Chap 4

CHAPTER 4
COMPLETING THE
ACCOUNTING
CYCLE
Accounting Principles, Kieso
Chapter
4-1
Learning
Learning Objectives
Objectives
Chapter
4-2
Completing
Completing the
the Accounting
Accounting Cycle
Cycle
Summary of
Closing the Classified
Accounting
Books Balance Sheet
Cycle
Steps in Preparing Reversing Current assets

preparation closing entries entries—An Long-term
Preparing Posting closing optional step investments
financial entries Correcting Property, plant, and
statements entries—An equipment
Preparing a
avoidable step Intangible assets
Preparing post-closing trial
adjusting entries balance Current liabilities
Long-term liabilities
Owner’s equity
LO 1 LO 2 – 3 LO 4 – 5 LO 6
Chapter
4-3
Revision
Revision –– Chapter
Chapter 33
Adjusting entries
Chapter
4-4
Closing
Closing the
the Books
Books
The trial balance for Sasse Roofing for the month ended March 31, 201X
is as follows.
SASSE ROOFING
Trial Balance as at March 31, 201X
Account Titles Debit Credit
Cash $ 4,500
Accounts Receivable 3,200
Roofing Supplies 2,000
Equipment 11,000
Accumulated Depreciation $ 1,250
Accounts Payable 2,500
Unearned Revenue 550
J. Sasse, Capital 12,900
J. Sasse, Drawing 1,100
Service Revenue 6,300
Salaries Expense 1,300
Miscellaneous Expense 400
Totals $ 23,500 $ 23,500
Chapter
4-5 LO 2 Explain the process of closing the books.
Closing
Closing the
the Books
Books
Other data:
i)Supplies on hand total $650.
ii)Depreciation for March is $250.
iii)Unearned revenue amounted to $170 on March 31.
iv)Accrued salaries are $600.
Instructions:
a)Prepare adjusting entries
b)Prepare closing entries and post-closing trial balance.
Chapter
Closing
Closing the
the Books
Books
Adjusting entires
Date Account Title Ref Debit Credit
Mar 31 Supplies expense 1,350
Roofing Supplies 1.350
Mar 31 Depreciation expense 250

Accumulated depreciation 250
Mar 31 Unearned revenue 380

Service revenue 380
Mar 31 Salaries expense 600

Salaries payable 600
Chapter
Closing
Closing the
the Books
Books
Chapter
Correcting
Correcting Entries—An
Entries—An Avoidable
Avoidable Step
Step
Correcting entries are made to rectify errors.
Adjusting entries Vs Correcting entries
an integral part of are not required if the
accounting cycle. records are error-free.
prepared only at the end are made whenever an
of an accounting period. error is discovered.
affects one balance sheet may involve any
and one income statement combination of accounts.
account.
Instead of preparing a correcting entry, it is possible to reverse
the incorrect entry and then prepare the correct entry.
Chapter
4-9 LO 5 Explain the approaches to preparing correcting entries.
Correcting
Avoidable Step
Step
BE4-9 At Batavia Company, the following errors were
discovered after the transactions had been journalized and
posted. Prepare the correcting entries.
1. A collection on account from a customer was recorded as a
debit to Cash and a credit to Service Revenue for $780.
Incorrect Cash 780

entry Service revenue
780
Correct Cash 780
entry Accounts receivable
780
Chapter
Correcting Entries—An Avoidable Step
Two step correction

Step # 1 - Reverse incorrect entry
Service revenue 780
Cash 780
Step # 2 – Record correct entry

Cash 780
Accounts Receivable 780
One step correction

Service revenue 780
Accounts Receivable 780
Chapter
4-11 LO 7 Prepare reversing entries.
Correcting
Avoidable Step
Step
BE4-9 At Batavia Company, the following errors were
discovered after the transactions had been journalized and
posted. Prepare the correcting entries.
2. The purchase of supplies on account for $1,570 was recorded
as a debit to Store Supplies and a credit to Accounts Payable
for $1,750.
Incorrect Store Supplies 1,750

entry Accounts payable
1,750
Correct Store Supplies 1,570
entry Accounts payable
1,570
Chapter
Correcting Entries—An Avoidable Step
Two step correction

Step # 1 - Reverse incorrect entry
Stores Supplies 1.750
Step # 2 – Record correct entry

Stores Supplies 1,570
One step correction

Accounts Payable 180
Stores Supplies 180
Chapter
Reversing
Reversing Entries
Entries
Reversing Entries
It is often helpful to reverse some of the adjusting
entries before recording the regular transactions of
the next period.
Companies make a reversing entry at the beginning

of the next accounting period.
Each reversing entry is the exact opposite of the

adjusting entry made in the previous period.
The use of reversing entries does not change the

amounts reported in the financial statements.
Chapter
Reversing
Reversing Entries
Entries Example
Example
Jay Kay Printing started operation from June 14th

and paid fortnightly salaries on Friday June 25th.
The next pay day is Friday July 9th. Total salaries
for a five-day week are $2,000. Employees do not
work on week-end.
1.Prepare adjusting journal entry required on June

30th .
2.Prepare reversing entries.
Chapter
Reversing Entries Example
Without reversing entry
Initial salary entry
June 25 Salaries expense 4,000
Cash 4,000
Adjusting entry
Salaries payable 1,200
Closing entry
June 30 Income summary 5,200
Salaries expense 5,200
Subsequent salary entry
July 9 Salaries payable 1,200
Cash 4,000
Chapter
Reversing Entries Example
With reversing entry
Initial salary entry
Cash 4,000
Adjusting entry
Salaries payable 1,200
Closing entry
June 30 Income summary 5,200
Reversing entry
July 1 Salaries payable 1,200
Subsequent salary entry
July 9 Salaries expense 4,000
Cash 4,000
Chapter
Closing
Closing the
the Books
Books
Income Statement
Income Statement
For the Year Ended on Jan. 31, 2008
Revenues:
Statement of
Sales $ 137,000
Interest revenue 1,250
Owner’s Equity
Rent revenue 8,000 Statement of Owner's Equity
Total revenue 146,250 For the Year Ended on Jan. 31, 2008
Expenses:
Interest expense 1,500 Austin, Capital, Feb. 1, 2007 $ 40,000
Depreciation expense 100 + Net income 143,650
- Drawings 0
Insurance expense 1,000
Austin, Capital, Jan. 31, 2008 $ 183,650
Total expenses 2,600
Net income $ 143,650
Chapter
Closing
Closing the
the Books
Books
Balance Sheet as at Jan. 31, 2008
Assets
Cash $ 50,000
Accounts receivable 35,000
Interest receivable 1,250
Prepaid insurance 11,000
Investments 300,000
Equipment 24,000
Accum. Depreciation (100)
Total assets $ 421,150
Liabilities & Owner's Equity
Accounts payable $ 20,000
Interst payable 1,500
Unearned revenue 16,000
Note payable 200,000
Austin, capital 183,650
Total liab. & equity $ 421,150
Chapter
Closing
Closing the
the Books
Books
Closing is the process thru which, the company, at
the end of the accounting period, makes the
accounts ready for the next period.
For closing purposes, accounts are distinguished
as:
 Temporary or nominal accounts
 Permanent or real accounts
Chapter
Closing
Closing the
the Books
Books
Temporary accounts
These relate to one period, therefore are closed at
the end of the accounting period.
 All revenue, expense and owner’s drawing
accounts are temporary accounts
Permanent accounts
These relate to one or more period, therefore are
carried forward to the next periods.
All assets, liabilities and owner’s capital
accounts are permanent accounts.
Chapter
Closing
Closing the
the Books
Books
Closing entries
Formally recognize, in the general ledger, the

transfer of
net income (or net loss) and
owner’s drawing
to owner’s capital.
Closing entries also produce a zero balance in

each temporary account.
Chapter
Closing
Closing the
the Books
Books
Closing entries
Journalizing and posting is a required step in the

accounting cycle.
Closing entries are posted only at the end of the

annual accounting period.
Closing entries are recorded in the general

journal.
Chapter
Closing
Closing the
the Books
Books
(Individual)
(Individual) Closing Process Revenues
Expenses
NB xxx xxx NB
2 1
Income 1. Close Revenues to

Owner’s Income Summary.
Summary
Drawing 2. Close Expenses to
xxx xxx
Income Summary.
NB xxx
3. Close Income
Summary to
3 Owner’s Capital.
Owner’s Capital is a
Owner’s
4. Close Owner’s
permanent account; Capital
4 Drawing to Owner’s
all other accounts
are temporary
xxx xxx Capital.
accounts.
Chapter NB = Normal Balance
4-24
LO 2 Explain the process of closing the books.
Closing
Closing the
the Books
Books
The trial balance for Sasse Roofing for the month ended March 31, 201X
is as follows.
SASSE ROOFING
Trial Balance as at March 31, 201X
Cash $ 4,500
Equipment 11,000
Totals $ 23,500 $ 23,500
Chapter
Closing
Closing the
the Books
Books
Other data:
i)Supplies on hand total $650.
ii)Depreciation for March is $250.
iii)Unearned revenue amounted to $170 on March 31.
iv)Accrued salaries are $600.
Instructions:
a)Prepare adjusting entries
b)Prepare closing entries and post-closing trial balance.
Chapter
Closing
Closing the
the Books
Books
Chapter
Closing
Closing the
the Books
Books
Close revenues accounts
Dec 31 Service Revenue 6,680
Income summary account 6,680
Close expenses accounts
Dec 31 Income summary account 3,900
Salaries expenses 1,900
Supplies expenses 1,350
Depreciation expense 250
Miscellaneous expenses 400
Close income summary account
Dec 31 Income summary 2.780
J. Sasse Capital 2,780
Close drawings account
Dec 31 J. Sasse Capital 1,100
J. Sasse Drawings 1,100
Chapter
Preparing
Preparing aa Post-Closing
Post-Closing Trial
Trial Balance
Balance
Purpose is
to prove the equality of the permanent account
balances after journalizing and posting of closing
entries.
And that all temporary accounts will have zero
balances.
Chapter
4-29 LO 3 Describe the content and purpose of a post-closing trial balance.
Closing
Closing the
the Books
Books
SASSE ROOFING
Post Closing Trial Balance as at March 31, 201X
Cash $ 4,500
Roofing Supplies 650
Equipment 11,000
J. Sasse, Capital (12,900 + 2,780 – 1,100) 14,580
Totals $ 19,350 $ 19,350
Chapter
Summary
Summary of
of the
the Accounting
Accounting Cycle
Cycle
Illustration 4-12
1. Analyze business transactions
9. Prepare a post-closing 2. Journalize the

trial balance transactions
8. Journalize and post

3. Post to ledger accounts
closing entries
7. Prepare financial
4. Prepare a trial balance
statements
6. Prepare an adjusted trial 5. Journalize and post

balance adjusting entries
Chapter
4-31 LO 4 State the required steps in the accounting cycle.
The
The Classified
Classified Balance
Balance Sheet
Sheet
Presents a snapshot at a point in time.
To improve understanding, similar assets and

similar liabilities are grouped together.
Standard Classifications Illustration 4-17
Assets Liabilities and Owner’s Equity

Current assets Current liabilities
Long-term investments Long-term liabilities
Property, plant, and equipment Owner’s equity
Intangible assets
Chapter
4-32 LO 6 Identify the sections of a classified balance sheet.
The
The Classified
Classified Balance
Balance Sheet
Sheet
Current Assets
Assets that a company expects to convert to
cash or use up within one year or the
operating cycle, whichever is longer.
Operating cycle is the average time it takes

from the purchase of inventory to the
collection of cash from customers.
Operating cycle could be longer than one

year. Except where disclosed, it is assumed
Chapter
to be one year.
The
The Classified
Classified Balance
Balance Sheet
Sheet
Current Assets
On the balance sheet, Current assets are
usually listed in the order in which these are
expected to be converted into cash.
Examples are Cash, Short term investments,

Accounts receivable, Notes receivable,
Inventories, Supplies, Prepaid expense etc.
Chapter
The
The Classified
Classified Balance
Balance Sheet
Sheet
Current Assets
Illustration 4-19
Companies usually list current asset accounts in the order

they expect to convert them into cash.
Chapter
The
The Classified
Classified Balance
Balance Sheet
Sheet
Long-Term Investments
Investments in stocks and bonds of other companies
Normally held for many years.
Investments in long-term assets such as land or

buildings that a company is not currently using in its
operating activities. Illustration 4-20
Chapter
The
The Classified
Classified Balance
Balance Sheet
Sheet
Property, Plant, and Equipment
Long useful lives.
Currently used in operations.
Examples are Land, Building, Machinery and

Equipment, Vehicles, Office Equipment, Furniture
etc.
Reported at cost less depreciation and

impairment loss.
Chapter
The
The Classified
Classified Balance
Balance Sheet
Sheet
Depreciation - allocating the cost of assets over
their useful lives i.e., number of years.
Impairment loss - The amount by which the carrying

amount of an asset exceeds its recoverable amount.
Recoverable amount is the higher of an asset’s (or

cash-generating unit’s) fair value less costs to sell
and its value in use.
Accumulated depreciation - total amount of

depreciation expensed until the reporting period.
Chapter
The
The Classified
Classified Balance
Balance Sheet
Sheet
Illustration 4-21
Chapter
The
The Classified
Classified Balance
Balance Sheet
Sheet
Intangible Assets
Assets that do not have physical substance.
Examples are Goodwill, Patents, Copyrights,

trademarks or trade names, Franchises and
Licenses.
Reported at cost less amortization and

impairment
Amortization - allocating the cost of assets over

their useful lives i.e. number of years.
Chapter
The
The Classified
Classified Balance
Balance Sheet
Sheet
Intangible Assets
Impairment loss - The amount by which the

carrying amount of an asset exceeds its
recoverable amount.
Recoverable amount is the higher of an asset’s

(or cash-generating unit’s) fair value less costs to
sell and its value in use.
Chapter
The
The Classified
Classified Balance
Balance Sheet
Sheet
Intangible Assets
Illustration 4-22
Chapter
The
The Classified
Classified Balance
Balance Sheet
Sheet
Current Liabilities
Obligations the company is to pay within the
coming year.
Examples are Notes payable, Accounts

payable, Employees payables, Bank loans
payable, Interest payable, Taxes payable, etc.
Current maturities (payments due within the

next year) of long-term obligations like Bank
loans are also included under current
Chapter
4-43
liabilities. LO 6 Identify the sections of a classified balance sheet.
The
The Classified
Classified Balance
Balance Sheet
Sheet
Current Liabilities
Usually notes payable are listed first, followed
by accounts payable. Other items follow in
order of magnitude.
Usually compared with Current assets to

evaluate Liquidity - ability to pay obligations
expected to be due within the next year.
Current assets > Current liabilities
Current assets < Current liabilities

Chapter
The
The Classified
Classified Balance
Balance Sheet
Sheet
Current Liabilities
Illustration 4-23
Chapter
The
The Classified
Classified Balance
Balance Sheet
Sheet
Long-Term Liabilities
Obligations a company expects to pay after one year.
Examples are Bonds payable, Mortgages payable,

Long-term notes payable, Lease liabilities, Pension
liabilities, etc.
Often long-term debt is reported as single line item

and details are provided in notes.
Chapter
The
The Classified
Classified Balance
Balance Sheet
Sheet
Long-Term Liabilities
Illustration 4-24
Chapter
The
The Classified
Classified Balance
Balance Sheet
Sheet
Owner’s Equity
Proprietorship - one capital account.
Partnership - capital account for each partner.
Corporation - Capital Stock and Retained Earnings.
Illustration 4-25
Chapter
The
The Classified
Classified Balance
Balance Sheet
Sheet
Review Question
Cash, and other resources that are reasonably
expected to be realized in cash or sold or
consumed in the business within one year or the
operating cycle, are called:
a. Current assets.
b. Intangible assets.
c. Long-term investments.
d. Property, plant, and equipment.
Chapter
The
The Classified
Classified Balance
Balance Sheet
Sheet
Review Question
Patents and copyrights are
a. Current assets.
b. Intangible assets.
c. Long-term investments.
d. Property, plant, and equipment.
Chapter
The
The Classified
Classified Balance
Balance Sheet
Sheet
Review Question
Which of the following is not a long-term
liability?
a. Bonds payable
b. Current maturities of long-term obligations
c. Long-term notes payable
d. Mortgages payable
Chapter
The
The Classified
Classified Balance
Balance Sheet
Sheet
Discussion Question
Q4-18.
(a)What is the term used to describe the owner’s
equity section of a corporation?
(b)Identifythe two owner’s equity accounts in a
corporation and indicate the purpose of each
Chapter
The
The Classified
Classified Balance
Balance Sheet
Sheet
Answer to Discussion
Question
(a) The owner’s equity section for a corporation is called
stockholders’ equity.
(b) The two accounts and the purpose of each are:
1. Capital stock is used to record investments of
assets in the business by the owners (stockholders).
2. Retained earnings is used to record net income
retained in the business.
Chapter
Closing
Closing the
the Books
Books
Adjusted trial balance of Cineplex as at September 30, 20X1 is attached.
The account balances are listed in the alphabetic order.
You are required to:
a)Identify each account as asset, liability, capital, drawing, revenue and
expense in the classification column.
b)Identify the sequence of the accounts if these are listed in correct
order on the trial balance as assets, liabilities, capital, drawing, revenues
and expenses. Like cash should be listed first
c)Assuming each account has a normal balance, identify each balance as
debit or credit and write down the amount in correct column and total
the debit and credit sides.
Based on the completed sheet, prepare income statement for the year
ended on September 30, 20X1 and a classified balance sheet on that
date. (Additional info: (i) $10,000 of the mortgage note payable is
due for payment in the next fiscal year; and (ii) Notes Payable
represent one-year note signed on July 1, 20X1)
Chapter
Closing
Closing the
the Books
Books
Correct
Account Title Amount Classification Debit Credit
order
Accounts Payable $14,600
Accumulated Depreciation -
Building 5,625
Accumulated Depreciation –
Equipment 13,500
Admissions Revenue 279,200
Advertising Expense 9,400
Building 100,000
Cash 41,400 Asset 1
Depreciation Expense 8,500
Dividend Revenue 7,000
Equipment 60,000
Insurance Expense 23,000
Interest Expense 10,000
Interest Payable 4,000
Chapter
Closing
Closing the
the Books
Books
Correct
order
Investment in Stocks 70,000

Jack, Capital 253,775
Jack, Drawing 14,000
Land 80,000
Mortgage Notes Payable 50,000
Notes Payable 5,000
Prepaid Insurance 8,900
Property Taxes Expense 21,000
Property Taxes Payable 3,000
Repair Expense 30,500
Supplies 1,200
Supplies Expense 17,400
Unearned Admissions Revenue 2,000
Utilities Expense 16,900
Chapter
Closing
Closing the
the Books
Books
Correct
order
Accounts Payable $14,600 Liability
Accounts Receivable 20,500 Asset
Accumulated Depreciation -
Building 5,625 Asset
Accumulated Depreciation –
Equipment 13,500 Asset
Admissions Revenue 279,200 Revenue
Advertising Expense 9,400 Expense
Building 100,000 Asset
Cash 41,400 Asset 1
Depreciation Expense 8,500 Expense
Dividend Revenue 7,000 Revenue
Equipment 60,000 Asset
Insurance Expense 23,000 Expense
Interest Expense 10,000 Expense
Interest Payable 4,000 Liability
Chapter
Closing
Closing the
the Books
Books
Correct
order
Investment in Stocks 70,000 Asset

Jack, Capital 253,775 Capital
Jack, Drawing 14,000 Drawing
Land 80,000 Asset
Mortgage Notes Payable 50,000 Liability
Notes Payable 5,000 Liability
Prepaid Insurance 8,900 Asset
Property Taxes Expense 21,000 Expense
Property Taxes Payable 3,000 Liability
Repair Expense 30,500 Expense
Salaries Expense 105,000 Expense
Supplies 1,200 Asset
Supplies Expense 17,400 Expense
Unearned Admissions Revenue 2,000 Liability
Utilities Expense 16,900 Expense
Chapter
Closing
Closing the
the Books
Books
Classificatio Correct
Account Title Amount Debit Credit
n order
Cash 41,400 Asset 1 41,400

Accounts Receivable 20,500 Asset 2 20,500
Supplies 1,200 Asset 3 1,200
Prepaid Insurance 8,900 Asset 4 8,900
Investment in Stocks 70,000 Asset 5 70,000
Land 80,000 Asset 6 80,000
Building 100,000 Asset 7 100,000
Accumulated Depreciation - Building 5,625 Asset 8 5,625
Equipment 60,000 Asset 9 60,000
Accumulated Depreciation – Equipment 13,500 Asset 10 13,500
Accounts Payable 14,600 Liability 11 14,600
Property Taxes Payable 3,000 Liability 12 3,000
Unearned Admissions Revenue 2,000 Liability 13 2,000
Interest Payable 4,000 Liability 14 4,000
Chapter
Closing
Closing the
the Books
Books
Classificatio Correct
Account Title Amount Debit Credit
n order
Mortgage Notes Payable 50,000 Liability 15 50,000
Notes Payable 5,000 Liability 16 5,000
Jack, Capital 253,775 Capital 17 253,775
Jack, Drawing 14,000 Drawing 18 14,000
Admissions Revenue 279,200 Revenue 19 279,200
Dividend Revenue 7,000 Revenue 20 7,000
Advertising Expense 9,400 Expense 21 9,400
Salaries Expense 105,000 Expense 22 105,000
Repair Expense 30,500 Expense 23 30,500
Insurance Expense 23,000 Expense 24 23,000
Property Taxes Expense 21,000 Expense 25 21,000
Supplies Expense 17,400 Expense 26 17,400
Utilities Expense 16,900 Expense 27 16,900
Depreciation Expense 8,500 Expense 28 8,500
Interest Expense 10,000 Expense 29 10,000
637,700 637,700
Chapter
Closing
Closing the
the Books
Books
CINAPLEX
INCOME STATEMENT
FOR THE YEAR ENDED ON SEPTEMBER 30, 20X1
Revenues
Admissions Revenue $279,200
Dividend Revenue 7,000
Total revenues
$286,200
Expenses
Salaries Expense $105,000
Repair Expense 30,500
Insurance Expense 23,000
Property Taxes Expense 21,000
Utilities Expense 16,900
Interest Expense 10,000
Advertising Expense 9,400
Depreciation Expense 8,500
Total expenses $241,700
Net income $44,500

Chapter
Closing
Closing the
the Books
Books
CINAPLEX
BALANCE SHEET
AS AT SEPTEMBER 30, 20X1
Assets
Current Assets
Cash $41,400
Supplies 1,200
Total current assets $ 72,000
Investment in Stocks 70,000
Propert Plant and Equipmemt

Land 80,000
Building $100,000
Accumulated Depreciation - Building -5,625
94,375
Equipment 60,000
Accumulated Depreciation - Equipment -13,500
46,500
Total Property Plant and Equipment

220,875
Total Assets
$ 362,875
Chapter
Closing
Closing the
the Books
Books
CINAPLEX
BALANCE SHEET
Assets
Current Assets
Cash $41,400
Supplies 1,200
Total current assets
$72,000
Investment in Stocks
70,000
Propert Plant and Equipmemt

Written
Accumulated
ALTERNATE PRESENTATION Cost down
Depreciation
value
Land $80,000 80,000
Building 100,000 $5,625 94,375
Equipment 60,000 13,500 46,500
Total Property Plant and Equipment

220,875
Total Assets
Chapter $362,875
Closing
Closing the
the Books
Books
CINAPLEX
BALANCE SHEET
Liabilities & Owner's Equity

Current Liabilities
Mortgage Notes Payable $10,000
Notes Payable 5,000
Interest Payable 4,000
Property Taxes Payable 3,000
Unearned Admissions Revenue 2,000
Total current liabilties $38,600
Long term liabilities
Mortgage Notes Payable 40,000
Total liabilities 78,600
Owner's Equity
Jack, Capital 284,275
Total liabilities & owner's equity $ 362,875

Chapter
Completing
Completing the
the Accounting
Accounting Cycle
Cycle
QUESTIONS

Chapter
4-65
Completing
Completing the
the Accounting
Accounting Cycle
Cycle
Back-up
Slides
Chapter
4-66
Using
Using A
A Worksheet
Worksheet
Worksheet
A multiple-column form used in adjustment
process and in preparing financial statements.
Not a permanent accounting record, rather it is

a working tool.
It is neither a journal nor a part of the general

ledger.
Five step process.
Use of worksheet is optional.

Chapter
4-67 LO 1 Prepare a worksheet.
Steps
Steps in
in Preparing
Preparing aa Worksheet
Worksheet
Five Steps Process Illustration 4-2
Chapter
Steps
Steps in
in Preparing
Worksheet
Example
The trial balance for Sasse Roofing for the month ended March 31,
2010, is as follows.
Trial Balance Other data:
Account Titles Dr. Cr.
Cash $ 4,500 1. Supplies on hand total $650.
Accounts Receivable 3,200 2. Depreciation for March is
Equipment 11,000 $250.
Accumulated Depreciation $ 1,250 3. Unearned revenue amounted
Unearned Revenue 550 to $170 on March 31.
J. Sasse, Capital
12,900
4. Accrued salaries are $600.
Salaries Expense 1,300 Instructions
Totals $ 23,500 $ 23,500
a. Prepare and complete the
worksheet.
Chapter
Steps
Steps in
in Preparing
Worksheet
1. Prepare a Trial Balance on the Worksheet
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 4,500
Equipment 11,000
Accumulated Depreciation 1,250
Totals 23,500 23,500
Trial balance amounts
come directly from
Include all ledger accounts.
accounts with
balances.
Chapter
Steps
Steps in
in Preparing
Worksheet
2. Enter the Adjustments in the Adjustments Columns
Adjusted Income
Cash 4,500
Roofing Supplies 2,000 (a) 1,350
Equipment 11,000
Accumulated Depreciation 1,250 (b) 250 Adjustments Key:
Accounts Payable
Unearned Revenue
2,500
550 380
(a) Supplies used (2,000-650).
(c)
J. Sasse, Capital 12,900 (b) Depreciation expense.
Service Revenue 6,300 (c) 380 (c) Service revenue earned.
Salaries Expense 1,300 (d) 600
Miscellaneous Expense 400 (d) Salaries accrued.
Totals 23,500 23,500
Supplies Expense (a) 1,350
Depreciation Expense (b) 250
Salaries Payable (d) 600 •Enter adjustment amounts,
Totals 2,580 2,580
• cross refer the adjustments,
• total adjustments columns,
Add additional
and
accounts as •check for equality.
Chapter
needed.
Steps
Steps in
in Preparing
Worksheet
3. Complete the Adjusted Trial Balance Columns
Adjusted Income
Cash 4,500 4,500
Accounts Receivable 3,200 3,200 1. Combine the
Roofing Supplies 2,000 (a) 1,350 650
Equipment 11,000 11,000 trial balance
amounts with
Accumulated Depreciation 1,250 (b) 250 1,500
Accounts Payable 2,500 2,500
Unearned Revenue
J. Sasse, Capital
550(c)
12,900
380 170
12,900
adjustment
J. Sasse, Drawing 1,100 1,100 amounts to
Service Revenue 6,300 (c) 380 6,680
Salaries Expense 1,300 (d) 600 1,900 obtain adjusted
trial balance.
Miscellaneous Expense 400 400
Totals 23,500 23,500
Supplies Expense (a) 1,350 1,350
Depreciation Expense
Salaries Payable
(b) 250
(d) 600
250
600
2. Balances after
Totals 2,580 2,580 24,350 24,350 journalizing and
posting the
3.Total the adjusted adjusting entries.
trial balance columns
Chapter
4-72
and check for equality. LO 1 Prepare a worksheet.
Steps
Steps in
in Preparing
Worksheet
4. Extend Amounts to Financial Statement Columns
Adjusted Income
Cash 4,500 4,500
Accounts Receivable 3,200 3,200
Roofing Supplies 2,000 (a) 1,350 650
Equipment 11,000 11,000
Accumulated Depreciation 1,250 (b) 250 1,500
Accounts Payable 2,500 2,500
Unearned Revenue 550 (c) 380 170
J. Sasse, Capital 12,900 12,900
J. Sasse, Drawing 1,100 1,100
Service Revenue 6,300 (c) 380 6,680 6,680
Salaries Expense 1,300 (d) 600 1,900 1,900
Miscellaneous Expense 400 400 400
Totals 23,500 23,500
Supplies Expense (a) 1,350 1,350 1,350
Depreciation Expense (b) 250 250 250
Salaries Payable (d) 600 600
Totals 2,580 2,580 24,350 24,350 3,900 6,680
Extend all revenue and expense

account balances to the income
Chapter statement columns.
Steps
Steps in
in Preparing
Worksheet
4. Extend Amounts to Financial Statement Columns
Adjusted Income
Cash 4,500 4,500 4,500
Accounts Receivable 3,200 3,200 3,200
Roofing Supplies 2,000 1,350
(a) 650 650
Equipment 11,000 11,000 11,000
Accumulated Depreciation 1,250 (b) 250 1,500 1,500
Accounts Payable 2,500 2,500 2,500
Unearned Revenue 550 (c) 380 170 170
J. Sasse, Capital 12,900 12,900 12,900
J. Sasse, Drawing 1,100 1,100 1,100
Totals 23,500 23,500
Supplies Expense (a)
1,350 1,350 1,350
Salaries Payable (d) 600 600 600
Totals 2,580 2,580 24,350 24,350 2,410 3,170 20,450 17,670
Extend all asset, liability, and

equity account balances to the
Chapter balance sheet columns.
Steps
Steps in
in Preparing
Worksheet
5. Total Columns, Compute Net Income (Loss)
Adjusted Income
Cash 4,500 4,500 4,500
Roofing Supplies 2,000 1,350 650 650
Equipment 11,000 (a) 11,000 11,000
Accumulated Depreciation 1,250 250 1,500 1,500
Accounts Payable 2,500 (b) 2,500 2,500
Unearned Revenue 550 380 170 170
J. Sasse, Capital 12,900 12,900 12,900
(c)
J. Sasse, Drawing 1,100 1,100 1,100
Service Revenue 6,300 380 6,680 6,680
Salaries Expense 1,300 600 1,900 1,900
Miscellaneous Expense 400 (c) 400 400
Totals 23,500 23,500 (d)
Supplies Expense 1,350 1,350 1,350
Depreciation Expense 250 250 250
Salaries Payable (a) 600 600 600
Totals 2,580 2,580 24,350 24,350 3,900 6,680 20,450 17,670
(b)
Net Income 2,780 2,780
(d)
Totals 6,680 6,680 20,450 20,450
1. Compute Net Income or Net Loss, and

2. transfer it to balance sheet.
Chapter
Steps
Steps in
in Preparing
Worksheet
Review Question
Net income is shown on a work sheet in the:
a. income statement debit column only.
b. balance sheet debit column only.
c. income statement credit column and balance
sheet debit column.
d. income statement debit column and balance
sheet credit column.
Chapter
Preparing
Preparing Financial
Financial Statements
Statements from
from aa Worksheet
Worksheet
Worksheet
Completed worksheet is not a substitute for
the formal financial statements.
Income statement is prepared from the

income statement columns.
Balance sheet and owner’s equity statement

are prepared from the balance sheet columns.
Companies journalize and post adjusting

entries.
Chapter
Preparing
Preparing financial
financial statements
statements from
from aa Worksheet
Worksheet
Prepare an income statement for the month ended March 31, 2010.
Adjusted Income
Cash 4,500 4,500 4,500
(a) 650 650
Equipment 11,000 11,000 11,000
J. Sasse, Capital 12,900 12,900 12,900
J. Sasse, Drawing 1,100 1,100 1,100
Totals 23,500 23,500
(a) 1,350 1,350
Totals 2,580 2,580 24,350 24,350 3,900 6,680 20,450 17,670
Totals 6,680 6,680 20,450 20,450
Chapter
Preparing
Preparing Financial
Statements from
from aa Worksheet
Worksheet
b. Prepare an income statement for the month ended
March 31, 2008.
Sasse Roofing
Income Statement
For the Month Ended March 31, 2010
Revenues $ 6,680
Service revenues
Expenses
Salaries expense $ 1,900
Supplies expense 1,350
Miscellaneous expense 400
Total expenses 3,900
Net income $ 2,780
Chapter
Preparing
Preparing financial
statements from
from aa Worksheet
Worksheet
Prepare an Owner’s equity statement for the month ended March 31, 2010.
Adjusted Income
Cash 4,500 4,500 4,500
(a)
Roofing Supplies 2,000 1,350 650 650
Equipment 11,000 11,000 11,000
Accumulated Depreciation 1,250 (b)250 1,500 1,500
Unearned Revenue 550 (c)380 170 170
J. Sasse, Capital 12,900 12,900 12,900
J. Sasse, Drawing 1,100 1,100 1,100
Service Revenue 6,300 (c)380 6,680 6,680
Salaries Expense 1,300 600 1,900 1,900
(d)
Totals 23,500 23,500
Supplies Expense 1,350 1,350 1,350
Depreciation Expense (a)250 250 250
Salaries Payable (b) 600 600 600
Totals 2,580 (d)
2,580 24,350 24,350 3,900 6,680 20,450 17,670
Totals 6,680 6,680 20,450 20,450
Chapter
Preparing
Preparing Financial
Statements from
from aa Worksheet
Worksheet
b. Prepare an owner’s equity statement for the month
ended March 31, 2010.
Statement of Owner's Equity

For the Month Ended March 31, 2010
I. Spy, Capital, March 1 $ 12,900
Add: Net income 2,780
15,680
Less: Drawings (1,100)
I. Spy, Capital, March 31 $ 14,580
Chapter
Preparing
Preparing financial
statements from
from aa Worksheet
Worksheet
Prepare a balance sheet as of March 31, 2008.
Adjusted Income
Cash 4,500 4,500 4,500
(a) 650 650
Equipment 11,000 11,000 11,000
J. Sasse, Capital 12,900 12,900 12,900
J. Sasse, Drawing 1,100 1,100 1,100
Totals 23,500 23,500
(a) 1,350 1,350
Totals 2,580 2,580 24,350 24,350 3,900 6,680 20,450 17,670
Totals 6,680 6,680 20,450 20,450
Chapter
Preparing
Preparing Financial
Statements from
from aa Worksheet
Worksheet
b. Prepare a balance sheet as of March 31, 2010.
Assets
Undercover
Current assets
Roofing Cash $ 4,500
Accounts receivable 3,200
Balance Sheet Roofing supplies 650
Total current assets 8,350
March 31, 2010 Property, plant, and equipment
Equipment 11,000
Less: Accumulated depreciation 1,500 9,500
Total assets $ 17,850
Liabilities and Owner's Equity

Current liabilities
Accounts payable $ 2,500
Unearned revenue 170
Total current liabilities 3,270
Owner's equity
I. Spy, Capital 14,580
Total liabilities and owner's equity $ 17,850
Chapter
Preparing
Preparing Adjusting
Adjusting Entries
Entries from
from aa Worksheet
Worksheet
Adjusting Entries
A worksheet is not a journal and can not be
used as a basis for posting to ledger accounts.
The adjusting entries are prepared from the

adjustments columns of the worksheet.
Journalizing and posting of adjusting entries

follows the preparation of financial
statements when a worksheet is used.
Chapter
Steps
Steps in
in Preparing
Worksheet
Example
The trial balance for Sasse Roofing for the month ended March 31,
2010, is as follows.
Trial Balance Other data:
Account Titles Dr. Cr.
Cash $ 4,500 1. Supplies on hand total $650.
Accounts Receivable 3,200 2. Depreciation for March is
Equipment 11,000 $250.
Accumulated Depreciation $ 1,250 3. Unearned revenue amounted
Unearned Revenue 550 to $170 on March 31.
J. Sasse, Capital
12,900
4. Accrued salaries are $600.
Salaries Expense 1,300 Instructions
Totals $ 23,500 $ 23,500
a. Prepare and complete the
worksheet.
Chapter
Preparing
Preparing Financial
Statements from
from aa Worksheet
Worksheet
c. Journalize the adjusting entries from the
adjustment columns of the worksheet.
Date Account Title Ref. Debit Credit

Mar. 31 Supplies expense 1,350
Roofing supplies 1,350

Accumulated depreciation 250
Unearned revenue 380

Service revenue 380
Salaries expense 600

Chapter
Closing
Closing the
the Books
Books
d. Journalize the closing entries from the financial
statement columns of the worksheet.
Service revenue 6,680
Income summary 6,680
Closing
Salary expense 1,900
Entries
Supplies expense 1,350
need
to be
Miscellaneous expense 400
Posted

I. Spy, Drawing 1,100
Chapter
Preparing
Preparing Financial
Statements from
from aa Worksheet
Worksheet
Discussion Question
Q4-2. Explain the purpose of the worksheet.
The work sheet is merely a device used to

make it easier to prepare adjusting entries
and the financial statements.
Chapter
Closing
Closing the
the Books
Books
Note:
Owner’s Drawing is closed Illustration 4-6
directly to Capital and not

to Income Summary
Owner’s Capital is a
because Owner’s Drawing permanent account; all
other accounts are
is not an expense. temporary accounts.
Chapter
Steps
Steps in
in Preparing
Worksheet
Five Steps Process Illustration 4-2
Chapter
Preparing
Preparing financial
statements from
from aa Worksheet
Worksheet
Prepare a balance sheet as of March 31, 2008.
Adjusted Income
Cash 4,500 4,500 4,500
(a) 650 650
Equipment 11,000 11,000 11,000
J. Sasse, Capital 12,900 12,900 12,900
J. Sasse, Drawing 1,100 1,100 1,100
Totals 23,500 23,500
(a) 1,350 1,350
Totals 2,580 2,580 24,350 24,350 3,900 6,680 20,450 17,670
Totals 6,680 6,680 20,450 20,450
Chapter

Chap 4

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Chap 4

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CHAPTER 4

Steps in Preparing Reversing Current assets

Mar 31 Depreciation expense 250

Mar 31 Unearned revenue 380

Mar 31 Salaries expense 600

Incorrect Cash 780

Two step correction

Step # 2 – Record correct entry

One step correction

Incorrect Store Supplies 1,750

Two step correction

Step # 2 – Record correct entry

One step correction

Companies make a reversing entry at the beginning

Each reversing entry is the exact opposite of the

The use of reversing entries does not change the

Jay Kay Printing started operation from June 14th

1.Prepare adjusting journal entry required on June

2.Prepare reversing entries.

Formally recognize, in the general ledger, the

net income (or net loss) and

Closing entries also produce a zero balance in

Journalizing and posting is a required step in the

Closing entries are posted only at the end of the

Closing entries are recorded in the general

Income 1. Close Revenues to

Post Closing Trial Balance as at March 31, 201X

Account Titles Debit Credit

Accounts Receivable 3,200

Roofing Supplies 650

Accumulated Depreciation $ 1,500

Accounts Payable 2,500

Salaries payable 600

Unearned Revenue 170

J. Sasse, Capital (12,900 + 2,780 – 1,100) 14,580

Totals $ 19,350 $ 19,350

9. Prepare a post-closing 2. Journalize the

8. Journalize and post

6. Prepare an adjusted trial 5. Journalize and post

Presents a snapshot at a point in time.

To improve understanding, similar assets and

Standard Classifications Illustration 4-17

Assets Liabilities and Owner’s Equity

Operating cycle is the average time it takes

Operating cycle could be longer than one

Examples are Cash, Short term investments,

Companies usually list current asset accounts in the order

Normally held for many years.

Investments in long-term assets such as land or

Currently used in operations.

Examples are Land, Building, Machinery and

Reported at cost less depreciation and

Impairment loss - The amount by which the carrying

Recoverable amount is the higher of an asset’s (or

Accumulated depreciation - total amount of

Examples are Goodwill, Patents, Copyrights,

Reported at cost less amortization and

Amortization - allocating the cost of assets over

Impairment loss - The amount by which the

Recoverable amount is the higher of an asset’s

Examples are Notes payable, Accounts

Current maturities (payments due within the

Usually compared with Current assets to