C4 - 1 Learning Objectives Power Notes Completing the Accounting Cycle Completing the Accounting Cycle 1.Work Sheet 2.Financial Statements 3.Adjusting and Closing Entries 4.Accounting Cycle 5.Fiscal Year 6.Financial Analysis and Interpretation Chapter F4 C4

C4 - 2 The Work Sheet Financial Statements The Closing Process Post-Closing Trial Balance Accounting Cycles Working Capital and Current Ratio Slide #Power Note Topics Note: To select a topic, type the slide # and press Enter. Power Notes Chapter F4 Completing the Accounting Cycle Completing the Accounting Cycle

C4 - 3 Trial Balance Adjustments Adj. Trial Balance NetSolutions - Work Sheet - Two Months Ended 12/31/02 AccountDebitCreditDebitCreditDebitCredit 11 Cash2,065 2, Accounts Receivable2,220 (e) 500 2, Supplies2,000 (a) 1, Prepaid Insurance2,400 (b) 100 2, Land 20,00020, Office Equipment 1,800 1, Accumulated Depr. 0 (f) Accounts Payable Wages Payable 0 (d) Unearned Rent 360 (c) Capital Stock25,00025, Dividends4,000 4, Fees Earned16,340 (e) 50016, Rent Revenue 0 (c) Wages Expense4,275 (d) 250 4, Rent Expense1,600 1, Depreciation Expense 0 (f) Utilities Expense Supplies Expense 800 (a) 1,240 2, Insurance Expense 0 (b) Misc. Expense ,60042,600 2,260 2,26043,40043,400

C4 - 4 Adj. Trial Balance Income Statement Balance Sheet AccountDebitCreditDebitCreditDebitCredit 11 Cash2,065 2, Accounts Receivable2,720 2, Supplies Prepaid Insurance2,300 2, Land 20,00020, Office Equipment1,800 1, Accumulated Depr Accounts Payable Wages Payable Unearned Rent Capital Stock 25,00025, Dividends 4,000 4, Fees Earned16,84016, Rent Revenue Wages Expense4,525 4, Rent Expense1,600 1, Depreciation Expense Utilities Expense Supplies Expense2,040 2, Insurance Expense Misc. Expense ,40043,400 9,75516,96033,64526,440 Net Income 7,205 7,205 16,96016,96033,64533,645 NetSolutions - Work Sheet - Two Months Ended 12/31/02

C4 - 5 NetSolutions Income Statement For Two Months Ended December 31, 2002 Fees earned$16,840 Rent revenue120 Total revenues$16,960 Expenses: Wages expense$ 4,525 Supplies expense2,040 Rent expense1,600 Utilities expense985 Insurance expense100 Depreciation expense50 Miscellaneous expense455 Total expenses9,755 Net income $ 7,205

C4 - 6 NetSolutions Retained Earnings Statement For Two Months Ended December 31, 2002 Net income for November and December$7,205 Less dividends4,000 Retained earnings, December 31, 2002$3,205

C4 - 7 NetSolutions Balance Sheet December 31, 2002 ASSETS Current assets: Cash$ 2,065 Accounts receivable2,720 Supplies760 Prepaid insurance2,300 Total current assets$ 7,845 Property, plant, and equipment: Land$20,000 Office equipment1,800 Less accum. depr.(50) Total property, plant, and equipment 21,750 Total assets$29,595

C4 - 8 NetSolutions 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

C4 - 9 The Work Sheet Trial Balance AccountsDrCrDrCrDrCr AdjustmentsAdjusted TB Prepared from general ledger. Accounts are listed in order: A, L, OE, R, E

C NetSolutions Post-Closing Trial Balance December 31, Cash2,065 12Accounts Receivable2,720 14Supplies760 15Prepaid Insurance2,300 17Land20,000 18Office Equipment1,800 19Accum. Depreciation50 21Accounts Payable900 22Wages Payable250 23Unearned Rent240 31Capital Stock25,000 32Retained Earnings3,20529,645 Stockholders’Equity

C The Work Sheet Adjustments are entered here. Two possibilities: 1. Deferrals – Existing balances are changed. 2. Accruals – New information is entered. Trial Balance AccountsDrCrDrCrDrCr AdjustmentsAdjusted TB

C The Work Sheet Adjustments are combined with the trial balance. Account balances are now adjusted. Trial Balance AccountsDrCrDrCrDrCr AdjustmentsAdjusted TB

C Trial Balance Adjustments Adj. Trial Balance NetSolutions - Work Sheet - Two Months Ended 12/31/02 AccountDebitCreditDebitCreditDebitCredit 11Cash2,0652,065 12Accounts Receivable2,220(e) 5002,720 14Supplies2,000(a) 1, Prepaid Insurance2,400(b) 1002,300 17Land20,00020,000 18Office Equipment1,8001,800 19Accumulated Depr.0(f) Accounts Payable Wages Payable0(d) Unearned Rent360(c) Capital Stock25,00025,000 33Dividends4,0004,000 41Fees Earned16,340(e) 50016,840 42Rent Revenue 0(c) Wages Expense4,275(d) 2504,525 52Rent Expense1,6001,600 53Depreciation Expense0(f) Utilities Expense Supplies Expense800(a) 1,2402,040 56Insurance Expense0(b) Misc. Expense ,60042,600 2,2602,26043,40043,400

C Trial Balance Adjustments Adj. Trial Balance AccountDebitCreditDebitCreditDebitCredit NetSolutions - Work Sheet - Two Months Ended 12/31/02 11Cash2,0652,065 12Accounts Receivable2,220(e) 5002,720 14Supplies2,000(a) 1, Prepaid Insurance2,400(b) 1002,300 17Land20,00020,000 18Office Equipment1,8001,800 19Accumulated Depr.0(f) Accounts Payable Wages Payable0(d) Unearned Rent360(c) Capital Stock25,00025,000 33Dividends 4,0004,000 41Fees Earned16,340(e) 50016,840 42Rent Revenue 0(c) Wages Expense4,275(d) 2504,525 52Rent Expense1,6001,600 53Depreciation Expense0(f) Utilities Expense Supplies Expense800(a) 1,2402,040 56Insurance Expense0(b) Misc. Expense ,60042,600 2,2602,26043,40043,400

C Trial Balance Adjustments Adj. Trial Balance AccountDebitCreditDebitCreditDebitCredit 11Cash2,0652,065 12Accounts Receivable2,220(e) 5002,720 14Supplies2,000(a) 1, Prepaid Insurance2,400(b) 1002,300 17Land20,00020,000 18Office Equipment1,8001,800 19Accumulated Depr.0(f) Accounts Payable Wages Payable0(d) Unearned Rent360(c) Capital Stock 25,00025,000 33Dividends 4,0004,000 41Fees Earned16,340(e) 50016,840 42Rent Revenue0(c) Wages Expense4,275(d) 2504,525 52Rent Expense1,6001,600 53Depreciation Expense0(f) Utilities Expense Supplies Expense800(a) 1,2402,040 56Insurance Expense0(b) Misc. Expense ,60042,600 2,2602,26043,40043,400 NetSolutions - Work Sheet - Two Months Ended 12/31/02

C Trial Balance Adjustments Adj. Trial Balance AccountDebitCreditDebitCreditDebitCredit 11Cash2,0652,065 12Accounts Receivable2,220(e) 5002,720 14Supplies2,000(a) 1, Prepaid Insurance2,400(b) 1002,300 17Land20,00020,000 18Office Equipment1,8001,800 19Accumulated Depr.0(f) Accounts Payable Wages Payable0(d) Unearned Rent360(c) Capital Stock 25,00025,000 33Dividends 4,0004,000 41Fees Earned16,340(e) 50016,840 42Rent Revenue 0(c) Wages Expense4,275(d) 2504,525 52Rent Expense1,6001,600 53Depreciation Expense0(f) Utilities Expense Supplies Expense800(a) 1,2402,040 56Insurance Expense0(b) Misc. Expense ,60032,600 2,2602,26043,40043,400 NetSolutions - Work Sheet - Two Months Ended 12/31/02

C Trial Balance Adjustments Adj. Trial Balance AccountDebitCreditDebitCreditDebitCredit 11Cash2,0652,065 12Accounts Receivable2,220(e) 5002,720 14Supplies2,000(a) 1, Prepaid Insurance2,400(b) 1002,300 17Land20,00020,000 18Office Equipment1,8001,800 19Accumulated Depr.0(f) Accounts Payable Wages Payable0(d) Unearned Rent360(c) Capital Stock 25,00025,000 33Dividends 4,0004,000 41Fees Earned16,340(e) 50016,840 42Rent Revenue 0(c) Wages Expense4,275(d) 2504,525 52Rent Expense1,6001,600 53Depreciation Expense0(f) Utilities Expense Supplies Expense800(a) 1,2402,040 56Insurance Expense0(b) Misc. Expense ,60042,600 2,2602,26043,40043,400 NetSolutions - Work Sheet - Two Months Ended 12/31/02

C Trial Balance Adjustments Adj. Trial Balance AccountDebitCreditDebitCreditDebitCredit 11Cash2,0652,065 12Accounts Receivable2,220(e) 5002,720 14Supplies2,000(a) 1, Prepaid Insurance2,400(b) 1002,300 17Land10,00010,000 18Office Equipment1,8001,800 19Accumulated Depr.0(f) Accounts Payable Wages Payable0(d) Unearned Rent360(c) Capital Stock 15,00015,000 33Dividends 4,0004,000 41Fees Earned16,340(e) 50016,840 42Rent Revenue 0(c) Wages Expense4,275(d) 2504,525 52Rent Expense1,6001,600 53Depreciation Expense0(f) Utilities Expense Supplies Expense800(a) 1,2402,040 56Insurance Expense0(b) Misc. Expense ,60032,600 2,2602,26033,40033,400 NetSolutions - Work Sheet - Two Months Ended 12/31/99

C Cash2,0652,065 12Accounts Receivable2,220(e) 5002,720 14Supplies2,000(a) 1, Prepaid Insurance2,400(b) 1002,300 17Land20,00020,000 18Office Equipment1,8001,800 19Accumulated Depr.0(f) Accounts Payable Wages Payable0(d) Unearned Rent360(c) Capital Stock 25,00025,000 33Dividends 4,0004,000 41Fees Earned16,340(e) 50016,840 42Rent Revenue 0(c) Wages Expense4,275(d) 2504,525 52Rent Expense1,6001,600 53Depreciation Expense0(f) Utilities Expense Supplies Expense800(a) 1,2402,040 56Insurance Expense0(b) Misc. Expense ,60042,600 2,2602,26043,40043,400 Trial Balance Adjustments Adj. Trial Balance AccountDebitCreditDebitCreditDebitCredit NetSolutions - Work Sheet - Two Months Ended 12/31/02

C Cash2,0652,065 12Accounts Receivable2,220(e) 5002,720 14Supplies2,000(a) 1, Prepaid Insurance2,400(b) 1002,300 17Land20,00020,000 18Office Equipment1,8001,800 19Accumulated Depr.0(f) Accounts Payable Wages Payable0(d) Unearned Rent360(c) Capital Stock 25,00025,000 33Dividends 4,0004,000 41Fees Earned16,340(e) 50016,840 42Rent Revenue 0(c) Wages Expense4,275(d) 2504,525 52Rent Expense1,6001,600 53Depreciation Expense0(f) Utilities Expense Supplies Expense800(a) 1,2402,040 56Insurance Expense0(b) Misc. Expense ,60042,600 2,2602,26043,40043,400 Trial Balance Adjustments Adj. Trial Balance AccountDebitCreditDebitCreditDebitCredit NetSolutions - Work Sheet - Two Months Ended 12/31/02

C Adj. Trial Balance Income Statement Balance Sheet AccountDebitCreditDebitCreditDebitCredit 11Cash2,0652,065 12Accounts Receivable2,7202,720 14Supplies Prepaid Insurance2,3002,300 17Land20,00020,000 18Office Equipment1,8001,800 19Accumulated Depr Accounts Payable Wages Payable Unearned Rent Capital Stock 25,00025,000 33Dividends 4,0004,000 41Fees Earned16,84016,840 42Rent Revenue Wages Expense4,5254,525 52Rent Expense1,6001,600 53Depreciation Expense Utilities Expense Supplies Expense2,0402,040 56Insurance Expense Misc. Expense ,40043,400 9,75516,96033,64526,440 Net Income7,2057,205 16,96016,96033,64533,645 NetSolutions - Work Sheet - Two Months Ended 12/31/02

C Adj. Trial Balance Income Statement Balance Sheet AccountDebitCreditDebitCreditDebitCredit 11Cash2,0652,065 12Accounts Receivable2,7202,720 14Supplies Prepaid Insurance2,3002,300 17Land10,00020,000 18Office Equipment1,8001,800 19Accumulated Depr Accounts Payable Wages Payable Unearned Rent Capital Stock 25,00025,000 33Dividends 4,0004,000 41Fees Earned16,84016,840 42Rent Revenue Wages Expense4,5254,525 52Rent Expense1,6001,600 53Depreciation Expense Utilities Expense Supplies Expense2,0402,040 56Insurance Expense Misc. Expense ,40043,400 9,75516,96033,64526,440 Net Income7,2057,205 16,96016,96033,64533,645 NetSolutions - Work Sheet - Two Months Ended 12/31/02

C 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 Rent Revenue Bal. 120 Retained Earnings Bal. 0 Dividends Bal. 4,000 Income Summary Note: Note: The balances shown are adjusted balances before closing. The following sequence demonstrates the closing process. The Closing Process

C 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 Rent Revenue Bal , Income Summary 16,960 16,960 Retained Earnings Close Revenues Close Revenues Bal. 0 Dividends Bal. 4,000 Total Revenues The Closing Process

C 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 ,5251, , Fees Earned Bal. 16,840 Rent Revenue Bal , Income Summary 16,960 16,9609,755 Retained Earnings Close Revenues Close Revenues Bal. 0 Dividends Bal. 4,000 Close Expenses Close Expenses Total Expenses Total Revenues The Closing Process

C 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 ,5251, , Fees Earned Bal. 16,840 Rent Revenue Bal , Income Summary 16,960 16,9609,755 Retained Earnings Close Revenues Close Revenues Bal.0 Dividends Bal. 4,000 Close Expenses Close Expenses The Closing Process 7,205 7,205 7,205 Close Income Summary Net Income Closed

C 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 ,5251, , Fees Earned Bal. 16,840 Rent Revenue Bal , Income Summary 16,960 16,9609,755 Retained Earnings Close Revenues Close Revenues Bal. 0 Dividends Bal. 4,000 Close Expenses Close Expenses The Closing Process 7,205 7,205 7,205 Close Income Summary Close Income Summary Net Income 4,000 4,000 Close Dividends Close Dividends Dividends Closed

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

C NetSolutions Post-Closing Trial Balance December 31, Cash2,065 12Accounts Receivable2,720 14Supplies760 15Prepaid Insurance2,300 17Land20,000 18Office Equipment1,800 19Accum. Depreciation50 21Accounts Payable900 22Wages Payable250 23Unearned Rent240 31Capital Stock25,000 32Retained Earnings3,20529,645 Assets

C NetSolutions Post-Closing Trial Balance December 31, Cash2,065 12Accounts Receivable2,720 14Supplies760 15Prepaid Insurance2,300 17Land20,000 18Office Equipment1,800 19Accum. Depreciation50 21Accounts Payable900 22Wages Payable250 23Unearned Rent240 31Capital Stock25,000 32Retained Earnings3,20529,645 Liabilities

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

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

C 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

C 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. Financial Statements IS SOE BSSCF

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

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

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

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

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

C 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

C 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 3.Financial statements are printed and distributed. Financial Statements IS SOE BSSCF Computer

C 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 3.Financial statements are printed and distributed. Financial Statements IS SOE BSSCF Computer 4.Reports are analyzed and interpreted for decision- making purposes. ?

C 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 noncurrent liabilities. This ability is normally assessed by examining balance sheet relationships.

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

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

C Solvency Measures — The Short-Term Creditor Current assets $550,000$533,000 Current liabilities 210, ,000 Working capital$340,000$290,000 Current ratio2.6 to 12.2 to 1 Working Capital and Current Ratio Use:To indicate the ability to meet currently maturing obligations Divide current assets by current liabilities

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

C Note: To see the topic slide, type 2 and press Enter. This is the last slide in Chapter F4. Power Notes Completing the Accounting Cycle Completing the Accounting Cycle Chapter F4