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Presentation transcript:

Lecture 09 Chapter 04 Completing the Accounting Cycle Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc.

Review of Lecture The Matching Concept and the Adjusting Process Reporting Revenues and Expenses Deferred Expenses (Prepaid Expenses) Deferred Revenue (Unearned Revenue) Accrued Expenses (Accrued Liabilities) Accrued Revenues (Accrued Assets) Fixed Assets Effect of Omitting Adjustment Summary of Basic Adjustments Adjusted Trial Balance Vertical Analysis and Interpretation

1.Transactions are analyzed and recorded in the journal. 2.Transactions are posted to the ledger. 3.A trial balance is prepared, adjustment data are assembled, and an optional work sheet is completed. 4.Financial statements are prepared. 5.Adjusting entries are journalized and posted. 6.Closing entries are journalized and posted. 7.A post-closing trial balance is prepared.

Opportunities Inc.’ Adjusted Trial Balance for December 31, 2010

Opportunities Adjusted Trial Balance December 31, 2010 Cash2 065 Accounts Receivable2 720 Supplies760 Prepaid Insurance2 300 Land Office Equipment1 800 Accumulated Depreciation50 Accounts Payable900 Wages Payable250 Unearned Rent240 Javid Iqbal, Capital Javid Iqbal, Drawing4 000 Fees Earned Rent Revenue120 Wages Expense4 525 Rent Expense1 600 Utilities Expense985 Supplies Expense2 040 Insurance Expense100 Miscellaneous Expense

Opportunities Adjusted Trial Balance December 31, 2010 Cash2 065 Accounts Receivable2 720 Supplies760 Prepaid Insurance2 300 Land Office Equipment1 800 Accumulated Depreciation50 Accounts Payable900 Wages Payable250 Unearned Rent240 Javid Iqbal, Capital Javid Iqbal, Drawing4 000 Fees Earned Rent Revenue120 Wages Expense4 525 Rent Expense1 600 Utilities Expense985 Supplies Expense2 040 Insurance Expense100 Miscellaneous Expense

That’s correct. Cash and other assets that are expected to be converted into cash, sold, or used up usually in less than a year are current assets.

 Accounts payable  Wages payable  Interest payable  Unearned fees

Mortgage note payable Mortgage payable Bond payable

Trial Balance AccountsDrCrDrCrDrCr AdjustmentsAdjusted TB Prepared from the general ledger. Accounts are listed in the following order: assets, liabilities, stockholders’ equity, revenues, and expenses.

Trial Balance AccountsDrCrDrCrDrCr AdjustmentsAdjusted TB

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

Cash2,065 Accounts Receivable2,220 Supplies2,000 Prepaid Insurance2,400 Land20,000 Office Equipment1,800 Accounts Payable900 Unearned Rent360 Capital Stock25,000 Dividends4,000 Fees Earned16,340 Wages Expense4,275 Rent Expense1,600 Utilities Expense985 Supplies Expense800 Miscellaneous Expense45542,600 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Adjustments Trial Balance Opportunities Inc. Work Sheet For the Two Months Ended December 31, 2010

Review of Lecture

End of Lecture 09

Lecture 10 Chapter 04 Completing the Accounting Cycle Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc.

Review of Previous Lecture

Cash2,065 Accounts Receivable2,220 Supplies2,000 Prepaid Insurance2,400 Land20,000 Office Equipment1,800 Accounts Payable900 Unearned Rent360 Capital Stock25,000 Dividends4,000 Fees Earned16,340 Wages Expense4,275 Rent Expense1,600 Utilities Expense985 Supplies Expense800 Miscellaneous Expense45542,600 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Adjustments Trial Balance Opportunities Inc. Work Sheet For the Two Months Ended December 31, 2010

Cash2,065 Accounts Receivable2,220 Supplies2,000 Prepaid Insurance2,400 Land20,000 Office Equipment1,800 Accounts Payable900 Unearned Rent360 Capital Stock25,000 Dividends4,000 Fees Earned16,340 Wages Expense4,275 Rent Expense1,600 Utilities Expense985 Supplies Expense800 Miscellaneous Expense45542,600 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Adjustments Trial Balance Opportunities Inc. Work Sheet For the Two Months Ended December 31, 2010 (a) 1,240

Cash2,065 Accounts Receivable2,220 Supplies2,000(a) 1,240 Prepaid Insurance2,400 Land20,000 Office Equipment1,800 Accounts Payable900 Unearned Rent360 Capital Stock25,000 Dividends4,000 Fees Earned16,340 Wages Expense4,275 Rent Expense1,600 Utilities Expense985 Supplies Expense800(a) 1,240 Miscellaneous Expense45542,600 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Adjustments Trial Balance Opportunities Inc. Work Sheet For the Two Months Ended December 31, 2010 Insurance Expense(b) 100 Accounts are added as needed. (b) 100

Cash2,065 Accounts Receivable2,220 Supplies2,000(a) 1,240 Prepaid Insurance2,400(b) 100 Land20,000 Office Equipment1,800 Accounts Payable900 Unearned Rent360 Capital Stock25,000 Dividends4,000 Fees Earned16,340 Wages Expense4,275 Rent Expense1,600 Utilities Expense985 Supplies Expense800(a) 1,240 Miscellaneous Expense45542,600 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Adjustments Trial Balance Opportunities Inc. Work Sheet For the Two Months Ended December 31, 2010 Insurance Expense(b) 100 (c) 120 Rent Revenue(c) 120

Cash2,065 Accounts Receivable2,220 Supplies2,000(a) 1,240 Prepaid Insurance2,400(b) 100 Land20,000 Office Equipment1,800 Accounts Payable900 Unearned Rent360(c) 120 Capital Stock25,000 Dividends4,000 Fees Earned16,340 Wages Expense4,275 Rent Expense1,600 Utilities Expense985 Supplies Expense800(a) 1,240 Miscellaneous Expense45542,600 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Adjustments Trial Balance Opportunities Inc. Work Sheet For the Two Months Ended December 31, 2010 Insurance Expense(b) 100 Rent Revenue (c) 120 Wages Payable(d) 250 (d) 250

Cash2,065 Accounts Receivable2,220 Supplies2,000(a) 1,240 Prepaid Insurance2,400(b) 100 Land20,000 Office Equipment1,800 Accounts Payable900 Unearned Rent360(c) 120 Capital Stock25,000 Dividends4,000 Fees Earned16,340 Wages Expense4,275(d) 250 Rent Expense1,600 Utilities Expense985 Supplies Expense800(a) 1,240 Miscellaneous Expense45542,600 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Adjustments Trial Balance Opportunities Inc. Work Sheet For the Two Months Ended December 31, 2010 Insurance Expense(b) 100 Rent Revenue (c) 120 Wages Payable(d) 250 (e) 500

Cash2,065 Accounts Receivable2,220(e) 500 Supplies2,000(a) 1,240 Prepaid Insurance2,400(b) 100 Land20,000 Office Equipment1,800 Accounts Payable900 Unearned Rent360(c) 120 Capital Stock25,000 Dividends4,000 Fees Earned16,340(e) 500 Wages Expense4,275(d) 250 Rent Expense1,600 Utilities Expense985 Supplies Expense800(a) 1,240 Miscellaneous Expense45542,600 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Adjustments Trial Balance Opportunities Inc. Work Sheet For the Two Months Ended December 31, 2010 Insurance Expense(b) 100 Rent Revenue (c) 120 Wages Payable(d) 250 Depreciation Expense(f) 50 Accum. Depreciation(f) 50

Cash2,065 Accounts Receivable2,220(e) 500 Supplies2,000(a) 1,240 Prepaid Insurance2,400(b) 100 Land20,000 Office Equipment1,800 Accounts Payable900 Unearned Rent360(c) 120 Capital Stock25,000 Dividends4,000 Fees Earned16,340(e) 500 Wages Expense4,275(d) 250 Rent Expense1,600 Utilities Expense985 Supplies Expense800(a) 1,240 Miscellaneous Expense45542,600 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Adjustments Trial Balance Opportunities Inc. Work Sheet For the Two Months Ended December 31, 2010 Insurance Expense(b) 100 Rent Revenue (c) 120 Wages Payable(d) 250 Depreciation Expense(f) 50 Accum. Depreciation(f) 50

Cash2,065 Accounts Receivable2,220(e) 500 Supplies2,000(a) 1,240 Prepaid Insurance2,400(b) 100 Land20,000 Office Equipment1,800 Accounts Payable900 Unearned Rent360(c) 120 Capital Stock25,000 Dividends4,000 Fees Earned16,340(e) 500 Wages Expense4,275(d) 250 Rent Expense1,600 Utilities Expense985 Supplies Expense800(a) 1,240 Miscellaneous Expense45542,600 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Adjustments Trial Balance Insurance Expense(b) 100 Rent Revenue (c) 120 Wages Payable(d) 250 Depreciation Expense(f) 50 Accum. Depreciation(f) 502,260 Summed and ruled

Cash2,065 Accounts Receivable2,220(e) 500 Supplies2,000(a) 1,240 Prepaid Insurance2,400(b) 100 Land20,000 Office Equipment1,800 Accounts Payable900 Unearned Rent360(c) 120 Capital Stock25,000 Dividends4,000 Fees Earned16,340(e) 500 Wages Expense4,275(d) 250 Rent Expense1,600 Utilities Expense985 Supplies Expense800(a) 1,240 Miscellaneous Expense45542,600 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Adjustments Trial Balance Insurance Expense(b) 100 Rent Revenue (c) 120 Wages Payable(d) 250 Depreciation Expense(f) 50 Accum. Depreciation(f) 502,260

Cash2,0652,065 Accounts Receivable2,220(e) 5002,720 Supplies2,000(a) 1, Prepaid Insurance2,400(b) 1002,300 Land20,00020,000 Office Equipment1,8001,800 Accounts Payable Unearned Rent360(c) Capital Stock25,00025,000 Dividends4,0004,000 Fees Earned16,340(e) 50016,840 Wages Expense4,275(d) 2504,525 Rent Expense1,6001,600 Utilities Expense Supplies Expense800(a) 1,2402,040 Miscellaneous Expense ,600 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Adjustments Trial Balance Insurance Expense(b) Rent Revenue (c) Wages Payable(d) Depreciation Expense(f) 5050 Accum. Depreciation(f) ,2602,26043,40043,400

Revenue and expense balances in the Adjusted Trial Balance column are extended to the Income Statement column. Adjusted TB AccountsDrCrDrCrDrCr Income State.Balance Sheet

Asset, liability, and stockholders’ equity balances in the Adjusted Trial Balance column are extended to the Balance Sheet column. Adjusted TB AccountsDrCrDrCrDrCr Income State.Balance Sheet

Cash2,065 Accounts Receivable2,720 Supplies760 Prepaid Insurance2,300 Land20,000 Office Equipment1,800 Accounts Payable900 Unearned Rent240 Capital Stock25,000 Dividends4,000 Fees Earned16,840 Wages Expense4,525 Rent Expense1,600 Utilities Expense985 Supplies Expense2,040 Miscellaneous Expense455 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Income Statement Balance Sheet Insurance Expense100 Rent Revenue 120 Wages Payable250 Depreciation Expense50 Accum. Depreciation50 43,40043,400

Cash2,0652,065 Accounts Receivable2,7202,720 Supplies Prepaid Insurance2,3002,300 Land20,00020,000 Office Equipment1,8001,800 Accounts Payable Unearned Rent Capital Stock25,00025,000 Dividends4,0004,000 Fees Earned16,84016,840 Wages Expense4,5254,525 Rent Expense1,6001,600 Utilities Expense Supplies Expense2,0402,040 Miscellaneous Expense Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Income Statement Balance Sheet Insurance Expense Rent Revenue Wages Payable Depreciation Expense5050 Accum. Depreciation ,40043,400

Cash2,0652,065 Accounts Receivable2,7202,720 Supplies Prepaid Insurance2,3002,300 Land20,00020,000 Office Equipment1,8001,800 Accounts Payable Unearned Rent Capital Stock25,00025,000 Dividends4,0004,000 Fees Earned16,84016,840 Wages Expense4,5254,525 Rent Expense1,6001,600 Utilities Expense Supplies Expense2,0402,040 Miscellaneous Expense Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Income Statement Balance Sheet Insurance Expense Rent Revenue Wages Payable Depreciation Expense5050 Accum. Depreciation ,40043,4009,75516,96033,64526,440

9,75516,96033,64526,4407,205 16,96016,96033,64533,645 Income Statement Balance Sheet Net Income

Opportunities Inc. Work Sheet For the Two Months Ended December 31, 2010 Fees earned16,840 Rent revenue120 Total revenues16,960 Expenses: Wages expense 4,525 Supplies expense2,040 Rent expense1,600 Utilities expense985 Insurance expense100 Depreciation expense50 Miscellaneous expense455 Total expenses 9,755 Net income 7,205 Every amount on this income statement was taken from the Income Statement column of the work sheet.

Opportunities Inc. Work Sheet For the Two Months Ended December 31, 2010 Net income for November and December 7,205 Less dividends 4,000 Retained earnings, December 31, 20053,205

Opportunities Inc. Work Sheet For the Two Months Ended December 31, 2010 Net income for November and December 7,205 Less dividends 4,000 Retained earnings, December 31, 20053,205

Opportunities Inc. Balance Sheet For the Two Months Ended December 31, 2010 Stockholders’ Equity

RETAINED EARNINGS Income Summary 1 Revenues are transferred to Income Summary2 Expenses are transferred to Income Summary 3 Net Income or Net Loss is transferred to Retained Earnings 4 Dividends are transferred to Retained Earnings Closing Process

RETAINED EARNINGS Income Summary 1 Revenues are transferred to Income Summary2 Expenses are transferred to Income Summary 3 Net Income or Net Loss is transferred to Retained Earnings 4 Dividends are transferred to Retained Earnings

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.25,000 Dividends Bal.4,000 Income Summary

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 Dividends Bal.4,000 Income Summary Debit each revenue account for the amount of its balance, and credit Income Summary for the total revenue. 16, ,960

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 Retained Earnings Dividends Bal.4,000 Income Summary Debit Income Summary for the total expenses and credit each expense account for its balance. Fees Earned Bal.16,840 Rent Revenue Bal , ,9609, , ,600 4,525

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 Retained Earnings Dividends Bal.4,000 Income Summary Debit Income Summary for the amount of its balance (in this case, the net income) and credit Retained Earnings. Fees Earned Bal.16,840 Rent Revenue Bal , ,9609, , ,600 4,525 7,205

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 Retained Earnings Dividends Bal.4,000 Income Summary Debit Retained Earnings for the balance of Dividends and credit Dividend for the same amount. Fees Earned Bal.16,840 Rent Revenue Bal , ,9609, , ,600 4,525 7,205 4,000 7,205

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 Retained Earnings Dividends Bal.4,000 Income Summary Fees Earned Bal.16,840 Rent Revenue Bal , ,9609, , ,600 4,525 7,205 4,000 Close Revenues Close Revenues Close Expenses Close Expenses Close Income Summary Close Income Summary Close Dividends Close Dividends 16,840 16, ,960 16,960 4,525 4,525 1,600 1, ,040 2, ,775 9,775 7,205 7,205 4,000 4,000

Opportunities Inc. Post-Closing Trial Balance December 31, 2010 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depreciation50 00 Accounts Payable Wages Payable Unearned Rent Capital Stock Retained Earnings Post Closing Trial Balance

Working Capital = 7,845 –1,390 Working Capital = Current Assets – Current Liabilities Working Capital = 6,455

Current Ratio = Current Assets ÷ Current Liabilities Current Ratio = 7,845 ÷ 1,390 Current Ratio = 5.6

Current ratio = 7,845 ÷1,390 Current ratio = Current Assets ÷ Current Liabilities Current ratio = 5.6

The End