Student Version o Repetition is an important component, a key part of learning. In memory, the more times patterns of thought are repeated, the more likely you will be able to recall information. o These PowerPoint slides have been modified from the lecture decks by making them fill-in-the-blank. Why? So that you get an opportunity to repeat a visual cue (from the lecture or the book) via completing text here. o In addition, most text book exhibits have been removed as they are available in your text directly.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Completing the Accounting Cycle Chapter 4

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements. 1

Flow of Accounting Information o Account balances are listed in the ________ ________ ________ column using the ________ balances found in the ________ ________. End-of-Period Spreadsheet (Work Sheet) Unadjusted TB AccountsDrCrDrCrDrCr AdjustmentsAdjusted TB (continued)

Flow of Accounting Information o Adjustments are entered here. Two possibilities:  ________– ________ balances are ________  ________– ________ information is entered End-of-Period Spreadsheet (Work Sheet) AccountsDrCrDrCrDrCr AdjustmentsAdjusted TB (continued) Unadjusted TB

Flow of Accounting Information  ________ are combined with the ________ ________ ________ amounts. Account balances are now ________. AccountsDrCrDrCrDrCr AdjustmentsAdjusted TB End-of-Period Spreadsheet (Work Sheet) (continued) Unadjusted TB

Flow of Accounting Information o ________ and ________ balances in the Adjusted Trial Balance column are ________ to the ________ ________ column. Adjusted TB AccountsDrCrDrCrDrCr Income State.Balance Sheet End-of-Period Spreadsheet (Work Sheet) (continued)

Flow of Accounting Information o ________, ________, ________ ________, and ________ balances in the Adjusted Trial Balance column are ________ to the ________ ________ column. Adjusted TB AccountsDrCrDrCrDrCr Income State.Balance Sheet End-of-Period Spreadsheet (Work Sheet) (concluded)

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Prepare financial statements from adjusted account balances. 2

Income Statement o The income statement is prepared directly from the Income Statement or Adjusted Trial Balance columns of the end-of-period spreadsheet (work sheet) beginning with fees earned of $16,840.

F INANCIAL S TATEMENT P REPARATION FROM E ND - OF -P ERIOD S PREADSHEET – I NCOME S TATEMENT to _____________ of ________ ________

Statement of ________ ________ o The first item presented on the ________ of ________ ________ is the balance of the ________ ________ account at the ________ of the period.

F INANCIAL S TATEMENT P REPARATION FROM E ND - OF - P ERIOD S PREADSHEET – S TATEMENT OF O WNER ’ S E QUITY from the _____________ _____________ to the _____________ _____________

_____________ _____________ o The _____________ _____________ is prepared directly from the Balance Sheet or _____________ _____________ _____________ columns of the end-of-period spreadsheet (or _____________ ), beginning with _____________ of $2,065.

F INANCIAL S TATEMENT P REPARATION FROM E ND - OF -P ERIOD S PREADSHEET – B ALANCE S HEET from the __________ of __________ __________

__________ Balance __________ o A __________ __________ __________ is a balance sheet that was __________ by adding subsections for (1) _______ assets, (2) property, plant, and equipment, (3) current liabilities, and (4) ________ liabilities.

__________ A SSETS ________ and other ________ that are expected to be ________ into ________, ________, or used up usually within ___ _____ or ________, through the normal operations of the business, are called ________ ________.  ___________  _____________

____________ Receivable o ____________ ____________ are written promises by the customer to ______ the amount of the ____________ and possibly ____________ at an ____________ agreed ____________.

________ A SSETS __________, __________, and __________ (also called fixed assets or __________ __________ ) include assets that __________ over a period of time. __________ is an exception, since it is __________ subject to __________.  __________

C URRENT __________ __________ that will be due within a __________ time (usually _______ _____ or ___) and that are to be paid out of __________ __________ are called __________ __________.  __________

__________ L IABILITIES __________ __________ due for a __________ __________ (usually _____ than ____ year) are called __________ __________.  __________

Owner’s Equity o __________ __________ is the __________ __________ to the __________ of the business. __________ __________ is __________ to the __________ liabilities, and this combined total must be __________ to the __________ __________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Prepare closing entries. 3

Closing Entries o Accounts that are relatively __________ from year to year are called __________ __________ or __________ accounts. These accounts are carried __________ from __________ to __________.

Closing Entries o Accounts that report amounts for only __________ period are called __________ __________ or __________ accounts. __________ accounts are not ____ ______ because they relate to __________ __________ period.

Closing Entries o To report amounts for ______ ______ period, ______ accounts should have zero balances at the ______ of the ______ period. o To achieve this, the ______ and ______ account balances are transferred to ______ ______ at the ______ of the period.

Closing Entries o The balance of ______ ______ (net ______ or ______ ______ ) is then transferred to the ______ ______ account. o The balance of the owner’s ______ account is also transferred to the ______ ______ account. o The entries that ______ these balances are called ______ ______.

Closing Entries o ______ ______ is a temporary account that is only used during the ______ ______. o At the end of the ______ ______, the ______ ______ account will have a zero balance. o ______ ______ is sometimes called a ______ account.

______ ______ Balances o After the ______ entries are ______, all of the temporary accounts have ______ balances.

________- Closing ______ ______ o A ______ ______ ______ is prepared ______ the closing entries have been ______. The purpose of the ______ (after closing) ______ balance is to verify that the ______ is in balance at the ______ of the next period.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe the accounting cycle. 4

____________ Cycle o The accounting process that begins with analyzing and journalizing transactions and ends with preparing the accounting records for the next period’s transactions is called the ______ ______. There are ______ steps in the ______ ______.

Accounting Cycle 1. _________________________________________ 2. _________________________________________ 3. _________________________________________ 4. _________________________________________ 5. _________________________________________ (continued)

Accounting Cycle 6. _________________________________________ 7. _________________________________________ 8. _________________________________________ 9. _________________________________________ 10. ________________________________________

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Illustrate the accounting cycle for one period. 5

I NCOME S TATEMENT (continued)

S TATEMENT OF O WNER ’ S E QUITY (continued)

B ALANCE S HEET (concluded)

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Explain what is meant by the fiscal year and the natural business year. 6

Accounting ________ o The ________ accounting period ________ by a business is known as its ________ year. o When a business adopts a ________ ________ that ________ when business activities have reached the ________ point in its annual operation, such a ________ ________ is also called the ________ ________ ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe and illustrate the use of working capital and the current ratio in evaluating a company’s financial condition. 7

Working ________ and ________ Ratio o The ability to convert assets into ________ is called ________.

Working ________ and ________ Ratio o The ability of a business to pay its ________ is called ________.

________ ________ and Current Ratio o ________ ________ is the excess of the ________ ________ of a business over its ________ ________.

Working Capital and Current Ratio o NetSolutions’ working capital at the end of 2013 is $6,355 as computed below. This amount of working capital implies that NetSolutions is able to pay its current liabilities. Working Capital = Current Assets – Current liabilities = $7,745 – $1,390 = $6,355

Working Capital and ________ ________ o The ________ ratio is another means of expressing the relationship between ________ ________ and ________ ________. The ________ ________ is computed by dividing ________ ________ by ________ ________.

Current Ratio = Current Assets Current Liabilities = $7,745 $1,390 = 5.6 (rounded) Working Capital and Current Ratio o The current ratio for NetSolutions at the end of 2013 is 5.6, computed as follows:

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Appendix: End-of-Period Spreadsheet

49 Account TitleDebitCreditDebitCreditDebitCredit Unadjusted Trial Balance Adjustments Trial Balance Adjusted Cash2,065 Accounts Receivable2,220 Supplies2,000 Prepaid Insurance2,400 Land20,000 Office Equipment1,800 Accumulated Depr. Accounts Payable900 Wages Payable Unearned Rent360 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 Fees Earned16,340 Rent Revenue Wages Expense4,275 Rent Expense1,600 Depreciation Expense Utilities Expense985 Supplies Expense800 Insurance Expense Miscellaneous Exp.45542,600 The unadjusted trial balance is checked for equality.

50 Account TitleDebitCreditDebitCreditDebitCredit Trial Balance Adjustments Trial Balance Adjusted Supplies needs adjusting Cash2,065 Accounts Receivable2,220 Supplies2,000 Prepaid Insurance2,400 Land20,000 Office Equipment1,800 Accumulated Depr. Accounts Payable900 Wages Payable Unearned Rent360 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 Fees Earned16,340 Rent Revenue Wages Expense4,275 Rent Expense1,600 Depreciation Expense Utilities Expense985 Supplies Expense800 Insurance Expense Miscellaneous Exp.45542,600 Unadjusted

51 Account TitleDebitCreditDebitCreditDebitCredit Trial Balance Adjustments Trial Balance Adjusted Cash2,065 Accounts Receivable2,220 Supplies2,000 Prepaid Insurance2,400 Land20,000 Office Equipment1,800 Accumulated Depr. Accounts Payable900 Wages Payable Unearned Rent360 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 Fees Earned16,340 Rent Revenue Wages Expense4,275 Rent Expense1,600 Depreciation Expense Utilities Expense985 Supplies Expense800 Insurance Expense Miscellaneous Exp.45542,600 (a) Cost of supplies on hand at December 31 is $760. Unadjusted (a) 1,240

52 Account TitleDebitCreditDebitCreditDebitCredit Trial Balance Adjustments Trial Balance Adjusted (a) 1,240 Cash2,065 Accounts Receivable2,220 Supplies2,000 Prepaid Insurance2,400 Land20,000 Office Equipment1,800 Accumulated Depr. Accounts Payable900 Wages Payable Unearned Rent360 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 Fees Earned16,340 Rent Revenue Wages Expense4,275 Rent Expense1,600 Depreciation Expense Utilities Expense985 Supplies Expense800 Insurance Expense Miscellaneous Exp.45542,600 (a) 1,240 (b) The insurance expense for December is $200 ($2,400 ÷ 12). Unadjusted (b) 200

53 Account TitleDebitCreditDebitCreditDebitCredit (c) 120 Trial Balance Adjustments Trial Balance Adjusted (b) 200 (a) 1,240 (b) 200 Cash2,065 Accounts Receivable2,220 Supplies2,000 Prepaid Insurance2,400 Land20,000 Office Equipment1,800 Accumulated Depr. Accounts Payable900 Wages Payable Unearned Rent360 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 Fees Earned16,340 Rent Revenue Wages Expense4,275 Rent Expense1,600 Depreciation Expense Utilities Expense985 Supplies Expense800 Insurance Expense Miscellaneous Exp.45542,600 (a) 1,240 (c) Rent revenue earned during December was $120 ($360 ÷ 3). Unadjusted

54 Account TitleDebitCreditDebitCreditDebitCredit Trial Balance Adjustments Trial Balance Adjusted (b) 200 (a) 1,240 (b) 200 (c) 120 (d) 500 Cash2,065 Accounts Receivable2,220 Supplies2,000 Prepaid Insurance2,400 Land20,000 Office Equipment1,800 Accumulated Depr. Accounts Payable900 Wages Payable Unearned Rent360 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 Fees Earned16,340 Rent Revenue Wages Expense4,275 Rent Expense1,600 Depreciation Expense Utilities Expense985 Supplies Expense800 Insurance Expense Miscellaneous Exp.45542,600 (a) 1,240 (d) Fees accrued at the end of December, but not recorded, totaled $500. Unadjusted

55 Account TitleDebitCreditDebitCreditDebitCredit (e) 250 Trial Balance Adjustments Trial Balance Adjusted (b) 200 (a) 1,240 (d) 500 (b) 200 (c) 120 Cash2,065 Accounts Receivable2,220 Supplies2,000 Prepaid Insurance2,400 Land20,000 Office Equipment1,800 Accumulated Depr. Accounts Payable900 Wages Payable Unearned Rent360 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 Fees Earned16,340 Rent Revenue Wages Expense4,275 Rent Expense1,600 Depreciation Expense Utilities Expense985 Supplies Expense800 Insurance Expense Miscellaneous Exp.45542,600 (d) 500 (e) 250 (a) 1,240 ( (e) Wages accrued, but not paid, at the end of December totaled $250. Unadjusted

56 Account TitleDebitCreditDebitCreditDebitCredit Trial Balance Adjustments Trial Balance Adjusted (b) 200 (a) 1,240 (d) 500 (c) 120 (d) 500 (f) 50 (b) 200 Cash2,065 Accounts Receivable2,220 Supplies2,000 Prepaid Insurance2,400 Land20,000 Office Equipment1,800 Accumulated Depr. Accounts Payable900 Wages Payable Unearned Rent360 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 Fees Earned16,340 Rent Revenue Wages Expense4,275 Rent Expense1,600 Depreciation Expense Utilities Expense985 Supplies Expense800 Insurance Expense Miscellaneous Exp.45542,600 (e) 250 (a) 1,240 (e) 250 (f) Depreciation of office equipment is $50 for December. Unadjusted

57 Account TitleDebitCreditDebitCreditDebitCredit ,360 Trial Balance Adjustments Trial Balance Adjusted (b) 200 (a) 1,240 (d) 500 (c) 120 (f) 50 (b) 200 (a) 1,240 (e) 250 (d) 500 Cash2,065 Accounts Receivable2,220 Supplies2,000 Prepaid Insurance2,400 Land20,000 Office Equipment1,800 Accumulated Depr. Accounts Payable900 Wages Payable Unearned Rent360 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 Fees Earned16,340 Rent Revenue Wages Expense4,275 Rent Expense1,600 Depreciation Expense Utilities Expense985 Supplies Expense800 Insurance Expense Miscellaneous Exp.45542,600 Summed and ruled (f) 50 Unadjusted

Add / Subtract Adjustments o The next step is to add or subtract the adjustments to (or from) the amounts found in the Unadjusted Trial Balance columns and enter the results in the Adjusted Trial Balance columns.

59 Account TitleDebitCreditDebitCreditDebitCredit Trial Balance Adjustments Trial Balance Adjusted 2,360 (b) 200 (a) 1,240 (d) 500 (c) 120 (d) 500 (f) 50 (b) 200 (a) 1,240 (e) 250 Cash2,0652,065 Accounts Receivable2,2202,720 Supplies2, Prepaid Insurance2,4002,200 Land20,00020,000 Office Equipment1,8001,800 Accumulated Depr.50 Accounts Payable Wages Payable250 Unearned Rent Chris Clark, Capital25,00025,000 Chris Clark, Drawing4,0004,000 Fees Earned16,34016,840 Rent Revenue120 Wages Expense4,2754,525 Rent Expense1,6001,600 Depreciation Expense50 Utilities Expense Supplies Expense8002,040 Insurance Expense200 Miscellaneous Exp ,60042,600 43,40043,400 (f) 50 Unadjusted (e) 250

Spreadsheet o Preparing the work sheet as a spreadsheet allows the computer to assist you in the process. The spreadsheet illustrated in Exhibit 1 has been reproduced on the next slide.

Extending Amounts to Statement Columns o The next step is to extend amounts in the Adjusted Trial Balance columns to the Income Statement and Balance Sheet columns. Because of space limitations, the unadjusted trial balance and the adjustments columns have been removed for the remainder of this slide presentation.

63 Account TitleDebitCreditDebitCreditDebitCredit Trial Balance Income Statement Balance Sheet Adjusted Cash2,0652,065 Accounts Receivable2,7202,720 Supplies Prepaid Insurance2,2002,200 Land20,00020,000 Office Equipment1,8001,800 Accumulated Depr.5050 Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital25,00025,000 Chris Clark, Drawing4,0004,000 Fees Earned16,84016,840 Rent Revenue Wages Expense4,5254,525 Rent Expense1,6001,600 Depreciation Expense5050 Utilities Expense Supplies Expense2,0402,040 Insurance Expense Miscellaneous Exp ,400

64 Account TitleDebitCreditDebitCreditDebitCredit Trial Balance Income Statement Balance Sheet Adjusted The four columns are summed. Cash2,0652,065 Accounts Receivable2,7202,720 Supplies Prepaid Insurance2,2002,200 Land20,00020,000 Office Equipment1,8001,800 Accumulated Depr.5050 Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital25,00025,000 Chris Clark, Drawing4,0004,000 Fees Earned16,84016,840 Rent Revenue Wages Expense4,5254,525 Rent Expense1,6001,600 Depreciation Expense5050 Utilities Expense Supplies Expense2,0402,040 Insurance Expense Miscellaneous Exp ,40043,4009,85516,96033,54526,440

Determining Net Income (Net Loss) o The difference between the Income Statement column totals and Balance Sheet column totals is net income (or net loss) for the period. 9,85516,96033,54526,4407,105 16,96016,96033,54533,545 Income Statement Balance Sheet Net Income

66 Account TitleDebitCreditDebitCreditDebitCredit Trial Balance Income Statement Balance Sheet Adjusted Cash2,0652,065 Accounts Receivable2,7202,720 Supplies Prepaid Insurance2,2002,200 Land20,00020,000 Office Equipment1,8001,800 Accumulated Depr.5050 Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital25,00025,000 Chris Clark, Drawing4,0004,000 Fees Earned16,84016,840 Rent Revenue Wages Expense4,5254,525 Rent Expense1,6001,600 Depreciation Expense5050 Utilities Expense Supplies Expense2,0402,040 Insurance Expense Miscellaneous Exp ,40043,4009,85516,96033,54526,440 Net income7,105 7,105 16,96016,96033,54533,545

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Completing the Accounting Cycle The End