to fire, theft,

and unforeseen events
• Must be paid in advance, often for multiple months

LO 2
Adjusting Entry for Prepaid Insurance
On October 4, Sierra Corporation paid $600 for a one-year fire
insurance policy with coverage starting October 1, which was
recorded as an increase to Prepaid Insurance.

Monthly insurance expense = $600 ÷ 12 = $50 month

LO 2
Depreciation
• Is the process of allocating the cost of a long-lived
asset to expense over its useful life
• Follows the expense recognition principle
• Is an allocation concept, not a valuation concept

LO 2
Need for Adjustment
• Acquiring a long-term asset is a prepayment
for the use of an asset
o Recorded at historical cost
o Provides service over the useful life of the
asset (potential service period)
• Adjusting entry for depreciation is needed
o To recognize the cost that has been used
(expense)
o To report the unused cost (an asset)

LO 2
Accounting for Depreciation
• Depreciation
o Allocates an asset’s cost to the period in which it is used
o Does not attempt to report the actual change in the value
of the asset
• Recording depreciation
o Debit Depreciation Expense, and credit a contra asset
account, Accumulated Depreciation

LO 2
Adjusting Entry for Depreciation
Sierra Corporation purchased equipment on October 2 for
$5,000. Depreciation on the equipment is $480 a year, or
$40 per month.

LO 2
Statement Presentation: Equipment
and Depreciation
• Reported in the balance sheet at book value
o Accumulated depreciation is offset against the related long-lived
asset account
• Book value of the asset
o Difference between the cost of any depreciable asset and its
related accumulated depreciation
o Also called carrying value

LO 2
Summary of Accounting for Prepaid
Expenses

LO 2
Knowledge Check: Prepaid Expenses
Before adjusting for prepaid expenses, what is the effect of
assets and expenses?
a. Assets overstated; expenses overstated
b. Assets understated; expenses understated
c. Assets overstated; expenses understated
d. Assets understated; expenses overstated

LO 2
Knowledge Check: Prepaid Expenses
Answer
Before adjusting for prepaid expenses, what is the effect of
assets and expenses?
a. Assets overstated; expenses overstated
b. Assets understated; expenses understated
c. Answer: Assets overstated; expenses understated
d. Assets understated; expenses overstated

LO 2
Knowledge Check: Accounting for
Prepaid Expenses
Indicate if the account type shown is over or understated prior
to adjustment and what type of account is debited and credited
in the adjusting entry.

Overstated Expenses
Understated Assets

LO 2
Unearned Revenues

• Results when a company receives cash before services are

performed
• Represents a performance obligation to provide a service
• Subsequently decreases the liability and recognizes
revenues when it performs the service
LO 2
Accounting for Unearned Revenues
• Prior to adjustment, liabilities are overstated and
revenues are understated.
• Examples include rent, magazine subscriptions, gift
cards, and customer deposits for future services

LO 2
Adjusting Entry for Unearned
Revenues
Sierra Corporation received $1,200 on October 2 from R. Knox
for guide services to be completed by December 31. Sierra
credited the payment to Unearned Service Revenue. Sierra
performed $400 of the service during October.

LO 2
Summary of Accounting for
Unearned Revenues

LO 2
Accounting Across the Organization:
Best Buy
Turning Gift Cards into Revenue
Those of you who are marketing majors (and even most of you
who are not) know that gift cards are among the hottest
marketing tools in merchandising today. Customers purchase gift
cards and give them to someone for later use. In a recent year,
gift-card sales were expected to exceed $124 billion.
Although these programs are popular with marketing
executives, they create accounting questions. Should revenue be
recorded at the time the gift card is sold, or when it is exercised?
How should expired gift cards be accounted for? (It has been
estimated that $3.5 billion in gift cards expire unredeemed
annually.) In a recent balance sheet, Best Buy reported unearned
revenue related to gift cards of $427 million.
Sources: “2014 Gift Card Sales to top $124 Billion, But Growth
Slowing,”PRNewswire (December 10, 2014); and Suzanne Kapner, “Gift
Cards Are the Go-To Holiday Gifts in 2020,” Wall Street Journal (December
23, 2020).
LO 2
Knowledge Check: Unearned
Revenue
Indicate if each statement is true or false.
An asset-revenue account relationship False
exists with an unearned rent revenue
adjusting entry.
Unearned revenue is a prepayment True
that requires an adjusting entry when
services are performed.
Prior to the adjusting entry for False
unearned revenue, liabilities and
revenue are understated.

LO 2
Knowledge Check: Accounting for
Unearned Revenues
Indicate if the account type shown is over or understated
prior to adjustment and what type of account is debited and
credited in the adjusting entry.

Overstated Liabilities
Understated Revenue

LO 2
Learning Objective 3
Prepare adjusting entries for
accruals.

LO 3
Adjusting Entries for Accruals
Accruals are the second category of adjusting entries.
• Before adjusting entries for accruals are prepared
o A revenue and the related asset account are
understated, or
o An expense account and the related liability account
are understated
• Adjusting entry for accruals
o Will increase both a balance sheet and an income
statement account

LO 3
Accrued Revenues
• Are revenues for services performed but not yet recorded
at the statement date
• May accumulate with the passing of time or through
services performed but not billed or collected

LO 3
Accounting for Accrued Revenues
• Adjusting entry requires a debit to an asset account and a
credit to a revenue account
• Records the receivable that exists at the balance sheet date and
the revenue for the services performed during the period

LO 3
Adjusting Entry for Accrued Revenues

In October, Sierra Corporation performed guide services

worth $200 that were not billed on October 31.

Adj. 200

Adj. 200
Bal. 200 Bal. 10,600

Adjusting entry

LO 3
Subsequent Payment of Accrued
Revenues
On November 10, Sierra receives cash of $200 for
services performed in October.

LO 3
Summary of Accounting for Accrued
Revenues

LO 3
Knowledge Check: Accrued Revenues
Select true for each correct statement or false if any
part of the statement is incorrect.
An asset-revenue account relationship True
exists with an accrued revenue adjusting
entry.
Accrued revenue is recorded during a True
time period prior to when the cash is
received for the revenue earned.
Prior to the adjusting entry for accrued False
revenues, assets are overstated and
revenues are understated.
LO 3
Accrued Expenses
• Are expenses incurred but not yet paid or recorded
at the statement date
• Adjustments record the obligations that exist at the
balance sheet date and recognize the expenses that
apply to the current accounting period
• Examples include interest, taxes, utilities, and
salaries
• Prior to adjustment, both liabilities and expenses
are understated

LO 3
Accounting for Accrued Expenses

• Adjusting entry requires an increase to an expense

and an increase to a liability account

LO 3
Accounting for Accrued Interest
• Interest Expense
o Shows interest charges for the use of money over a time
period
• Interest Payable
o Shows the amount of interest the company owes at the
statement date
o Used rather than crediting Notes Payable to disclose the two
different types of obligations—interest and principal
• Failure to accrue interest
o Liabilities and interest expense will be understated
o Net income and stockholders’ equity are overstated
LO 3
 Determining Interest Cost
Amount of the interest recorded is determined by three
factors
• Face value of the note
• Interest rate
o Is always expressed as an annual rate
• Length of time the note is outstanding

Interest = Face Value ×

of Note
Annual
Interest Rate × Time in Terms
of One Year

LO 3
Adjusting Entry for Accrued Interest
Sierra Corporation signed a three-month, 12% note payable
in the amount of $5,000 on October 1.
Interest expense = Face value × Interest rate × Time period
= $5,000 × 12% × 1/12 = $50

LO 3
Accrued Salaries and Wages

Sierra paid salaries on October 26 for its employees’ first

two weeks of work (October 15–October 26). The next
payment of salaries will not occur until November 9.
Salaries to be accrued = October 29–31

LO 3
Adjusting Entry for Accrued Salaries
Sierra pays salaries of $2,000 per five-day work week. At
October 31, Sierra accrues $1,200 of salaries for the last
three days of October.
Salaries per days = $2,000 ÷ 5 days = $400 per day
Accrued salaries as of October 31 = $400 × 3 days = $1,200

LO 3
Subsequent Payment of Accrued
Salaries
Sierra pays salaries every two weeks. Consequently, the
next payday is November 9, when the company will again
pay total salaries of $4,000.

LO 3
Summary of Accounting for Accrued
Expenses

LO 3
Summary of Basic Relationships
Type of Accounts Before Adjusting
Adjustment Adjustment Entry

LO 3
People, Planet, and Profit Insight
Got Junk?
Do you have an old computer or two in your garage? How
about an old TV that needs replacing? Many people do.
Approximately 163,000 computers and televisions become
obsolete each day. Yet, in a recent year, only 11% of
computers were recycled.
It is estimated that 75% of all computers ever sold are
sitting in storage somewhere, waiting to be disposed of.
Each of these old TVs and computers is loaded with lead,
cadmium, mercury, and other toxic chemicals. If you have
one of these electronic gadgets, you have a responsibility,
and a probable cost, for disposing of it. Companies have
the same problem, but their discarded materials may
include lead paint, asbestos, and other toxic chemicals.

LO 3
Knowledge Check: Accrued Expenses
Indicate if each statement is true or false.
An asset-liability account relationship
exists with an accrued expense False
adjusting entry.
Accrued expenses are recognized
False
during a time period after the cash is
received for the revenue earned.
Prior to the adjusting entry for accrued
False
expenses, expenses are understated
and revenues are overstated.

LO 3
Knowledge Check: Accounting for
Accrued Expenses
Indicate if the account type shown is over or understated
prior to adjustment and what type of account is debited
and credited in the adjusting entry.

Understated Expenses
Understated Liabilities

LO 3
Learning Objective 4
Prepare an adjusted trial balance and
closing entries.

LO 4
The Adjusted Trial Balance and
Closing Entries
The Adjusted Trial Balance is prepared after a company has
journalized and posted all adjusting entries.
• Shows the balances of all accounts including those adjusted,
at the end of the accounting period
• Purpose
o Proves the equality of the total debit balances and total credit
balances in the ledger after all adjustments have been made
• Is the primary basis for the preparation of financial
statements
o Accounts contain all data needed for financial statements

LO 4
Preparing the Adjusted Trial Balance

LO 4
Preparing Financial Statements
• Prepared from the adjusted trial balance
• Income statement: Prepared from the revenue and expense
accounts
• Retained earnings statement: Prepared from the Retained
Earnings account, Dividends account, and net income or loss
amount on the income statement
• Balance sheet: Prepared from the assets, liabilities, and
stockholders’ equity account, and ending retained earnings on
the retained earnings statement

LO 4
Preparing the Income Statement

LO 4
Knowledge Check: Computing Net
Income
Max Inc.’s adjusted trial balance at May 31 is shown here.

Determine net income.

LO 4
Preparing the Retained Earnings
Statement

LO 4
Knowledge Check: Computing the
Ending Retained Earnings Balance
Max Inc.’s adjusted trial balance at May 31 is shown here.

Determine the ending

retained earnings
balance.

LO 4
Preparing the Balance Sheet

LO 4
Knowledge Check: Steps in Preparing
Financial Statements
Indicate the order in which the steps in preparing financial
statements occur.
Prepare an adjusted trial balance. Step 3
Prepare the income statement. Step 4
Prepare a trial balance. Step 1
Prepare the balance sheet. Step 6
Prepare adjusting entries. Step 2
Prepare the retained earnings statement. Step 5

LO 4
Quality of Earnings
• Earnings management
o Is the planned timing of revenues,
expenses, gains, and losses to
smooth out bumps in income
• Is greatly affected when a company
manages earnings to meet targeted
earnings
• High quality of earnings
o Provides full and transparent
information that will not confuse or
mislead users of the financial
statements
LO 4
How Companies Manage Earnings
Managed in a variety of ways
• Through the use of one-time items to prop up
earnings numbers
• By inflating revenue amounts
o Channel-stuffing
• Providing sales incentives to customers to encourage
them to buy products at the end of an accounting period
• Through recording improper adjusting entries
o Recording liabilities as revenue
o Recording expenses as assets
LO 4
Knowledge Check: Quality of
Earnings
Which one of the following is not considered to be
earnings management?
a. One-time items to prop up earnings numbers
b. Improper adjusting entries
c. Accruing expenses before they are paid
d. Inflating revenue numbers in the short-run

LO 4
Knowledge Check: Quality of
Earnings
Answer
Which one of the following is not considered to be
earnings management?
a. One-time items to prop up earnings numbers
b. Improper adjusting entries
c. Answer: Accruing expenses before they are paid
d. Inflating revenue numbers in the short-run

LO 4
Closing the Books
Temporary versus Permanent Accounts
Temporary accounts Permanent accounts
• Are subdivisions of retained • Are balance sheet accounts
earnings
• Balances are carried forward
• Relate only to a given into future accounting periods
accounting period

LO 4
Closing Entries
Closing entries
• Update the balance in Retained Earnings to its correct ending
balance
• Transfer of net income (or net loss) and dividends to Retained
Earnings
• Produce a zero balance in each temporary account
• Ready the accounts to accumulate data about revenues,
expenses, and dividends that occur in the next accounting period
Many companies use robotic process automation (RPA)
to improve their closing process. RPA involves the use
of computer programs, instead of humans.

LO 4
Preparing Closing Entries
• Close revenue accounts to income summary
• Close expense accounts to income summary
• Close net income to retained earnings
• Close dividends to retained earnings

LO 4
 Closing Revenues
Sierra Corporation provided the following from its
adjusted trial balance.

Dividends $ 500 Rent Expense $900

Service Revenue 10,600 Insurance Expense 50
Salaries and Wages Expense 5,200 Interest Expense 50
Supplies Expense 1,500 Depreciation Expense 40

Entry to close revenues

Oct. 31 Service Revenue 10,600
Income Summary 10,600
(To close revenue account)

LO 4
Closing Expenses
Sierra provided the following from its adjusted trial balance.
Dividends $ 500 Rent Expense $900
Service Revenue 10,600 Insurance Expense 50
Salaries and Wages Expense 5,200 Interest Expense 50
Supplies Expense 1,500 Depreciation Expense 40

Entry to close expenses

Oct. 31 Income Summary 7,740
Salaries and Wages Expense 5,200
Supplies Expense 1,500
Rent Expense 900
Insurance Expense 50
Interest Expense 50
Depreciation Expense 40
(To close expense accounts)

LO 4
Closing Income Summary
Sierra Corporation provided the following from its
adjusted trial balance. Net income is $2,860.
Dividends $ 500 Rent Expense $900
Service Revenue 10,600 Insurance Expense 50
Salaries and Wages Expense 5,200 Interest Expense 50
Supplies Expense 1,500 Depreciation Expense 40

Entry to close income summary

Oct. 31 Income Summary 2,860
Retained Earnings 2,860
(To close net income to income
summary)

LO 4
Closing Dividends
Sierra Corporation provided the following from its adjusted
trial balance. Net income is $2,860.
Dividends $ 500 Rent Expense $900
Service Revenue 10,600 Insurance Expense 50
Salaries and Wages Expense 5,200 Interest Expense 50
Supplies Expense 1,500 Depreciation Expense 40

Entry to close dividends

Oct. 31 Retained Earnings 500

Dividends 500
(To close dividends to retained
earnings)

LO 4
Posting of Closing Entries

LO 4
Knowledge Check: Closing Entries
Max Inc.’s adjusted trial balance at May 31 is shown
here.
Determine the following
amounts that are posted
to Income Summary
during the closing process.
Credit posting to
Income Summary

Debit posting to
Income Summary

LO 4
Preparing a Post-Closing Trial Balance

• Prepared after all closing entries have been

journalized and posted
• Used to prove the equality of the permanent
account balances that are carried forward into the
next accounting period
• Contains only permanent balance sheet accounts

S E D
CLO
LO 4
Post-Closing Trial Balance

LO 4
Summary of the Accounting Cycle

LO 4
Knowledge Check: Post-Closing Trial
Balance
Which account will not appear on a post-closing trial
balance?
a. Unearned Service Revenue
b. Accumulated Depreciation
c. Dividends
d. Retained Earnings

LO 4
Knowledge Check: Post-Closing Trial
Balance
Answer
Which account will not appear on a post-closing trial
balance?
a. Unearned Service Revenue
b. Accumulated Depreciation
c. Answer: Dividends
d. Retained Earnings

LO 4
Learning Objective 5
Appendix A
Describe the purpose and the basic
form of a worksheet.

LO 5
Using a Worksheet
• Is a multiple-column spreadsheet used in the
adjusting and process and to prepare financial
statements
• Is not a permanent accounting record
• Is a supplemental spreadsheet used to make it
easier to prepare adjusting entries and the financial
statements

LO 5
Worksheet Form

LO 5
Worksheet Procedures

LO 5
Knowledge Check: Steps in Preparing
a Worksheet
List the order in which the steps in preparing a worksheet are
performed.
Extend adjusted balances to appropriate Step 4
financial statement columns.
Prepare a trial balance on the worksheet. Step 1

Enter adjustment data. Step 2

Total the statement columns, compute net Step 5

income or net loss, and complete the
worksheet.
Enter the adjusted balances in the Step 3
adjusted trial balance columns.
LO 5
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