Chapter 4 Power Notes Completing the Accounting Cycle

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Chapter 4 Power Notes Completing the Accounting Cycle Learning Objectives 1. 2. 3. 4.

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

Power Notes Chapter 4 Completing the Accounting Cycle Slide # Power Note Topics 3

Power Notes Chapter 4 Completing the Accounting Cycle Slide # Power Note Topics 3 18 22 28 31 43 • • • The Work Sheet Financial Statements The Closing Process Post-Closing Trial Balance Accounting Cycles Working Capital and Current Ratio Note: To select a topic, type the slide # and press Enter. C 4 - 2

The Work Sheet Trial Balance Accounts Dr Cr Adjustments Dr Cr Adjusted TB Dr

The Work Sheet Trial Balance Accounts Dr Cr Adjustments Dr Cr Adjusted TB Dr Cr Prepared from general ledger. Accounts are listed in order: A, L, OE, R, E C 4 - 3

The Work Sheet Trial Balance Accounts Dr Cr Adjustments Dr Cr Adjusted TB Dr

The Work Sheet Trial Balance Accounts Dr Cr Adjustments Dr Cr Adjusted TB Dr Cr Adjustments are entered here. Two possibilities: 1. Deferrals – Existing balances are changed. 2. Accruals – New information is entered. C 4 - 4

The Work Sheet Trial Balance Accounts Dr Cr Adjustments Dr Cr Adjusted TB Dr

The Work Sheet Trial Balance Accounts Dr Cr Adjustments Dr Cr Adjusted TB Dr Cr Adjustments are combined with the trial balance. Account balances are now adjusted. C 4 - 5

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 19 Accumulated Depr. 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 31 Chris Clark, Capital 32 Chris Clark, Drawing 41 Fees Earned 42 Rent Revenue 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Misc. Expense Trial Balance Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 0 985 800 0 455 42, 600 Adjustments Debit Credit (e) 500 0 900 0 360 25, 000 16, 340 0 (a) 1, 240 (b) 100 (f) 50 (c) 120 (d) 250 (e) 500 (c) 120 (a) 1, 240 (b) 100 2, 260 2, 065 2, 720 760 2, 300 20, 000 1, 800 (d) 250 (f) 50 42, 600 Adj. Trial Balance Debit Credit 2, 260 4, 000 4, 525 1, 600 50 985 2, 040 100 455 43, 400 50 900 250 240 25, 000 16, 840 120 43, 400 C 4 - 6

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 19 Accumulated Depr. 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 31 Chris Clark, Capital 32 Chris Clark, Drawing 41 Fees Earned 42 Rent Revenue 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Misc. Expense Trial Balance Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 0 985 800 0 455 42, 600 Adjustments Debit Credit (e) 500 0 900 0 360 25, 000 16, 340 0 (a) 1, 240 (b) 100 (f) 50 (c) 120 (d) 250 (e) 500 (c) 120 (a) 1, 240 (b) 100 2, 260 2, 065 2, 720 760 2, 300 20, 000 1, 800 (d) 250 (f) 50 42, 600 Adj. Trial Balance Debit Credit 2, 260 4, 000 4, 525 1, 600 50 985 2, 040 100 455 43, 400 50 900 250 240 25, 000 16, 840 120 43, 400 C 4 - 7

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 19 Accumulated Depr. 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 31 Chris Clark, Capital 32 Chris Clark, Drawing 41 Fees Earned 42 Rent Revenue 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Misc. Expense Trial Balance Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 0 985 800 0 455 42, 600 Adjustments Debit Credit (e) 500 0 900 0 360 25, 000 16, 340 0 (a) 1, 240 (b) 100 (f) 50 (c) 120 (d) 250 (e) 500 (c) 120 (a) 1, 240 (b) 100 2, 260 2, 065 2, 720 760 2, 300 20, 000 1, 800 (d) 250 (f) 50 32, 600 Adj. Trial Balance Debit Credit 2, 260 4, 000 4, 525 1, 600 50 985 2, 040 100 455 43, 400 50 900 250 240 25, 000 16, 840 120 43, 400 C 4 - 8

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 19 Accumulated Depr. 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 31 Chris Clark, Capital 32 Chris Clark, Drawing 41 Fees Earned 42 Rent Revenue 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Misc. Expense Trial Balance Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 0 985 800 0 455 42, 600 Adjustments Debit Credit (e) 500 0 900 0 360 25, 000 16, 340 0 (a) 1, 240 (b) 100 (f) 50 (c) 120 (d) 250 (e) 500 (c) 120 (a) 1, 240 (b) 100 2, 260 2, 065 2, 720 760 2, 300 20, 000 1, 800 (d) 250 (f) 50 42, 600 Adj. Trial Balance Debit Credit 2, 260 4, 000 4, 525 1, 600 50 985 2, 040 100 455 43, 400 50 900 250 240 25, 000 16, 840 120 43, 400 C 4 - 9

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 19 Accumulated Depr. 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 31 Chris Clark, Capital 32 Chris Clark, Drawing 41 Fees Earned 42 Rent Revenue 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Misc. Expense Trial Balance Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 0 985 800 0 455 42, 600 Adjustments Debit Credit (e) 500 0 900 0 360 25, 000 16, 340 0 (a) 1, 240 (b) 100 (f) 50 (c) 120 (d) 250 (e) 500 (c) 120 (a) 1, 240 (b) 100 2, 260 2, 065 2, 720 760 2, 300 20, 000 1, 800 (d) 250 (f) 50 42, 600 Adj. Trial Balance Debit Credit 2, 260 4, 000 4, 525 1, 600 50 985 2, 040 100 455 43, 400 50 900 250 240 25, 000 16, 840 120 43, 400 C 4 - 10

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 19 Accumulated Depr. 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 31 Chris Clark, Capital 32 Chris Clark, Drawing 41 Fees Earned 42 Rent Revenue 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Misc. Expense Trial Balance Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 0 985 800 0 455 42, 600 Adjustments Debit Credit (e) 500 0 900 0 360 25, 000 16, 340 0 (a) 1, 240 (b) 100 (f) 50 (c) 120 (d) 250 (e) 500 (c) 120 (a) 1, 240 (b) 100 2, 260 2, 065 2, 720 760 2, 300 20, 000 1, 800 (d) 250 (f) 50 42, 600 Adj. Trial Balance Debit Credit 2, 260 4, 000 4, 525 1, 600 50 985 2, 040 100 455 43, 400 50 900 250 240 25, 000 16, 840 120 43, 400 C 4 - 11

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 19 Accumulated Depr. 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 31 Chris Clark, Capital 32 Chris Clark, Drawing 41 Fees Earned 42 Rent Revenue 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Misc. Expense Trial Balance Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 0 985 800 0 455 42, 600 Adjustments Debit Credit (e) 500 0 900 0 360 25, 000 16, 340 0 (a) 1, 240 (b) 100 (f) 50 (c) 120 (d) 250 (e) 500 (c) 120 (a) 1, 240 (b) 100 2, 260 2, 065 2, 720 760 2, 300 20, 000 1, 800 (d) 250 (f) 50 42, 600 Adj. Trial Balance Debit Credit 2, 260 4, 000 4, 525 1, 600 50 985 2, 040 100 455 43, 400 50 900 250 240 25, 000 16, 840 120 43, 400 C 4 - 12

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 19 Accumulated Depr. 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 31 Chris Clark, Capital 32 Chris Clark, Drawing 41 Fees Earned 42 Rent Revenue 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Misc. Expense Trial Balance Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 0 985 800 0 455 42, 600 Adjustments Debit Credit (e) 500 0 900 0 360 25, 000 16, 340 0 (a) 1, 240 (b) 100 (f) 50 (c) 120 (d) 250 (e) 500 (c) 120 (a) 1, 240 (b) 100 2, 260 2, 065 2, 720 760 2, 300 20, 000 1, 800 (d) 250 (f) 50 42, 600 Adj. Trial Balance Debit Credit 2, 260 4, 000 4, 525 1, 600 50 985 2, 040 100 455 43, 400 50 900 250 240 25, 000 16, 840 120 43, 400 C 4 - 13

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 19 Accumulated Depr. 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 31 Chris Clark, Capital 32 Chris Clark, Drawing 41 Fees Earned 42 Rent Revenue 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Misc. Expense Trial Balance Debit Credit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 0 985 800 0 455 42, 600 Adjustments Debit Credit (e) 500 0 900 0 360 25, 000 16, 340 0 (a) 1, 240 (b) 100 (f) 50 (c) 120 (d) 250 (e) 500 (c) 120 (a) 1, 240 (b) 100 2, 260 2, 065 2, 720 760 2, 300 20, 000 1, 800 (d) 250 (f) 50 42, 600 Adj. Trial Balance Debit Credit 2, 260 4, 000 4, 525 1, 600 50 985 2, 040 100 455 43, 400 50 900 250 240 25, 000 16, 840 120 43, 400 C 4 - 14

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 19 Accumulated Depr. 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 31 Chris Clark, Capital 32 Chris Clark, Drawing 41 Fees Earned 42 Rent Revenue 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Misc. Expense Net Income Adj. Trial Balance Debit Credit 2, 065 2, 720 760 2, 300 20, 000 1, 800 4, 000 4, 525 1, 600 50 985 2, 040 100 455 43, 400 Income Statement Debit Credit 2, 065 2, 720 760 2, 300 20, 000 1, 800 50 900 250 240 25, 000 16, 840 120 43, 400 Balance Sheet Debit Credit 4, 525 1, 600 50 985 2, 040 100 455 9, 755 7, 205 16, 960 16, 840 120 4, 000 16, 960 43, 645 50 900 250 240 25, 000 16, 440 7, 205 43, 645 C 4 - 15

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 19 Accumulated Depr. 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 31 Chris Clark, Capital 32 Chris Clark, Drawing 41 Fees Earned 42 Rent Revenue 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Misc. Expense Net Income Adj. Trial Balance Debit Credit 2, 065 2, 720 760 2, 300 20, 000 1, 800 4, 000 4, 525 1, 600 50 985 2, 040 100 455 43, 400 Income Statement Debit Credit 2, 065 2, 720 760 2, 300 20, 000 1, 800 50 900 250 240 25, 000 16, 840 120 43, 400 Balance Sheet Debit Credit 4, 525 1, 600 50 985 2, 040 100 455 9, 755 7, 205 16, 960 16, 840 120 4, 000 16, 960 43, 645 50 900 250 240 25, 000 16, 440 7, 205 43, 645 C 4 - 16

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12

Net. Solutions - Work Sheet - Two Months Ended 12/31/02 Account 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 19 Accumulated Depr. 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 31 Chris Clark, Capital 32 Chris Clark, Drawing 41 Fees Earned 42 Rent Income 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Misc. Expense Net Income Adj. Trial Balance Debit Credit 2, 065 2, 720 760 2, 300 20, 000 1, 800 4, 000 4, 525 1, 600 50 985 2, 040 100 455 43, 400 Income Statement Debit Credit 2, 065 2, 720 760 2, 300 20, 000 1, 800 50 900 250 240 25, 000 16, 840 120 43, 400 Balance Sheet Debit Credit 4, 525 1, 600 50 985 2, 040 100 455 9, 755 7, 205 16, 960 16, 840 120 4, 000 16, 960 43, 645 50 900 250 240 25, 000 16, 440 7, 205 43, 645 C 4 - 17

Net. Solutions Income Statement For Two Months Ended December 31, 2002 Fees earned $16,

Net. Solutions Income Statement For Two Months Ended December 31, 2002 Fees earned $16, 840 Rent revenue 120 Total revenues $16, 960 Expenses: Wages expense $ 4, 525 Supplies expense 2, 040 Rent expense 1, 600 Utilities expense 985 Insurance expense 100 Depreciation expense 50 Miscellaneous expense 455 Total expenses Net income $ 7, 205 9, 755 C 4 - 18

Net. Solutions Statement of Owner’s Equity For Two Months Ended December 31, 2002 Chris

Net. Solutions Statement of Owner’s Equity For Two Months Ended December 31, 2002 Chris Clark, capital, November 1, 2002 Investment on November 1, 2002 $25, 000 Net income for November and December 7, 205 $32, 205 Less withdrawals 4, 000 Increase in owner’s equity 28, 205 Chris Clark, capital, December 31, 2002 $ 0 $28, 205 C 4 - 19

Net. Solutions Balance Sheet December 31, 2002 ASSETS Current assets: Cash $ 2, 065

Net. Solutions Balance Sheet December 31, 2002 ASSETS Current assets: Cash $ 2, 065 Accounts receivable 2, 720 Supplies 760 Prepaid insurance 2, 300 Total current assets $ 7, 845 Property, plant, and equipment: Land $20, 000 Office equipment 1, 800 Less accum. depr. (50) Total property, plant, and equipment$21, 750 Total assets $29, 595 C 4 - 20

Net. Solutions Balance Sheet December 31, 2002 LIABILITIES Current liabilities: Accounts payable $ 900

Net. Solutions Balance Sheet December 31, 2002 LIABILITIES Current liabilities: Accounts payable $ 900 Wages payable 250 Unearned rent 240 Total liabilities $ 1, 390 OWNER’S EQUITY Chris Clark, capital 28, 205 Total liabilities and owner’s equity $29, 595 C 4 - 21

The Closing Process Wages Expense Bal. 4, 525 Fees Earned Income Summary Rent Expense

The Closing Process Wages Expense Bal. 4, 525 Fees Earned Income Summary Rent Expense Bal. 1, 600 Rent Revenue Bal. Depreciation Expense Bal. Utilities Expense Bal. 50 Chris Clark, 985 Capital Bal. 25, 000 Supplies Expense Bal. 2, 040 Insurance Expense Bal. Miscellaneous Expense Bal. 16, 840 Note: The balances shown are adjusted balances before closing. The following sequence demonstrates the closing process. 100 Chris Clark, Drawing Bal. 4, 000 455 C 4 - 22

The Closing Process Wages Expense Bal. 4, 525 Fees Earned Income Summary Rent Expense

The Closing Process Wages Expense Bal. 4, 525 Fees Earned Income Summary Rent Expense Bal. 1, 600 16, 960 Total Revenues Depreciation Expense Bal. Chris Clark, 985 Capital Miscellaneous Expense Bal. Rent Revenue 120 Bal. Close Revenues Bal. 25, 000 Supplies Expense Bal. 2, 040 Insurance Expense Bal. 16, 840 50 Utilities Expense Bal. 16, 840 100 Chris Clark, Drawing Bal. 4, 000455 C 4 - 23

The Closing Process Wages Expense Bal. 4, 525 Rent Expense Bal. 1, 600 Depreciation

The Closing Process Wages Expense Bal. 4, 525 Rent Expense Bal. 1, 600 Depreciation Expense Bal. 50 Utilities Expense Bal. 985 Fees Earned Income Summary 9, 755 Total Expenses Miscellaneous Expense Bal. 455 Total Revenues Bal. 16, 840 Rent Revenue 120 Bal. 50 Chris Clark, 985 Capital Bal. 25, 000 Supplies Expense Bal. 2, 040 Insurance Expense Bal. 100 16, 960 16, 840 Close Revenues Close Expenses 100 Chris Clark, Drawing Bal. 4, 000455 C 4 - 24

The Closing Process Wages Expense Bal. 4, 525 Rent Expense Bal. 1, 600 Depreciation

The Closing Process Wages Expense Bal. 4, 525 Rent Expense Bal. 1, 600 Depreciation Expense Bal. 50 Utilities Expense Bal. 985 Fees Earned Income Summary 9, 755 7, 205 Miscellaneous Expense Bal. 455 Bal. 16, 840 Rent Income 120 Bal. Closed 50 Chris Clark, 985 Capital Bal. 25, 000 Supplies Expense Bal. 2, 040 Insurance Expense Bal. 100 16, 960 16, 840 7, 205 Net Income Close Revenues Close Expenses Close Income Summary 100 Chris Clark, Drawing Bal. 4, 000455 C 4 - 25

The Closing Process Wages Expense Bal. 4, 525 Rent Expense Bal. 1, 600 Depreciation

The Closing Process 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 Income Summary 9, 755 16, 960 7, 205 16, 840 Bal. 16, 840 Rent Income 120 Bal. Closed 50 Chris Clark, 985 Capital Bal. 25, 000 4, 000 Drawing 7, 205 Net Income 100 Chris Clark, Drawing Bal. 4, 000 455 Close Revenues Close Expenses Close Income Summary Close Drawing Closed C 4 - 26

The Closing Process Fees Earned Wages Expense Income Summary Rent Expense Rent Income Depreciation

The Closing Process Fees Earned Wages Expense Income Summary Rent Expense Rent Income Depreciation Expense Utilities Expense Chris Clark, Capital Supplies Expense Insurance Expense Miscellaneous Expense 4, 000 Bal. 25, 000 7, 205 Drawing Net Income Bal. 28, 205 Chris Clark, Drawing All temporary accounts now have zero balances and are ready for the next accounting period. C 4 - 27

Net. Solutions Post-Closing Trial Balance December 31, 2002 Assets 11 12 14 15 17

Net. Solutions Post-Closing Trial Balance December 31, 2002 Assets 11 12 14 15 17 18 19 21 22 23 31 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accum. Depreciation Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital 28, 205 2, 065 2, 720 760 2, 300 20, 000 1, 800 50 900 250 240 29, 645 C 4 - 28

Net. Solutions Post-Closing Trial Balance December 31, 2002 Liabilities 11 12 14 15 17

Net. Solutions Post-Closing Trial Balance December 31, 2002 Liabilities 11 12 14 15 17 18 19 21 22 23 31 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accum. Depreciation Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital 28, 205 2, 065 2, 720 760 2, 300 20, 000 1, 800 50 900 250 240 29, 645 C 4 - 29

Net. Solutions Post-Closing Trial Balance December 31, 2002 Owner’s Equity 11 12 14 15

Net. Solutions Post-Closing Trial Balance December 31, 2002 Owner’s Equity 11 12 14 15 17 18 19 21 22 23 31 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accum. Depreciation Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital 28, 205 2, 065 2, 720 760 2, 300 20, 000 1, 800 50 900 250 240 29, 645 C 4 - 30

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 C 4 - 31

Manual Accounting Cycle 1. Transactions are analyzed and recorded in journal. Documents Journal 2.

Manual Accounting Cycle 1. Transactions are analyzed and recorded in journal. Documents Journal 2. Transactions are posted from journal to ledger. Journal Ledger C 4 - 32

Manual Accounting Cycle 1. Transactions are analyzed and recorded in journal. Documents Journal 2.

Manual Accounting Cycle 1. Transactions are analyzed and recorded in journal. Documents Journal 2. Transactions are posted from journal to ledger. Journal 3. Trial balance is prepared, adjustment data is organized, work sheet is completed. Ledger Work Sheet C 4 - 33

Manual Accounting Cycle 1. Transactions are analyzed and recorded in journal. Documents Journal 2.

Manual Accounting Cycle 1. Transactions are analyzed and recorded in journal. Documents Journal 2. Transactions are posted from journal to ledger. Journal 3. Trial balance is prepared, adjustment data is organized, work sheet is completed. 4. Financial statements are prepared and distributed. Ledger Work Sheet IS SOE BS SCF Financial Statements C 4 - 34

Manual Accounting Cycle 5. Adjusting entries are journalized and posted to ledger. Journal Ledger

Manual Accounting Cycle 5. Adjusting entries are journalized and posted to ledger. Journal Ledger C 4 - 35

Manual Accounting Cycle 5. Adjusting entries are journalized and posted to ledger. Journal Ledger

Manual Accounting Cycle 5. Adjusting entries are journalized and posted to ledger. Journal Ledger 6. Closing entries are journalized and posted to ledger. Journal Ledger C 4 - 36

Manual Accounting Cycle 5. Adjusting entries are journalized and posted to ledger. Journal Ledger

Manual Accounting Cycle 5. Adjusting entries are journalized and posted to ledger. Journal Ledger 6. Closing entries are journalized and posted to ledger. Journal Ledger Assets Liabilities Owner’s Equity 7. Post-closing trial balance is prepared. Post-closing Trial Balance C 4 - 37

Manual Accounting Cycle 5. Adjusting entries are journalized and posted to ledger. Journal Ledger

Manual Accounting Cycle 5. Adjusting entries are journalized and posted to ledger. Journal Ledger 6. Closing entries are journalized and posted to ledger. Journal Ledger Assets Liabilities Owner’s Equity 7. Post-closing trial balance is prepared. Post-closing Trial Balance 8. Reports are analyzed and interpreted for decisionmaking purposes. ? C 4 - 38

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

Computer Accounting Cycle 1. Transactions are analyzed and entered in the computer. Documents Computer C 4 - 39

Computer Accounting Cycle 1. Transactions are analyzed and entered in the computer. Documents 2.

Computer Accounting Cycle 1. Transactions are analyzed and entered in the computer. Documents 2. Preliminary reports are analyzed, adjustments are prepared and entered in the computer. Computer Reports Computer C 4 - 40

Computer Accounting Cycle 1. Transactions are analyzed and entered in the computer. Documents 2.

Computer Accounting Cycle 1. Transactions are analyzed and entered in the computer. Documents 2. Preliminary reports are analyzed, adjustments are prepared and entered in the computer. 3. Financial statements are printed and distributed. Computer Reports IS SOE Computer BS SCF Financial Statements C 4 - 41

Computer Accounting Cycle 1. Transactions are analyzed and entered in the computer. Documents 2.

Computer Accounting Cycle 1. Transactions are analyzed and entered in the computer. Documents 2. Preliminary reports are analyzed, adjustments are prepared and entered in the computer. 3. Financial statements are printed and distributed. Computer Reports SOE IS Computer BS SCF Financial Statements 4. Reports are analyzed and interpreted for decisionmaking purposes. ? C 4 - 42

Solvency Analysis Solvency is the ability of a business to meet its financial obligations

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 4 - 43

Solvency Measures — The Short-Term Creditor Working Capital and Current Ratio 2003 Current assets

Solvency Measures — The Short-Term Creditor Working Capital and Current Ratio 2003 Current assets $550, 000 Current liabilities 210, 000 2002 $533, 000 243, 000 C 4 - 44

Solvency Measures — The Short-Term Creditor Working Capital and Current Ratio 2003 Current assets

Solvency Measures — The Short-Term Creditor Working Capital and Current Ratio 2003 Current assets $550, 000 Current liabilities 210, 000 Working capital $340, 000 2002 $533, 000 243, 000 $290, 000 Use: To indicate the ability to meet currently maturing obligations C 4 - 45

Solvency Measures — The Short-Term Creditor Working Capital and Current Ratio 2003 Current assets

Solvency Measures — The Short-Term Creditor Working Capital and Current Ratio 2003 Current assets $550, 000 Current liabilities 210, 000 Working capital $340, 000 Current ratio 2. 6 to 1 2002 $533, 000 Divide 243, 000 $290, 000 current 2. 2 to 1 assets by current liabilities Use: To indicate the ability to meet currently maturing obligations C 4 - 46

Working Capital and Current Ratio Objective: Analyze and interpret the financial solvency of a

Working Capital and Current Ratio Objective: Analyze and interpret the financial solvency of a business by computing the working capital and the current ratio. Working Capital (WC) Current Assets minus Current Liabilities Current Ratio (CR) Current Assets Current Liabilities Example Net. Solutions WC = $7, 845 - $1, 390 = $6, 455 CR = $7, 845 / $1, 390 = 5. 6 C 4 - 47

Chapter 4 Power Notes Completing the Accounting Cycle This is the last slide in

Chapter 4 Power Notes Completing the Accounting Cycle This is the last slide in Chapter 4. Note: To see the topic slide, type 2 and press Enter. C 4 - 48