4 Completing the Accounting Cycle Principles of Financial

4 Completing the Accounting Cycle Principles of Financial Accounting, 11 e Reeve • Warren • Duchac 1

Completing the Accounting Cycle After studying this chapter, you should be able to: 1 Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements. 2 Prepare financial statements from adjusted account balances. 3 Prepare closing entries. After studying this you should the chapter, accounting cycle. be able to: 4 Describe 4 -2 2

Completing the Accounting Cycle (continued) 4 -3 1 -3 5 Illustrate the accounting cycle for one period. 6 Explain what is meant by the fiscal year and the natural business year. 3

1 Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements. 4 -4 1 -4 4

1 Exhibit 1 4 -5 1 -5 End-of-Period Spreadsheet (Work Sheet) 5

1 Flow of Accounting Information Spreadsheet (Work Sheet) Trial Balance Accounts Dr Cr Adjustments Adjusted TB Dr Dr Cr Cr Accounts are listed in the Trial Balance column using the ending balance found in the general ledger. 4 -6 1 -6 6

1 Flow of Accounting Information Spreadsheet (Work Sheet) Trial Balance Accounts Dr Cr Adjustments Adjusted TB Dr Dr Cr Cr Adjustments are entered here. Two possibilities: 1. Deferrals – Existing balances are changed. 2. Accruals – New information is entered. 4 -7 1 -7 7

1 Flow of Accounting Information Spreadsheet (Work Sheet) Trial Balance Accounts Dr Cr Adjustments Adjusted TB Dr Dr Cr Cr Adjustments are combined with the trial balance. Account balances are now adjusted. 4 -8 1 -8 8

1 Flow of Accounting Information Spreadsheet (Work Sheet) Adjusted TB Accounts Dr Cr Income State. Dr Cr Balance Sheet Dr Cr Revenue and expense balances in the Adjusted Trial Balance column are extended to the Income Statement column. 4 -9 1 -9 9

1 Flow of Accounting Information Spreadsheet (Work Sheet) Adjusted TB Accounts Dr Cr Income State. Dr Cr Balance Sheet Dr Cr Asset, liability, owner’s equity, and drawing balances in the Adjusted Trial Balance column are extended to the Balance Sheet column. 4 -10 10

1 Example Exercise 4 -1 Flow of Accounts into Financial Statements The balances for the accounts listed below appear in the Adjusted Trial Balance columns of the end-ofperiod spreadsheet (work sheet). Indicate whether each balance should be extended to (a) an Income Statement column or (b) a Balance Sheet column. 1. Amber Bablock, Drawing 2. Utilities Expense 3. Accumulated Depreciation—Equipment 4. Unearned Rent 4 -11 1 -11 5. 6. 7. 8. Fees Earned Accounts Payable Rent Revenue Supplies 11

1 Example Exercise 4 -1 (continued) Follow My Example 4 -1 1. 2. 3. 4. 5. 6. 7. 8. Balance Sheet column Income Statement column Balance Sheet column For Practice: PE 4 -1 A, PE 4 -1 B 4 -12 1 -12 12

2 Prepare financial statements from adjusted account balances. 4 -13 13

2 The income statement is prepared directly from the Income Statement or Adjusted Trial Balance columns of the spreadsheet (work sheet). 4 -14 14

2 Exhibit 2 4 -15 1 -15 Financial Statements Prepared from Work Sheet to statement of owner’s equity 15

2 Example Exercise 4 -2 Determining the Net Income from End-of-Period Spreadsheet In the Balance Sheet columns of the end-of-period spreadsheet (work sheet) for Dimple Consulting Co. for the current year, the Debit column total is $678, 450, and the Credit column total is $599, 750 before the amount of net income or net loss has been included. In preparing the income statement from the end-of-period spreadsheet (work sheet), what is the amount of net income or net loss? 4 -16 1 -16 16

2 Example Exercise 4 -2 (continued) Follow My Example 4 -2 A net income of $78, 700 ($678, 450 – $599, 750) would be reported. When the Debit column of the Balance Sheet columns is more than the Credit column, net income is reported. If the Credit column exceeds the Debit column, a net loss is reported. For Practice: PE 4 -2 A, PE 4 -2 B 4 -17 1 -17 17

2 The first item presented on the statement of owner’s equity is the balance of the owner’s capital account at the beginning of the period. 4 -18 18

2 Exhibit 2 Financial Statements Prepared from Work Sheet (continued) from the income statement to the balance sheet 4 -19 19

2 Example Exercise 4 -3 Statement of Owner’s Equity Zack Gaddis owns and operates Gaddis Employment Services. On January 1, 2009, Zack Gaddis, Capital had a balance of $186, 000. During the year, Zack invested an additional $40, 000 and withdrew $25, 000. For the year ended December 31, 2007, Gaddis Employment Services reported a net income of $18, 750. Prepare a statement of owner’s equity for the year ended December 31, 2009. 4 -20 1 -20 20

2 Example Exercise 4 -3 (continued) Follow My Example 4 -3 GADDIS EMPLOYMENT SERVICES STATEMENT OF OWNER’S EQUITY For the Year Ended December 31, 2009 Zack Gaddis, capital, January 1, 2009 $186, 000 Additional investment during 2009 40, 000 Total $226, 000 Withdrawals $ 25, 000 Less net income 18, 750 Decrease in owner’s equity 6, 250 Zack Gaddis, capital, December 31, 2009 $219, 750 For Practice: PE 4 -3 A, PE 4 -3 B 4 -21 1 -21 21

2 The balance sheet is prepared directly from the Balance Sheet or Adjusted Trial Balance columns of the spreadsheet (or worksheet). 4 -22 1 -22 22

2 A classified balance sheet is a balance sheet that was expanded by adding subsections for current assets; property, plant, and equipment; and current liabilities. 4 -23 1 -23 23

2 Cash and other assets that are expected to be converted into cash, sold or used up usually within a year or less, through the normal operations of the business, are called current assets. • Cash • Accounts Receivable • Supplies 4 -24 1 -24 24

2 Notes receivable are written promises by the customer to pay the amount of the note and possibly interest at an agreed rate. 4 -25 1 -25 25

2 Property, plant, and equipment (also called fixed assets) include assets that depreciate over a period of time. Land is an exception as it is not subject to depreciation. • Equipment • Machinery • Buildings • Land 4 -26 1 -26 26

2 Liabilities that will be due within a short time (usually one year or less) and that are to be paid out of current assets are called current liabilities. • Accounts payable • Wages payable • Interest payable • Unearned fees 4 -27 1 -27 27

2 Liabilities not due for a long time (usually more than one year) are long-term liabilities. • Notes payable • Mortgage payable • Bond payable 4 -28 1 -28 28

2 Owner’s equity is the owner’s right to the assets of the business. Owner’s equity is added to the total liabilities, and the total must be equal to the total assets. 4 -29 1 -29 29

2 Exhibit 2 Financial Statements Prepared from Work Sheet (continued) from the statement of owner’s equity 4 -30 1 -30 30

2 Example Exercise 4 -4 Classified Balance Sheet The following accounts appear in the adjusted trial balance of Hindsight Consulting. Indicate whether each account would be reported in the (a) current asset; (b) property, plant, and equipment; (c) current liability, (d) long-term liability; or (e) owner’s equity section of the December 31, 2009 balance sheet of Hindsight Consulting. 1. Jason Corbin, Capital 2. Notes Receivable (due in 6 months) 3. Notes Payable (due in 2011) 4. Land 4 -31 1 -31 5. Cash 6. Unearned Rent 7. Accumulated Depr. — Equipment 8. Accounts Payable 31

2 Example Exercise 4 -4 (continued) Follow My Example 4 -4 1. 2. 3. 4. Stockholders’ equity Current asset Long-term liability Property, plant, and equipment 5. Current asset 6. Current liability 7. Property, plant, and equipment 8. Current liability For Practice: PE 4 -4 A, PE 4 -4 B 4 -32 1 -32 32

3 Prepare closing entries. 4 -33 1 -33 33

3 Closing Entries Accounts that are relatively permanent from year to year are called real accounts. Accounts that report amounts for only one period are called temporary accounts or nominal accounts. 4 -34 1 -34 34

3 Closing Entries To report amounts for only one period, temporary accounts should have zero balances at the beginning of the period. At the end of the period the revenue and expense account balances are transferred to Income Summary. 4 -35 1 -35 35

3 Closing Entries The balance of Income Summary is then transferred to the owner’s capital account. The balance of the owner’s drawing account is also transferred to the owner’s capital account. The entries that transfer these balances are called closing entries. 4 -36 1 -36 36

3 Exhibit 3 4 -37 1 -37 The Closing Process 37

3 Exhibit 4 Flowchart of Closing Entries for Net. Solutions Debit each revenue account for the amount of its balance, and credit Income Summary for the total revenue. Fees Earned Income Summary 16, 960 16, 840 Bal. 16, 840 Rent Revenue 120 Bal. 4 -38 120 38

3 Flowchart of Closing Entries for Net. Solutions (continued) Exhibit 4 Wages Expense Bal. 4, 525 Rent Expense Bal. 1, 600 Income Summary 9, 855 16, 960 1, 600 Depreciation Expense Bal. 50 50 Utilities Expense Bal. 985 Supplies Expense Bal. 2, 040 Insurance Expense Bal. 200 Miscellaneous Expense 4 -39 1 -39 Bal. 455 Debit Income Summary for the total expenses and credit each expense account for its balance. 455 39

3 Flowchart of Closing Entries for Net. Solutions (continued) Exhibit 4 Income Summary 9, 855 7, 105 16, 960 Chris Clark, Capital Bal. 25, 000 7, 105 Debit Income Summary for the amount of its balance (in this case, the net income) and credit the capital account. Chris Clark, Drawing Bal. 4 -40 1 -40 4, 000 40

3 Exhibit 4 Flowchart of Closing Entries for Net. Solutions (continued) Chris Clark, Capital 4, 000 Bal. 25, 000 7, 105 Chris Clark, Drawing Bal. 4 -41 1 -41 4, 000 Debit the capital account for the balance of the drawing account, and credit drawing for the same amount. 41

3 Exhibit 4 4 -42 1 -42 Flowchart of Closing Entries for Net. Solutions (summary) 42

3 Exhibit 5 Closing Entries for Net. Solutions Step 1 Step 2 Step 3 Step 4 4 -43 1 -43 43

3 After the closing entries are posted, all of the temporary accounts have zero balances. 4 -44 1 -44 44

3 Exhibit 6 4 -45 1 -45 Ledger for Net. Solutions 45

3 Exhibit 6 4 -46 1 -46 Ledger for Net. Solutions (continued) 46

3 Exhibit 6 4 -47 1 -47 Ledger for Net. Solutions (continued) 47

3 Exhibit 6 4 -48 1 -48 Ledger for Net. Solutions (continued) 48

3 Example Exercise 4 -5 Closing Entries After the accounts have been adjusted at July 31, the end of the fiscal year, the following balances are taken from the ledger of Cabriolet Services Co. Terry Lambert, Capital $615, 850 Terry Lambert, Drawing 25, 000 Fees Earned 380, 450 Wages Expense 250, 000 Rent Expense 65, 000 Supplies Expense 18, 250 Miscellaneous Expense 6, 200 Journalize the four entries required to close the accounts. 4 -49 1 -49 49

3 Example Exercise 4 -5 (continued) Follow My Example 4 -5 July 31 31 Fees Earned………………. . 380, 450 Income Summary…………………. Income Summary…………… 339, 450 Wages Expense………… Rent Expense…………… Supplies Expense………………… Miscellaneous Expense…………. Income Summary……………. 41, 000 Terry Lambert, Capital………………… Terry Lambert, Drawing…………. . 380, 450 250, 000 65, 000 18, 250 6, 200 41, 000 25, 000 For Practice: PE 4 -5 A, PE 4 -5 B 4 -50 1 -50 50

3 A post-closing trial balance is prepared after the closing entries have been posted. The purpose of the PCTB is to verify that the ledger is in balance at the beginning of the next period. 4 -51 1 -51 51

3 Exhibit 7 4 -52 1 -52 Post-Closing Trial Balance 52

4 Describe the accounting cycle. 4 -53 1 -53 53

4 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 accounting cycle. There are ten steps in the accounting cycle. 4 -54 1 -54 54

4 Accounting Cycle 1. Transactions are analyzed and recorded in the journal. 2. Transactions are posted to the ledger. 3. An unadjusted trial balance is prepared. 4. Adjustment data are assembled analyzed. 5. An optional end-of-period spreadsheet (work sheet) is prepared. 4 -55 1 -55 (continued) 55

4 Accounting Cycle (continued) 6. Adjusting entries are journalized and posted to the ledger. 7. An adjusted trial balance is prepared. 8. Financial statements are prepared. 9. Closing entries are journalized and posted to the ledger. 10. A post-closing trial balance is prepared. 4 -56 1 -56 56

4 Example Exercise 4 -6 Accounting Cycle From the following list of steps in the accounting cycle, identify what two steps are missing. a. Transactions are analyzed and recorded in the journal. b. Transactions are posted to the ledger. c. Adjustment data are assembled analyzed. d. An optional end-of-period spreadsheet (work sheet) is prepared. e. Adjusting entries are journalized and posted to the ledger. f. Financial statements are prepared. g. Closing entries are journalized and posted to the ledger. h. A post-closing trial balance is prepared. 4 -57 1 -57 57

4 Example Exercise 4 -6 (continued) Follow My Example 4 -6 The following two steps are missing: (1) the preparation of an unadjusted trial balance and (2) the preparation of the adjusted trial balance. The unadjusted trial balance should be prepared after step (b). The adjusted trial balance should be prepared after step (e). For Practice: PE 4 -6 A, PE 4 -6 B 4 -58 1 -58 58

5 Illustrate the accounting cycle for one period. 4 -59 1 -59 59

5 Exhibit 9 Journal entries for April, Kelly Consulting 4 -60 1 -60 60

5 Exhibit 9 Journal entries for April, Kelly Consulting (continued) 4 -61 1 -61 61

5 Exhibit 10 4 -62 1 -62 Unadjusted Trial Balance, Kelly Consulting 62

5 Exhibit 11 4 -63 1 -63 4 -63 End-of-Period Spreadsheet (Work Sheet) 63

5 Exhibit 12 Adjusting Entries, Kelly Consulting 4 -64 1 -64 64

5 Exhibit 13 4 -65 1 -65 Adjusted Trial Balance, Kelly Consulting 65

5 Exhibit 14 4 -66 1 -66 Financial Statements, Kelly Consulting 66

5 Exhibit 14 4 -67 1 -67 Financial Statements, Kelly Consulting (continued) 67

5 Exhibit 14 4 -68 1 -68 Financial Statements, Kelly Consulting (continued) 68

5 Exhibit 15 4 -69 1 -69 Closing Entries, Kelly Consulting 69

5 Exhibit 16 4 -70 1 -70 Post-Closing Trial Balance, Kelly Consulting 70

5 Exhibit 17 4 -71 1 -71 Ledger, Kelly Consulting 71

5 Exhibit 17 4 -72 1 -72 Ledger, Kelly Consulting (continued) 72

5 Exhibit 17 4 -73 1 -73 Ledger, Kelly Consulting (continued) 73

5 Exhibit 17 4 -74 1 -74 Ledger, Kelly Consulting (continued) 74

6 Explain what is meant by the fiscal year and the natural business year. 4 -75 1 -75 75

6 The annual accounting period adopted by a business is known as its fiscal year. When a business adopts a fiscal year that ends when business activities have reached the lowest point in its annual operation, such a fiscal year is also called the natural year. 4 -76 1 -76 76

6 Financial History of a Business 4 -77 1 -77 77

Appendix 1: End-of-Period Spreadsheet (Work Sheet) 4 -78 1 -78 78

Trial Balance Account Title 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depr. Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Rent Revenue Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Exp. 4 -79 1 -79 Debit Credit Adjusted Trial Balance Adjustments Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 900 4, 000 360 25, 000 16, 340 4, 275 1, 600 The unadjusted trial balance is checked for equality. 985 800 455 42, 600 79

Trial Balance Account Title 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depr. Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Rent Revenue Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Exp. 4 -80 1 -80 Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 Adjustments Debit Credit Adjusted Trial Balance Debit Credit Supplies needs adjusting 900 4, 000 360 25, 000 16, 340 4, 275 1, 600 985 800 455 42, 600 80

Trial Balance Account Title 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depr. Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Rent Revenue Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Exp. 4 -81 1 -81 Debit Credit Adjustments Debit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 Debit Credit (a) 1, 240 (a) Cost of supplies on hand at December 31 is $760. 900 4, 000 Credit Adjusted Trial Balance 360 25, 000 16, 340 4, 275 1, 600 985 800 455 42, 600 (a) 1, 240 42, 600 81

Trial Balance Account Title 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depr. Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Rent Revenue Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Exp. 4 -82 1 -82 Debit Credit Adjustments Debit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 Debit Credit (a) 1, 240 (b) 200 (b) The insurance expense for December is $200 ($2, 400 ÷ 12). 900 4, 000 Credit Adjusted Trial Balance 360 25, 000 16, 340 4, 275 1, 600 985 800 455 42, 600 (a) 1, 240 (b) 200 42, 600 82

Trial Balance Account Title 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depr. Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Rent Revenue Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Exp. 4 -83 1 -83 Debit Credit Adjusted Trial Balance Adjustments Debit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 Credit 360 25, 000 (c) Rent revenue earned during December was $120. 120 16, 340 (c) 4, 275 1, 600 985 800 455 42, 600 Credit (a) 1, 240 (b) 200 900 4, 000 Debit 120 (a) 1, 240 (b) 200 42, 600 83

Trial Balance Account Title 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depr. Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Rent Revenue Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Exp. 4 -84 1 -84 Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 Adjustments Debit (d) 500 Credit 4, 000 (c) 120 16, 340 (d) (c) 4, 275 1, 600 985 800 455 42, 600 Debit Credit (a) 1, 240 (b) 200 900 360 25, 000 Adjusted Trial Balance (d) Fees accrued at the end of December, but not recorded, totaled $500. 500 120 (a) 1, 240 (b) 200 42, 600 84

Trial Balance Account Title 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depr. Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Rent Revenue Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Exp. 4 -85 1 -85 Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 Adjustments Debit (d) 500 900 4, 000 360 25, 000 120 Credit Debit Credit (a) 1, 240 (b) 200 (e) (d) (c) (e) 985 800 455 42, 600 (c) 16, 340 4, 275 1, 600 Adjusted Trial Balance (e) Wages accrued but 250 not paid at the end of December totaled $250. 500 120 250 (a) 1, 240 (b) 200 42, 600 85

Trial Balance Account Title 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depr. Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Rent Revenue Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Exp. 4 -86 1 -86 Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 Adjustments Debit (d) 500 900 4, 000 360 25, 000 985 800 455 42, 600 (c) 120 16, 340 4, 275 1, 600 Adjusted Trial Balance (e) 250 (f) 50 Credit Debit Credit (a) 1, 240 (b) 200 (f) 50 (e) 250 (d) (c) 500 120 (f) Depreciation of office equipment is $50 for December. (a) 1, 240 (b) 200 42, 600 86

Trial Balance Account Title 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depr. Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Rent Revenue Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Exp. 4 -87 1 -87 Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 Adjustments Debit (d) 500 900 4, 000 360 25, 000 985 800 455 (c) 120 16, 340 4, 275 1, 600 Summed 42, 600 and ruled Adjusted Trial Balance (e) 250 (f) 50 Credit Debit Credit (a) 1, 240 (b) 200 (f) 50 (e) 250 (d) (c) 500 120 (a) 1, 240 (b) 200 2, 360 87

The next step is to add or subtract the adjustments from (to) the amounts found in the Unadjusted Trial Balance columns and enter the results in the Adjusted Trial Balance columns. 4 -88 1 -88 88

Trial Balance Account Title 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depr. Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Rent Revenue Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Exp. 4 -89 1 -89 Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 Adjustments Debit (d) 500 4, 000 985 800 455 42, 600 (c) (a) 1, 240 (b) 200 2, 065 2, 720 760 2, 200 20, 000 1, 800 50 4, 000 (d) (c) (e) 250 (f) 50 500 120 (a) 1, 240 (b) 200 42, 600 Debit 120 16, 340 4, 275 1, 600 Credit (f) 900 360 25, 000 Adjusted Trial Balance 2, 360 1, 600 50 985 2, 040 200 455 43, 400 Credit 50 900 250 240 25, 000 16, 840 120 4, 525 43, 400 89

Because of space constraints, the Unadjusted Trial Balance and the Adjustments columns will not be shown in the following slides. 4 -90 1 -90 90

The next step is to extend amounts in the Adjusted Trial Balance columns to the Income Statement and Balance Sheet columns. 4 -91 1 -91 91

Adjusted Trial Balance Account Title 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depr. Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Rent Revenue Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Exp. 4 -92 1 -92 Debit Credit Income Statement Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 Balance Sheet Debit 2, 065 2, 720 760 2, 200 20, 000 1, 800 900 4, 000 360 25, 000 16, 340 4, 275 1, 600 50 985 800 455 42, 600 4, 525 1, 600 50 985 2, 040 200 455 16, 840 120 4, 000 Credit 50 900 250 240 25, 000 92

Adjusted Trial Balance Account Title 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depr. Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Rent Revenue Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Exp. 4 -93 1 -93 Debit Credit Income Statement Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 Balance Sheet Debit 2, 065 2, 720 760 2, 200 20, 000 1, 800 900 4, 000 360 25, 000 16, 340 4, 275 1, 600 50 985 800 455 42, 600 4, 525 1, 600 50 985 2, 040 200 455 9, 855 16, 840 120 16, 960 4, 000 33, 545 Credit 50 900 250 240 25, 000 26, 440 93 The four columns are summed.

Income Statement Balance Sheet 9, 855 7, 105 16, 960 33, 545 26, 440 7, 105 33, 545 Net Income The difference between the Income Statement columns totals is the net income (or net loss) for the period. 4 -94 1 -94 94

Adjusted Trial Balance Account Title 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depr. Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Rent Revenue Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Exp. Net 4 -95 income 1 -95 4 -95 Debit Credit Income Statement Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 Balance Sheet Debit 2, 065 2, 720 760 2, 200 20, 000 1, 800 900 4, 000 360 25, 000 16, 340 4, 275 1, 600 50 985 800 455 42, 600 4, 525 1, 600 50 985 2, 040 200 455 9, 855 7, 105 16, 960 16, 840 120 4, 000 16, 960 33, 545 Credit 50 900 250 240 25, 000 26, 440 7, 105 33, 545 95