Completing the Accounting Cycle LO 2 Preparing the

Completing the Accounting Cycle LO 2 – Preparing the Financial Statements @ 2012, Cengage Learning

LO 2 Income Statement The income statement for Net. Solutions 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.

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 Capital Stock Dividends Fees Earned Rent Revenue Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Exp. Net income Debit 2, 065 2, 720 760 2, 200 20, 000 1, 800 4, 000 4, 525 1, 600 50 985 2, 040 200 455 43, 400 Credit Income Statement Debit Credit 43, 400 Debit 2, 065 2, 720 760 2, 200 20, 000 1, 800 50 900 250 240 25, 000 16, 840 120 Balance Sheet 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 3

LO 2 Income Statement to retained earnings statement

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 Capital Stock Dividends Fees Earned Rent Revenue Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Exp. Net income Debit 2, 065 2, 720 760 2, 200 20, 000 1, 800 4, 000 4, 525 1, 600 50 985 2, 040 200 455 43, 400 Credit Income Statement Debit Credit 43, 400 Debit 2, 065 2, 720 760 2, 200 20, 000 1, 800 50 900 250 240 25, 000 16, 840 120 Balance Sheet 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 5

LO 2 Income Statement to retained earnings statement

LO 2 Retained Earnings Statement è The first item presented on the retained earnings statement is the balance of the Retained Earnings account at the beginning of the period.

LO 2 Retained Earnings Statement from the income statement to the balance sheet

LO 2 Balance Sheet The balance sheet is prepared directly from the Balance Sheet or Adjusted Trial Balance columns of the end-of-period spreadsheet (or work sheet), beginning with Cash of $2, 065.

LO 2 Classified Balance Sheet è A classified balance sheet is a balance sheet that was expanded by adding subsections for current assets; property, plant, and equipment; current liabilities; and long-term liabilities.

LO 2 Current Assets è 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 § Notes Receivable § Supplies

LO 2 Fixed Assets è Property, plant, and equipment (also called fixed assets or plant 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

LO 2 Balance Sheet from the retained earnings statement

LO 2 Current Liabilities è 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

LO 2 Long-Term Liabilities è Liabilities not due for a long time (usually more than one year) are called long-term liabilities. § Long-term notes payable § Mortgage payable § Bond payable

LO 2 Stockholders’ Equity è Stockholders’ equity is the stockholders’ right to the assets of the business. It is presented on the balance sheet below the liabilities section. § Capital stock § Retained earnings

LO 2 Balance Sheet from the retained earnings statement