Unadjusted Trial Balance Mega Stores Unadjusted Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,220 14 Supplies 2,000 15 Prepaid Insurance 2,400 17 Land 20,000 18 Office Equipment 1,800 Assets

Unadjusted Trial Balance Mega Stores Unadjusted Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,220 14 Supplies 2,000 15 Prepaid Insurance 2,400 17 Land 20,000 18 Office Equipment 1,800 21 Accounts Payable 900 23 Unearned Rent 360 Liabilities

Unadjusted Trial Balance Mega Stores Unadjusted Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,220 14 Supplies 2,000 15 Prepaid Insurance 2,400 17 Land 20,000 18 Office Equipment 1,800 21 Accounts Payable 900 23 Unearned Rent 360 31 Capital Stock 25,000 33 Dividends 4,000 Stockholders’ Equity

Unadjusted Trial Balance Mega Stores Unadjusted Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,220 14 Supplies 2,000 15 Prepaid Insurance 2,400 17 Land 20,000 18 Office Equipment 1,800 21 Accounts Payable 900 23 Unearned Rent 360 31 Capital Stock 25,000 33 Dividends 4,000 41 Fees Earned 16,340 Revenue

Unadjusted Trial Balance Mega Stores Unadjusted Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,220 14 Supplies 2,000 15 Prepaid Insurance 2,400 17 Land 20,000 18 Office Equipment 1,800 21 Accounts Payable 900 23 Unearned Rent 360 31 Pat King, Capital 25,000 32 Pat King, Drawing 4,000 41 Fees Earned 16,340 51 Wages Expense 4,275 52 Rent Expense 1,600 54 Utilities Expense 985 55 Supplies Expense 800 59 Miscellaneous Expense 455 42,600 42,600 Expenses

Unadjusted Trial Balance Mega Stores Unadjusted Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,220 14 Supplies 2,000 15 Prepaid Insurance 2,400 17 Land 20,000 18 Office Equipment 1,800 21 Accounts Payable 900 23 Unearned Rent 360 31 Capital Stock 25,000 33 Dividends 4,000 41 Fees Earned 16,340 51 Wages Expense 4,275 52 Rent Expense 1,600 54 Utilities Expense 985 55 Supplies Expense 800 59 Miscellaneous Expense 455 42,600 42,600

Expanded Chart of Accounts Mega Stores Expanded Chart of Accounts Balance Sheet Income Statement 1. Assets 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 19 Accumulated Depreciation 2. Liabilities 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 3. Stockholders’ Equity 31 Capital Stock 32 Retained Earnings 33 Dividends 4. Revenue 41 Fees Earned 42 Rent Revenue 5. Expenses 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Miscellaneous Expense

Expanded Chart of Accounts Mega Stores Expanded Chart of Accounts Balance Sheet Income Statement 1. Assets 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 19 Accumulated Depreciation 2. Liabilities 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 3. Stockholders’ Equity 31 Capital Stock 32 Retained Earnings 33 Dividends 4. Revenue 41 Fees Earned 42 Rent Revenue 5. Expenses 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Miscellaneous Expense

Expanded Chart of Accounts Mega Stores Expanded Chart of Accounts Balance Sheet Income Statement 1. Assets 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 19 Accumulated Depreciation 2. Liabilities 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 3. Stockholders’ Equity 31 Capital Stock 32 Retained Earnings 33 Dividends 4. Revenue 41 Fees Earned 42 Rent Revenue 5. Expenses 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Miscellaneous Expense

Expanded Chart of Accounts Mega Stores Expanded Chart of Accounts Balance Sheet Income Statement 1. Assets 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 19 Accumulated Depreciation 2. Liabilities 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 3. Stockholders’ Equity 31 Capital Stock 32 Retained Earnings 33 Dividends 4. Revenue 41 Fees Earned 42 Rent Revenue 5. Expenses 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Miscellaneous Expense

Expanded Chart of Accounts Mega Stores Expanded Chart of Accounts Balance Sheet Income Statement 1. Assets 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 19 Accumulated Depreciation 2. Liabilities 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 3. Stockholders’ Equity 31 Capital Stock 32 Retained Earnings 33 Dividends 4. Revenue 41 Fees Earned 42 Rent Revenue 5. Expenses 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Miscellaneous Expense

Business Transactions Entry C. Supplier (seller) Mega Stores buys supplies for $1,350, agreeing to pay in the near future. Supplies A promise to pay later receive Debit Mega Stores (buyer) give Credit give Credit General Journal Date Description Debit Credit 11/10 Supplies 1,350 Accounts Payable 1,350

Business Transactions Entry G. Internal Transaction (no external entity) At the end of the month, the cost of supplies on hand is $550. Use of supplies Supplies receive Debit Mega Stores (user) give Credit give Credit General Journal Date Description Debit Credit 11/30 Supplies Expense 800 Supplies 800 Balance of Supplies account $1,350 less $550 on hand = $800 used

Adjustments – Deferred Expense On December 1, Mega Stores purchased insurance for 24 months at a cost of $2,400. Example P1 – Purchase initially recorded as an asset. Adjustment A1 – Record insurance used for December, $100. Cash P1..... 2,400 Prepaid Insurance Assets P1..... 2,400 Insurance Expense Expenses

Adjustments – Deferred Expense On December 1, Mega Stores purchased insurance for 24 months at a cost of $2,400. Example P1 – Purchase initially recorded as an asset. Adjustment A1 – Record insurance used for December, $100. Cash P1..... 2,400 Prepaid Insurance Assets P1..... 2,400 A1..... 100 A1 Insurance Expense A1 A1.....100 Expenses

Adjustments – Deferred Expense On December 1, Mega Stores purchased insurance for 24 months at a cost of $2,400. Example P2 – Purchase initially recorded as an expense. Adjustment A2 – Record insurance unused as of December 31. Cash P2..... 2,400 Prepaid Insurance Assets Insurance Expense P2..... 2,400 Expenses

Adjustments – Deferred Expense On December 1, Mega Stores purchased insurance for 24 months at a cost of $2,400. Example P2 – Purchase initially recorded as an expense. Adjustment A2 – Record insurance unused as of December 31. Cash P2..... 2,400 Prepaid Insurance Assets A2..... 2,300 A2 A2 Insurance Expense P2..... 2,400 A2.....2,300 Expenses

Adjustments – Deferred Revenue On December 1, Mega Stores received cash of $360 for three months’ rent beginning December 1. Example S1 – Sale initially recorded as a liability. Adjustment A3 – Record rent earned for December. Cash S1..... 360 Unearned Rent Liabilities S1..... 360 Rent Revenue Revenues

Adjustments – Deferred Revenue On December 1, Mega Stores received cash of $360 for three months’ rent beginning December 1. Example S1 – Sale initially recorded as a liability. Adjustment A3 – Record rent earned for December. Cash S1..... 360 Unearned Rent Liabilities A3..... 120 S1..... 360 A3 A3 Rent Revenue A3.....120 Revenues

Adjustments – Deferred Revenue On December 1, Mega Stores received cash of $360 for three months’ rent beginning December 1. Example S2 – Sale initially recorded as revenue. Adjustment A4 – Record rent unearned as of December 31. Cash S2..... 360 Unearned Rent Liabilities Rent Revenue S2.....360 Revenues

Adjustments – Deferred Revenue On December 1, Mega Stores received cash of $360 for three months’ rent beginning December 1. Example S2 – Sale initially recorded as revenue. Adjustment A4 – Record rent unearned as of December 31. Cash S2..... 360 Unearned Rent Liabilities A4..... 240 A4 A4 Rent Revenue A4..... 240 S2.....360 Revenues

Adjustments – Accrued Expense Mega Stores received employee services for the last two days of December amounting to $250, to be paid later. Adjustment A5 – Record accrued wages of $250. Wages Payable Liabilities Wages Expense Bal.....4,275 Expenses

Adjustments – Accrued Expense Mega Stores received employee services for the last two days of December amounting to $250, to be paid later. Adjustment A5 – Record accrued wages of $250. Wages Payable Liabilities A5..... 250 A5 Wages Expense A5 Bal.....4,275 Expenses A5.....250

Adjustments – Accrued Revenue As of December 31, Mega Stores provided 25 hours of services at $20 per hour to be billed next month. Adjustment A6 – Record accrued fees earned of $500. Accounts Receivable Assets Bal.....2,220 Fees Earned Bal....16,340 Revenues

Adjustments – Accrued Revenue As of December 31, Mega Stores provided 25 hours of services at $20 per hour to be billed next month. Adjustment A6 – Record accrued fees earned of $500. Accounts Receivable Assets Bal.....2,220 A6..... 500 A6 Fees Earned A6 Bal....16,340 Revenues A6.....500

Mega Stores - Work Sheet - Two Months Ended 12/31/02 Trial Balance Adjustments Adj. Trial Balance Mega Stores - Work Sheet - Two Months Ended 12/31/02 Account Debit Credit Debit Credit Debit Credit 11 Cash 2,065 2,065 12 Accounts Receivable 2,220 (e) 500 2,720 14 Supplies 2,000 (a) 1,240 760 15 Prepaid Insurance 2,400 (b) 100 2,300 17 Land 20,000 20,000 18 Office Equipment 1,800 1,800 19 Accumulated Depr. 0 (f) 50 50 21 Accounts Payable 900 900 22 Wages Payable 0 (d) 250 250 23 Unearned Rent 360 (c) 120 240 31 Capital Stock 25,000 25,000 33 Dividends 4,000 4,000 41 Fees Earned 16,340 (e) 500 16,840 42 Rent Revenue 0 (c) 120 120 51 Wages Expense 4,275 (d) 250 4,525 52 Rent Expense 1,600 1,600 53 Depreciation Expense 0 (f) 50 50 54 Utilities Expense 985 985 55 Supplies Expense 800 (a) 1,240 2,040 56 Insurance Expense 0 (b) 100 100 59 Misc. Expense 455 455 42,600 42,600 2,260 2,260 43,400 43,400

Mega Stores - Work Sheet - Two Months Ended 12/31/02 Trial Balance Adjustments Adj. Trial Balance Mega Stores - Work Sheet - Two Months Ended 12/31/02 Account Debit Credit Debit Credit Debit Credit 11 Cash 2,065 2,065 12 Accounts Receivable 2,220 (e) 500 2,720 14 Supplies 2,000 (a) 1,240 760 15 Prepaid Insurance 2,400 (b) 100 2,300 17 Land 20,000 20,000 18 Office Equipment 1,800 1,800 19 Accumulated Depr. 0 (f) 50 50 21 Accounts Payable 900 900 22 Wages Payable 0 (d) 250 250 23 Unearned Rent 360 (c) 120 240 31 Capital Stock 25,000 25,000 33 Dividends 4,000 4,000 41 Fees Earned 16,340 (e) 500 16,840 42 Rent Revenue 0 (c) 120 120 51 Wages Expense 4,275 (d) 250 4,525 52 Rent Expense 1,600 1,600 53 Depreciation Expense 0 (f) 50 50 54 Utilities Expense 985 985 55 Supplies Expense 800 (a) 1,240 2,040 56 Insurance Expense 0 (b) 100 100 59 Misc. Expense 455 455 42,600 42,600 2,260 2,260 43,400 43,400

Mega Stores - Work Sheet - Two Months Ended 12/31/02 Trial Balance Adjustments Adj. Trial Balance Account Debit Credit Debit Credit Debit Credit Mega Stores - Work Sheet - Two Months Ended 12/31/02 11 Cash 2,065 2,065 12 Accounts Receivable 2,220 (e) 500 2,720 14 Supplies 2,000 (a) 1,240 760 15 Prepaid Insurance 2,400 (b) 100 2,300 17 Land 20,000 20,000 18 Office Equipment 1,800 1,800 19 Accumulated Depr. 0 (f) 50 50 21 Accounts Payable 900 900 22 Wages Payable 0 (d) 250 250 23 Unearned Rent 360 (c) 120 240 31 Capital Stock 25,000 25,000 33 Dividends 4,000 4,000 41 Fees Earned 16,340 (e) 500 16,840 42 Rent Revenue 0 (c) 120 120 51 Wages Expense 4,275 (d) 250 4,525 52 Rent Expense 1,600 1,600 53 Depreciation Expense 0 (f) 50 50 54 Utilities Expense 985 985 55 Supplies Expense 800 (a) 1,240 2,040 56 Insurance Expense 0 (b) 100 100 59 Misc. Expense 455 455 42,600 42,600 2,260 2,260 43,400 43,400

Mega Stores - Work Sheet - Two Months Ended 12/31/02 Trial Balance Adjustments Adj. Trial Balance Account Debit Credit Debit Credit Debit Credit 11 Cash 2,065 2,065 12 Accounts Receivable 2,220 (e) 500 2,720 14 Supplies 2,000 (a) 1,240 760 15 Prepaid Insurance 2,400 (b) 100 2,300 17 Land 20,000 20,000 18 Office Equipment 1,800 1,800 19 Accumulated Depr. 0 (f) 50 50 21 Accounts Payable 900 900 22 Wages Payable 0 (d) 250 250 23 Unearned Rent 360 (c) 120 240 31 Capital Stock 25,000 25,000 33 Dividends 4,000 4,000 41 Fees Earned 16,340 (e) 500 16,840 42 Rent Revenue 0 (c) 120 120 51 Wages Expense 4,275 (d) 250 4,525 52 Rent Expense 1,600 1,600 53 Depreciation Expense 0 (f) 50 50 54 Utilities Expense 985 985 55 Supplies Expense 800 (a) 1,240 2,040 56 Insurance Expense 0 (b) 100 100 59 Misc. Expense 455 455 42,600 42,600 2,260 2,260 43,400 43,400 Mega Stores - Work Sheet - Two Months Ended 12/31/02

Mega Stores - Work Sheet - Two Months Ended 12/31/02 Trial Balance Adjustments Adj. Trial Balance Account Debit Credit Debit Credit Debit Credit 11 Cash 2,065 2,065 12 Accounts Receivable 2,220 (e) 500 2,720 14 Supplies 2,000 (a) 1,240 760 15 Prepaid Insurance 2,400 (b) 100 2,300 17 Land 20,000 20,000 18 Office Equipment 1,800 1,800 19 Accumulated Depr. 0 (f) 50 50 21 Accounts Payable 900 900 22 Wages Payable 0 (d) 250 250 23 Unearned Rent 360 (c) 120 240 31 Capital Stock 25,000 25,000 33 Dividends 4,000 4,000 41 Fees Earned 16,340 (e) 500 16,840 42 Rent Revenue 0 (c) 120 120 51 Wages Expense 4,275 (d) 250 4,525 52 Rent Expense 1,600 1,600 53 Depreciation Expense 0 (f) 50 50 54 Utilities Expense 985 985 55 Supplies Expense 800 (a) 1,240 2,040 56 Insurance Expense 0 (b) 100 100 59 Misc. Expense 455 455 42,600 32,600 2,260 2,260 43,400 43,400 Mega Stores - Work Sheet - Two Months Ended 12/31/02

Mega Stores - Work Sheet - Two Months Ended 12/31/02 Trial Balance Adjustments Adj. Trial Balance Account Debit Credit Debit Credit Debit Credit 11 Cash 2,065 2,065 12 Accounts Receivable 2,220 (e) 500 2,720 14 Supplies 2,000 (a) 1,240 760 15 Prepaid Insurance 2,400 (b) 100 2,300 17 Land 20,000 20,000 18 Office Equipment 1,800 1,800 19 Accumulated Depr. 0 (f) 50 50 21 Accounts Payable 900 900 22 Wages Payable 0 (d) 250 250 23 Unearned Rent 360 (c) 120 240 31 Capital Stock 25,000 25,000 33 Dividends 4,000 4,000 41 Fees Earned 16,340 (e) 500 16,840 42 Rent Revenue 0 (c) 120 120 51 Wages Expense 4,275 (d) 250 4,525 52 Rent Expense 1,600 1,600 53 Depreciation Expense 0 (f) 50 50 54 Utilities Expense 985 985 55 Supplies Expense 800 (a) 1,240 2,040 56 Insurance Expense 0 (b) 100 100 59 Misc. Expense 455 455 42,600 42,600 2,260 2,260 43,400 43,400 Mega Stores - Work Sheet - Two Months Ended 12/31/02

Mega Stores - Work Sheet - Two Months Ended 12/31/99 Trial Balance Adjustments Adj. Trial Balance Account Debit Credit Debit Credit Debit Credit 11 Cash 2,065 2,065 12 Accounts Receivable 2,220 (e) 500 2,720 14 Supplies 2,000 (a) 1,240 760 15 Prepaid Insurance 2,400 (b) 100 2,300 17 Land 10,000 10,000 18 Office Equipment 1,800 1,800 19 Accumulated Depr. 0 (f) 50 50 21 Accounts Payable 900 900 22 Wages Payable 0 (d) 250 250 23 Unearned Rent 360 (c) 120 240 31 Capital Stock 15,000 15,000 33 Dividends 4,000 4,000 41 Fees Earned 16,340 (e) 500 16,840 42 Rent Revenue 0 (c) 120 120 51 Wages Expense 4,275 (d) 250 4,525 52 Rent Expense 1,600 1,600 53 Depreciation Expense 0 (f) 50 50 54 Utilities Expense 985 985 55 Supplies Expense 800 (a) 1,240 2,040 56 Insurance Expense 0 (b) 100 100 59 Misc. Expense 455 455 32,600 32,600 2,260 2,260 33,400 33,400 Mega Stores - Work Sheet - Two Months Ended 12/31/99

Mega Stores - Work Sheet - Two Months Ended 12/31/02 11 Cash 2,065 2,065 12 Accounts Receivable 2,220 (e) 500 2,720 14 Supplies 2,000 (a) 1,240 760 15 Prepaid Insurance 2,400 (b) 100 2,300 17 Land 20,000 20,000 18 Office Equipment 1,800 1,800 19 Accumulated Depr. 0 (f) 50 50 21 Accounts Payable 900 900 22 Wages Payable 0 (d) 250 250 23 Unearned Rent 360 (c) 120 240 31 Capital Stock 25,000 25,000 33 Dividends 4,000 4,000 41 Fees Earned 16,340 (e) 500 16,840 42 Rent Revenue 0 (c) 120 120 51 Wages Expense 4,275 (d) 250 4,525 52 Rent Expense 1,600 1,600 53 Depreciation Expense 0 (f) 50 50 54 Utilities Expense 985 985 55 Supplies Expense 800 (a) 1,240 2,040 56 Insurance Expense 0 (b) 100 100 59 Misc. Expense 455 455 42,600 42,600 2,260 2,260 43,400 43,400 Trial Balance Adjustments Adj. Trial Balance Account Debit Credit Debit Credit Debit Credit Mega Stores - Work Sheet - Two Months Ended 12/31/02

Mega Stores - Work Sheet - Two Months Ended 12/31/02 11 Cash 2,065 2,065 12 Accounts Receivable 2,220 (e) 500 2,720 14 Supplies 2,000 (a) 1,240 760 15 Prepaid Insurance 2,400 (b) 100 2,300 17 Land 20,000 20,000 18 Office Equipment 1,800 1,800 19 Accumulated Depr. 0 (f) 50 50 21 Accounts Payable 900 900 22 Wages Payable 0 (d) 250 250 23 Unearned Rent 360 (c) 120 240 31 Capital Stock 25,000 25,000 33 Dividends 4,000 4,000 41 Fees Earned 16,340 (e) 500 16,840 42 Rent Revenue 0 (c) 120 120 51 Wages Expense 4,275 (d) 250 4,525 52 Rent Expense 1,600 1,600 53 Depreciation Expense 0 (f) 50 50 54 Utilities Expense 985 985 55 Supplies Expense 800 (a)1,240 2,040 56 Insurance Expense 0 (b) 100 100 59 Misc. Expense 455 455 42,600 42,600 2,260 2,260 43,400 43,400 Trial Balance Adjustments Adj. Trial Balance Account Debit Credit Debit Credit Debit Credit Mega Stores - Work Sheet - Two Months Ended 12/31/02

Mega Stores - Work Sheet - Two Months Ended 12/31/02 Adj. Trial Balance Income Statement Balance Sheet Account Debit Credit Debit Credit Debit Credit 11 Cash 2,065 2,065 12 Accounts Receivable 2,720 2,720 14 Supplies 760 760 15 Prepaid Insurance 2,300 2,300 17 Land 20,000 20,000 18 Office Equipment 1,800 1,800 19 Accumulated Depr. 50 50 21 Accounts Payable 900 900 22 Wages Payable 250 250 23 Unearned Rent 240 240 31 Capital Stock 25,000 25,000 33 Dividends 4,000 4,000 41 Fees Earned 16,840 16,840 42 Rent Revenue 120 120 51 Wages Expense 4,525 4,525 52 Rent Expense 1,600 1,600 53 Depreciation Expense 50 50 54 Utilities Expense 985 985 55 Supplies Expense 2,040 2,040 56 Insurance Expense 100 100 59 Misc. Expense 455 455 43,400 43,400 9,755 16,960 33,645 26,440 Net Income 7,205 7,205 16,960 16,960 33,645 33,645

Mega Stores - Work Sheet - Two Months Ended 12/31/02 Adj. Trial Balance Income Statement Balance Sheet Account Debit Credit Debit Credit Debit Credit 11 Cash 2,065 2,065 12 Accounts Receivable 2,720 2,720 14 Supplies 760 760 15 Prepaid Insurance 2,300 2,300 17 Land 20,000 20,000 18 Office Equipment 1,800 1,800 19 Accumulated Depr. 50 50 21 Accounts Payable 900 900 22 Wages Payable 250 250 23 Unearned Rent 240 240 31 Capital Stock 25,000 25,000 33 Dividends 4,000 4,000 41 Fees Earned 16,840 16,840 42 Rent Revenue 120 120 51 Wages Expense 4,525 4,525 52 Rent Expense 1,600 1,600 53 Depreciation Expense 50 50 54 Utilities Expense 985 985 55 Supplies Expense 2,040 2,040 56 Insurance Expense 100 100 59 Misc. Expense 455 455 43,400 43,400 9,755 16,960 33,645 26,440 Net Income 7,205 7,205 16,960 16,960 33,645 33,645

Mega Stores - Work Sheet - Two Months Ended 12/31/02 Adj. Trial Balance Income Statement Balance Sheet Account Debit Credit Debit Credit Debit Credit 11 Cash 2,065 2,065 12 Accounts Receivable 2,720 2,720 14 Supplies 760 760 15 Prepaid Insurance 2,300 2,300 17 Land 10,000 20,000 18 Office Equipment 1,800 1,800 19 Accumulated Depr. 50 50 21 Accounts Payable 900 900 22 Wages Payable 250 250 23 Unearned Rent 240 240 31 Capital Stock 25,000 25,000 33 Dividends 4,000 4,000 41 Fees Earned 16,840 16,840 42 Rent Revenue 120 120 51 Wages Expense 4,525 4,525 52 Rent Expense 1,600 1,600 53 Depreciation Expense 50 50 54 Utilities Expense 985 985 55 Supplies Expense 2,040 2,040 56 Insurance Expense 100 100 59 Misc. Expense 455 455 43,400 43,400 9,755 16,960 33,645 26,440 Net Income 7,205 7,205 16,960 16,960 33,645 33,645

Mega Stores Income Statement For Two Months Ended December 31, 2002 Fees earned $16,840 Rent revenue 120 Total revenues $16,960 Expenses: Wages expense $ 4,525 Supplies expense 2,040 Rent expense 1,600 Utilities expense 985 Insurance expense 100 Depreciation expense 50 Miscellaneous expense 455 Total expenses 9,755 Net income $ 7,205

Mega Stores Retained Earnings Statement For Two Months Ended December 31, 2002 Net income for November and December $7,205 Less dividends 4,000 Retained earnings, December 31, 2002 $3,205

Mega Stores Balance Sheet December 31, 2002 ASSETS Current assets: Cash $ 2,065 Accounts receivable 2,720 Supplies 760 Prepaid insurance 2,300 Total current assets $ 7,845 Property, plant, and equipment: Land $20,000 Office equipment 1,800 Less accum. depr. (50) Total property, plant, and equipment 21,750 Total assets $29,595

Mega Stores Balance Sheet December 31, 2002 LIABILITIES Current liabilities: Accounts payable $ 900 Wages payable 250 Unearned rent 240 Total liabilities $ 1,390 STOCKHOLDERS’ EQUITY Capital stock $25,000 Retained earnings 3,205 Total stockholders’ equity 28,205 Total liabilities and stockholders’ equity $29,595

Miscellaneous Expense The Closing Process Wages Expense Bal. 4,525 Rent Expense Bal. 1,600 Depreciation Expense Bal. 50 Utilities Expense Bal. 985 Supplies Expense Bal. 2,040 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 Fees Earned Bal. 16,840 Income Summary Rent Revenue Bal. 120 Note: The balances shown are adjusted balances before closing. The following sequence demonstrates the closing process. Retained Earnings Bal. 0 Dividends Bal. 4,000

Miscellaneous Expense The Closing Process Wages Expense Bal. 4,525 Rent Expense Bal. 1,600 Depreciation Expense Bal. 50 Utilities Expense Bal. 985 Supplies Expense Bal. 2,040 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 Fees Earned Bal. 16,840 Income Summary 16,840 16,960 Rent Revenue Total Revenues 120 Bal. 120 Close Revenues Retained Earnings Bal. 0 Dividends Bal. 4,000

Miscellaneous Expense The Closing Process Wages Expense Fees Earned Bal. 16,840 Bal. 4,525 4,525 1,600 50 985 2,040 100 455 Income Summary 16,840 Rent Expense 9,755 16,960 Rent Revenue Bal. 1,600 Total Expenses Total Revenues 120 Bal. 120 Depreciation Expense Bal. 50 Utilities Expense Close Revenues Retained Earnings Bal. 985 Bal. 0 Close Expenses Supplies Expense Bal. 2,040 Insurance Expense Bal. 100 Dividends Miscellaneous Expense Bal. 455 Bal. 4,000

Miscellaneous Expense The Closing Process Wages Expense Fees Earned Bal. 16,840 Bal. 4,525 4,525 1,600 50 985 2,040 100 455 Income Summary 16,840 Rent Expense 9,755 16,960 Rent Revenue Bal. 1,600 7,205 120 Bal. 120 Depreciation Expense Closed Bal. 50 Utilities Expense Close Revenues Retained Earnings Bal. 985 Bal. 0 Close Expenses Supplies Expense 7,205 Bal. 2,040 Close Income Summary Net Income Insurance Expense Bal. 100 Dividends Miscellaneous Expense Bal. 455 Bal. 4,000

Miscellaneous Expense The Closing Process Wages Expense Fees Earned Bal. 16,840 Bal. 4,525 4,525 1,600 50 985 2,040 100 455 Income Summary 16,840 Rent Expense 9,755 16,960 Rent Revenue Bal. 1,600 7,205 120 Bal. 120 Depreciation Expense Closed Bal. 50 Utilities Expense Close Revenues Retained Earnings Bal. 985 4,000 Bal. 0 Close Expenses Supplies Expense Dividends 7,205 Bal. 2,040 Close Income Summary Net Income Insurance Expense Bal. 100 Close Dividends Dividends Miscellaneous Expense Bal. 455 Bal. 4,000 4,000 Closed

Miscellaneous Expense The Closing Process Wages Expense Fees Earned Income Summary Rent Expense Rent Revenue Depreciation Expense Utilities Expense Retained Earnings Dividends 4,000 Bal. 0 Supplies Expense 7,205 Net Income Insurance Expense Bal. 3,205 All temporary accounts now have zero balances and are ready for the next accounting period. Dividends Miscellaneous Expense

Post-Closing Trial Balance Mega Stores Post-Closing Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,720 14 Supplies 760 15 Prepaid Insurance 2,300 17 Land 20,000 18 Office Equipment 1,800 19 Accum. Depreciation 50 21 Accounts Payable 900 22 Wages Payable 250 23 Unearned Rent 240 31 Capital Stock 25,000 32 Retained Earnings 3,205 29,645 29,645 Assets

Post-Closing Trial Balance Mega Stores Post-Closing Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,720 14 Supplies 760 15 Prepaid Insurance 2,300 17 Land 20,000 18 Office Equipment 1,800 19 Accum. Depreciation 50 21 Accounts Payable 900 22 Wages Payable 250 23 Unearned Rent 240 31 Capital Stock 25,000 32 Retained Earnings 3,205 29,645 29,645 Liabilities

Post-Closing Trial Balance Mega Stores Post-Closing Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,720 14 Supplies 760 15 Prepaid Insurance 2,300 17 Land 20,000 18 Office Equipment 1,800 19 Accum. Depreciation 50 21 Accounts Payable 900 22 Wages Payable 250 23 Unearned Rent 240 31 Capital Stock 25,000 32 Retained Earnings 3,205 29,645 29,645 Stockholders’ Equity

Manual Accounting Cycle 1. Transactions are analyzed and recorded in journal. Documents Journal

Manual Accounting Cycle 1. Transactions are analyzed and recorded in journal. Documents Journal 2. Transactions are posted from journal to ledger. Journal Ledger

Manual Accounting Cycle 1. Transactions are analyzed and recorded in journal. Documents Journal 2. Transactions are posted from journal to ledger. Journal Ledger 3. Trial balance is prepared, adjustment data is organized, work sheet is completed. Work Sheet

Manual Accounting Cycle 1. Transactions are analyzed and recorded in journal. Documents Journal 2. Transactions are posted from journal to ledger. Journal Ledger 3. Trial balance is prepared, adjustment data is organized, work sheet is completed. Work Sheet 4. Financial statements are prepared and distributed. IS SOE BS SCF Financial Statements

Manual Accounting Cycle 5. Adjusting entries are journalized and posted to ledger. Ledger Journal

Manual Accounting Cycle 5. Adjusting entries are journalized and posted to ledger. Ledger Journal 6. Closing entries are journalized and posted to ledger. Ledger Journal

Manual Accounting Cycle 5. Adjusting entries are journalized and posted to ledger. Ledger Journal 6. Closing entries are journalized and posted to ledger. Ledger Journal Assets Liabilities Owner’s Equity 7. Post-closing trial balance is prepared. Post-closing Trial Balance

Manual Accounting Cycle 5. Adjusting entries are journalized and posted to ledger. Ledger Journal 6. Closing entries are journalized and posted to ledger. Ledger Journal Assets Liabilities Owner’s Equity 7. Post-closing trial balance is prepared. Post-closing Trial Balance 8. Reports are analyzed and interpreted for decision- making purposes. ?

Computer Accounting Cycle 1. Transactions are analyzed and entered in the computer. Documents Computer

Computer Accounting Cycle 1. Transactions are analyzed and entered in the computer. Documents Computer 2. Preliminary reports are analyzed, adjustments are prepared and entered in the computer. Computer Reports Computer

Computer Accounting Cycle 1. Transactions are analyzed and entered in the computer. Documents Computer 2. Preliminary reports are analyzed, adjustments are prepared and entered in the computer. Computer Reports Computer 3. Financial statements are printed and distributed. Financial Statements IS SOE BS SCF

Computer Accounting Cycle 1. Transactions are analyzed and entered in the computer. Documents Computer 2. Preliminary reports are analyzed, adjustments are prepared and entered in the computer. Computer Reports Computer 3. Financial statements are printed and distributed. Financial Statements IS SOE BS SCF 4. Reports are analyzed and interpreted for decision- making purposes. ?

Solvency Analysis Solvency is the ability of a business to meet its financial obligations (debts) as they are due. Solvency analysis focuses on the ability of a business to pay or otherwise satisfy its current and non-current liabilities. This ability is normally assessed by examining balance sheet relationships.

Solvency Measures — The Short-Term Creditor Working Capital and Current Ratio 2001 2002 Current assets $550,000 $533,000 Current liabilities 210,000 243,000

Solvency Measures — The Short-Term Creditor Working Capital and Current Ratio 2001 2002 Current assets $550,000 $533,000 Current liabilities 210,000 243,000 Working capital $340,000 $290,000 Use: To indicate the ability to meet currently maturing obligations.

Solvency Measures — The Short-Term Creditor Working Capital and Current Ratio 2001 2002 Current assets $550,000 $533,000 Current liabilities 210,000 243,000 Working capital $340,000 $290,000 Current ratio 2.6 to 1 2.2 to 1 Divide current assets by current liabilities Use: To indicate the ability to meet currently maturing obligations.

Working Capital and Current Ratio Objective: Analyze and interpret the financial solvency of a business by computing the working capital and the current ratio. Working Capital (WC) Current Ratio (CR) Current Assets minus Current Liabilities Current Assets Current Liabilities Example Mega Stores WC = $7,845 - $1,390 = $6,455 CR = $7,845 / $1,390 = 5.6