1. Chapter 4 Completing the Accounting Cycle

2. The Accounting Work Sheet What is the work sheet? A work sheet is a multi-columned document used by accountants to help move data from the trial balance to the financial statements. It is an internal document.

3. Adjusted Trial Balance Adjustments Trial Balance Account Title Dr. Cr. Dr. Cr. Dr. Cr. Cash Accounts receivable Supplies Equipment Accum. depreciation Accounts payable Salary payable Unearned revenue Capital Withdrawals Revenue Salary expense Supplies expense Depreciation expense Totals 12,100 1,350 250 15,500 1,000 12,000 42,200 7,500 1,200 1,100 1,500 7,200 23,700 42,200 The Accounting Work Sheet

4. aThe company has earned revenue of $1,700 which will be collected next month. bInventory of supplies at month end totaled $150. cDepreciation for the period was calculated as $200.

5. Adjusted Trial Balance Adjustments Trial Balance Account Title Dr. Cr. Dr. Cr. Dr. Cr. Cash Accounts receivable Supplies Equipment Accum. depreciation Accounts payable Salary payable Unearned revenue Capital Withdrawals Revenue Salary expense Supplies expense Depreciation expense Totals 12,100 1,350 250 15,500 1,000 12,000 42,200 7,500 1,200 1,100 1,500 7,200 23,700 42,200 a) 1,700 b) 100 c) 200 2,000 b) 100 c) 200 a) 1,700 2,000 12,100 3,050 150 15,500 1,000 12,000 100 200 44,100 7,700 1,200 1,100 1,500 7,200 25,400 44,100 The Accounting Work Sheet

6. Adjusted Income Balance Trial Balance Statement Sheet Account Title Dr. Cr. Dr. Cr. Dr. Cr. Cash Accounts receivable Supplies Equipment Accum. depreciation Accounts payable Salary payable Unearned revenue Capital Withdrawals Revenue Salary expense Supplies expense Depreciation expense Totals 7,700 1,200 1,100 1,500 7,200 25,400 44,100 12,10 0 3,050 150 15,50 0 1,000 12,00 0 100 200 44,10 0 12,10 0 3,050 150 15,50 0 1,000 31,80 0 7,700 1,200 1,100 1,500 7,200 18,700 The Accounting Work Sheet

7. Adjusted Income Balance Trial Balance Statement Sheet Account Title Dr. Cr. Dr. Cr. Dr. Cr. Cash Accounts receivable Supplies Equipment Accum. depreciation Accounts payable Salary payable Unearned revenue Capital Withdrawals Revenue Salary expense Supplies expense Depreciation expense Totals 7,700 1,200 1,100 1,500 7,200 25,400 44,100 12,10 0 3,050 150 15,50 0 1,000 12,00 0 100 200 44,10 0 12,10 0 3,050 150 15,50 0 1,000 31,80 0 7,700 1,200 1,100 1,500 7,200 18,700 12,000 100 200 12,300 25,400 The Accounting Work Sheet

8. Adjusted Income Balance Trial Balance Statement Sheet Account Title Dr. Cr. Dr. Cr. Dr. Cr. Cash Accounts receivable Supplies Equipment Accum. depreciation Accounts payable Salary payable Unearned revenue Capital Withdrawals Revenue Salary expense Supplies expense Depreciation expense Totals Net income 7,700 1,200 1,100 1,500 7,200 25,400 44,100 12,10 0 3,050 150 15,50 0 1,000 12,00 0 100 200 44,10 0 12,10 0 3,050 150 15,50 0 1,000 31,80 0 7,700 1,200 1,100 1,500 7,200 18,700 13,100 31,800 12,000 100 200 12,300 13,100 25,400 The Accounting Work Sheet

9. The Work Sheet Trial Balance AccountsDrCrDrCrDrCr AdjustmentsAdjusted TB Prepared from the general ledger. Accounts are listed in the following order: assets, liabilities, owner’s equity, revenues, and expenses.

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

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

12. Cash2,065 Accounts Receivable2,220 Supplies2,000 Prepaid Insurance2,400 Land20,000 Office Equipment1,800 Accounts Payable900 Unearned Rent360 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 Fees Earned16,340 Wages Expense4,275 Rent Expense1,600 Utilities Expense985 Supplies Expense800 Miscellaneous Expense45542,600 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Adjustments Trial Balance NetSolutions Work Sheet For the Two Months Ended December 31, 2005 The Unadjusted Trial Balance 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

13. (a) The Supplies account has a debit of $2,000. A count of supplies at the end of the period reveals that $760 is on hand. Therefore, $1,240 in supplies was used during the two-month period.

14. Cash2,065 Accounts Receivable2,220 Supplies2,000 Prepaid Insurance2,400 Land20,000 Office Equipment1,800 Accounts Payable900 Unearned Rent360 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 Fees Earned16,340 Wages Expense4,275 Rent Expense1,600 Utilities Expense985 Supplies Expense800 Miscellaneous Expense45542,600 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Adjustments Trial Balance NetSolutions Work Sheet For the Two Months Ended December 31, 2005 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 (a) 1,240

15. (b)The Prepaid Insurance account has a debit balance of $2,400, which represents prepayment of insurance for 24 months beginning December 1. Thus, the insurance expense for this month is $100 ($2,400 ÷ 24).

16. Cash2,065 Accounts Receivable2,220 Supplies2,000(a) 1,240 Prepaid Insurance2,400 Land20,000 Office Equipment1,800 Accounts Payable900 Unearned Rent360 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 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 NetSolutions Work Sheet For the Two Months Ended December 31, 2005 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Insurance Expense(b) 100 Accounts are added as needed. (b) 100

17. (c) The Unearned Rent account has a credit balance of $360, which represents the receipt of three-months’ rent beginning with December 1. Thus, the rent revenue for December is $120. FOR RENT

18. Cash2,065 Accounts Receivable2,220 Supplies2,000(a) 1,240 Prepaid Insurance2,400(b) 100 Land20,000 Office Equipment1,800 Accounts Payable900 Unearned Rent360 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 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 NetSolutions Work Sheet For the Two Months Ended December 31, 2005 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Insurance Expense(b) 100 (c) 120 Rent Revenue(c) 120

19. (d) Wages accrued but not paid at the end of December total $250.

20. 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 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 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 NetSolutions Work Sheet For the Two Months Ended December 31, 2005 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Insurance Expense(b) 100 Rent Revenue (c) 120 Wages Payable(d) 250 (d) 250

21. (e) Fees accrued at the end of December, but not recorded, total $500.

22. 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 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 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 NetSolutions Work Sheet For the Two Months Ended December 31, 2005 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Insurance Expense(b) 100 Rent Revenue (c) 120 Wages Payable(d) 250 (e) 500

23. (f) Depreciation of the office equipment is $50 for December.

24. 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 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 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 NetSolutions Work Sheet For the Two Months Ended December 31, 2005 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Insurance Expense(b) 100 Rent Revenue (c) 120 Wages Payable(d) 250 Depreciation Expense(f) 50 Accum. Depreciation(f) 50

25. 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 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 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 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Insurance Expense(b) 100 Rent Revenue (c) 120 Wages Payable(d) 250 Depreciation Expense(f) 50 Accum. Depreciation(f) 502,260 Summed and ruled 31

26. 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 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 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 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Insurance Expense(b) 100 Rent Revenue (c) 120 Wages Payable(d) 250 Depreciation Expense(f) 50 Accum. Depreciation(f) 502,260 33

27. Cash2,0652,065 Accounts Receivable2,220(e) 5002,720 Supplies2,000(a) 1,240760 Prepaid Insurance2,400(b) 1002,300 Land20,00020,000 Office Equipment1,8001,800 Accounts Payable900900 Unearned Rent360(c) 120240 Chris Clark, Capital25,00025,000 Chris Clark, Drawing4,0004,000 Fees Earned16,340(e) 50016,840 Wages Expense4,275(d) 2504,525 Rent Expense1,6001,600 Utilities Expense985985 Supplies Expense800(a) 1,2402,040 Miscellaneous Expense45545542,600 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Adjustments Trial Balance 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Insurance Expense(b) 100 100 Rent Revenue (c) 120120 Wages Payable(d) 250250 Depreciation Expense(f) 5050 Accum. Depreciation(f) 5050 2,2602,26043,40043,400 34

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

29. Asset, liability, owner’s equity, and drawing balances in the Adjusted Trial Balance column are extended to the Balance Sheet column. Adjusted TB AccountsDrCrDrCrDrCr Income State.Balance Sheet The Work Sheet

30. Cash2,065 Accounts Receivable2,720 Supplies760 Prepaid Insurance2,300 Land20,000 Office Equipment1,800 Accounts Payable900 Unearned Rent240 Chris Clark, Capital25,000 Chris Clark, Drawing4,000 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 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Insurance Expense100 Rent Revenue 120 Wages Payable250 Depreciation Expense50 Accum. Depreciation50 43,40043,400 38

31. Cash2,0652,065 Accounts Receivable2,7202,720 Supplies760760 Prepaid Insurance2,3002,300 Land20,00020,000 Office Equipment1,8001,800 Accounts Payable900900 Unearned Rent240240 Chris Clark, Capital25,00025,000 Chris Clark, Drawing4,0004,000 Fees Earned16,84016,840 Wages Expense4,5254,525 Rent Expense1,6001,600 Utilities Expense985985 Supplies Expense2,0402,040 Miscellaneous Expense455455 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Income Statement Balance Sheet 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Insurance Expense100100 Rent Revenue 120120 Wages Payable250250 Depreciation Expense5050 Accum. Depreciation5050 43,40043,400 40

32. Cash2,0652,065 Accounts Receivable2,7202,720 Supplies760760 Prepaid Insurance2,3002,300 Land20,00020,000 Office Equipment1,8001,800 Accounts Payable900900 Unearned Rent240240 Chris Clark, Capital25,00025,000 Chris Clark, Drawing4,0004,000 Fees Earned16,84016,840 Wages Expense4,5254,525 Rent Expense1,6001,600 Utilities Expense985985 Supplies Expense2,0402,040 Miscellaneous Expense455455 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Income Statement Balance Sheet 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Insurance Expense100100 Rent Revenue 120120 Wages Payable250250 Depreciation Expense5050 Accum. Depreciation5050 43,40043,4009,75516,96033,64526,440 42

33. 9,75516,96033,64526,4407,205 16,96016,96033,64533,645 Income Statement Balance Sheet Net Income

34. NetSolutions Income Statement For Two Months Ended December 31, 2005 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 expenses 9,755 Net income $ 7,205 Every amount on this income statement was taken from the Income Statement column of the work sheet.

35. NetSolutions Statement of Owner’s Equity For the Two Months Ended December 31, 2005 Chris Clark, Capital, November 1, 2005$ 0 Investment on November 1, 2005$25,000 Net income for November and December 7,205 $32,205 Less withdrawals 4,000 Increase in owner’s equity28,205 Chris Clark, Capital, December 31, 2005$28,205 Either from the income statement or the work sheet. From the Balance Sheet debit column of the work sheet.

36. NetSolutions Balance Sheet December 31, 2005 Assets Liabilities Current assets: Current liabilities: Cash$ 2,065Accounts payable$900 Accounts receivable2,720Wages payable250 Supplies 760Unearned rent240 Prepaid insurance 2,300Total liabilities$ 1,390 Total current assets$ 7,845 Property, plant, and equipment: Land$20,000 Office equip.$1,800 Less accum. depreciation 50 1,750 Owner’s Equity Total property, plant Chris Clark, Capital 28,205 and equipment 21,750Total liabilities and Total assets$29,595owner’s equity$29,595 Assets Liabilities Current assets: Current liabilities: Cash$ 2,065Accounts payable$900 Accounts receivable2,720Wages payable250 Supplies 760Unearned rent240 Prepaid insurance 2,300Total liabilities$ 1,390 Total current assets$ 7,845 Property, plant, and equipment: Land$20,000 Office equip.$1,800 Less accum. depreciation 50 1,750 Owner’s Equity Total property, plant Chris Clark, Capital 28,205 and equipment 21,750Total liabilities and Total assets$29,595owner’s equity$29,595 From the Statement of Owner’s Equity

37. Close the revenue, expense, and withdrawal accounts.

38. Closing the Accounts Closing the accounts is the end of period process that prepares the accounts for recording transactions during the next period.

39. Closing the Accounts Revenues and Expense accounts are closed to Income Summary. Income Summary is closed to Capital. Withdrawals are closed to Capital. In a corporation, Dividends are closed to Retained Earnings.

40. Postclosing Trial Balance The accounting cycle ends with the postclosing trial balance. The postclosing trial balance is dated as of the end of the period for which the statements have been prepared.

41. Permanent Accounts What accounts never close? –Assets –Liabilities –Owner’s equity Balances of permanent accounts carry over to the next period.

42. Report Format Assets Liabilities Owner’s Equity Account Format Assets = Liabilities + Owner’s Equity Different Formats of the Balance Sheet

43. OWNER’S CAPITAL The Closing Process Income Summary 1 Revenues are transferred to Income Summary2 Expenses are transferred to Income Summary 3 Net Income or Net Loss is transferred to Owner’s Capital 4 Drawings are transferred to Owner’s Capital

44. OWNER’S CAPITAL Income Summary 1 Revenues are transferred to Income Summary2 Expenses are transferred to Income Summary 3 Net Income or Net Loss is transferred to Owner’s Capital 4 Drawings are transferred to Owner’s Capital The Income Summary account does not appear on the financial statements. Adjusting and Closing Entries

45. 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 Chris Clark, Capital Bal.25,000 Chris Clark, Drawing Bal.4,000 Income Summary Note: The balances shown are adjusted balances before closing. The following sequence demonstrates the closing process. The Closing Process

46. 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 Chris Clark, Capital Bal.25,000 Chris Clark, Drawing Bal.4,000 Income Summary Debit each revenue account for the amount of its balance, and credit Income Summary for the total revenue. 16,840 120 16,960 The Closing Process

47. 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 Chris Clark, Capital Bal.25,000 Chris Clark, Drawing 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.120 16,840 120 16,9609,775 455 100 2,040 985 50 1,600 4,525 The Closing Process

48. 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 Chris Clark, Capital Bal.25,000 Chris Clark, Drawing Bal.4,000 Income Summary Debit Income Summary for the amount of its balance (in this case, the net income) and credit the capital account. Fees Earned Bal.16,840 Rent Revenue Bal.120 16,840 120 16,9609,775 455 100 2,040 985 50 1,600 4,525 7,205 The Closing Process

49. 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 Chris Clark, Capital Bal.25,000 Chris Clark, Drawing Bal.4,000 Income Summary Debit the capital account for the balance of the drawing account, and credit drawing for the same amount. Fees Earned Bal.16,840 Rent Revenue Bal.120 16,840 120 16,9609,775 455 100 2,040 985 50 1,600 4,525 7,205 4,000 The Closing Process

50. 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 Chris Clark, Capital Bal.25,000 Chris Clark, Drawing Bal.4,000 Income Summary Fees Earned Bal.16,840 Rent Revenue Bal.120 16,480 120 16,9609,775 445 100 2,040 985 50 1,600 4,525 7,205 4,000 Close Revenues Close Revenues Close Expenses Close Expenses Close Income Summary Close Income Summary Close Drawing Close Drawing 16,840 16,840 120 120 16,960 16,960 4,525 4,525 1,600 1,600 50 50 985 985 2,040 2,040 100 100 455 455 9,775 9,775 7,205 7,205 4,000 4,000 Review of the Closing Process

51. Post-closing Trial Balance NetSolutions Post-Closing Trial Balance December 31, 2005 Cash2 065 00 Accounts Receivable2 720 00 Supplies760 00 Prepaid Insurance2 300 00 Land20 000 00 Office Equipment1 800 00 Accumulated Depreciation50 00 Accounts Payable900 00 Wages Payable250 00 Unearned Rent240 00 Chris Clark, Capital28 205 0029 645 00