Lecture 12 Chapter 04 Completing the Accounting Cycle

Lecture 12 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.

Lecture Overview • Structure of Worksheet • Unadjusted Trial Balance • Adjusting entries and their affect on adjustment column • Adjustment of entries on Adjusted column • Preparation of Income Statement Column • Preparation of Balance Sheet Column

Opportunities Inc. Work Sheet For the Period 31 Dec, 2010 Accounts Title Unadjusted Adjustments Adjusted Trial Balance Dr Cash 2065 A/R 2220 Fees Earned Wages /P Cr Dr Cr 500 16340 Dr Cr Income Statement Dr Balance Sheet Cr Dr 2065 2720 500 16840 250 Cr 16840 250

Adjusting and Closing Entries Adjusting entries are recorded in the journal at the end of the accounting period.

Adjusting and Closing Entries If a work sheet has been prepared, the data for these entries are in the Adjustments columns.

Income Summary Accounts

Closing Process Income Summary 2 Expenses are transferred to Income Summary 3 1 Revenues are transferred to Income Summary Net Income or Net Loss is transferred to Retained Earnings RETAINED EARNINGS 4 Dividends are transferred to Retained Earnings

The Closing Process Income Summary 2 Expenses are transferred to Income Summary 1 Revenues are transferred to Income Summary The Summary Net Income or Net Loss is account does not appear Earnings on transferred to Retained the financial statements. 3 RETAINED EARNINGS 4 Dividends are transferred to Retained Earnings

The Closing Process Fees Earned Wages Expense Bal. Income Summary 4, 525 Rent Expense Bal. Rent Revenue 1, 600 Bal. Depreciation Expense Bal. 50 Utilities Expense Bal. Retained Earnings 985 Supplies Expense Bal. 2, 040 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 Bal. 16, 840 Dividends Bal. 4, 000 120 Note: The balances shown are adjusted balances before closing. The following sequence demonstrates the closing process.

The Closing Process Fees Earned Wages Expense Bal. Income Summary 4, 525 16, 960 Rent Expense Bal. 1, 600 16, 840 Bal. 16, 840 Rent Revenue 120 Bal. 120 Depreciation Expense Bal. 50 Utilities Expense Bal. Retained Earnings 985 Supplies Expense Bal. 2, 040 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 Dividends Bal. 4, 000 Debit each revenue account for the amount of its balance, and credit Income Summary for the total revenue.

The Closing Process Fees Earned Wages Expense Bal. 4, 525 Income Summary 4, 525 9, 775 Rent Expense Bal. 1, 600 16, 960 1, 600 16, 840 Bal. 16, 840 Rent Revenue 120 Bal. 120 Depreciation Expense Bal. 50 50 Utilities Expense Bal. 985 Retained Earnings 985 Supplies Expense 2, 040 Bal. 2, 040 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 Dividends Bal. 4, 000 Debit Income Summary for the total expenses and credit each expense account for its balance.

The Closing Process Fees Earned Wages Expense Bal. 4, 525 Income Summary 4, 525 9, 775 7, 205 Rent Expense Bal. 1, 600 16, 960 16, 840 Bal. 16, 840 Rent Revenue 120 Bal. 120 Depreciation Expense Bal. 50 50 Utilities Expense Bal. 985 Retained Earnings 985 7, 205 Supplies Expense 2, 040 Bal. 2, 040 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 Dividends Bal. 4, 000 Debit Income Summary for the amount of its balance (in this case, the net income) and credit Retained Earnings.

The Closing Process Fees Earned Wages Expense Bal. 4, 525 Income Summary 4, 525 9, 775 7, 205 Rent Expense Bal. 1, 600 16, 960 16, 840 Bal. 16, 840 Rent Revenue 120 Bal. 120 Depreciation Expense Bal. 50 50 Utilities Expense Bal. 985 Retained Earnings 985 4, 000 Supplies Expense 2, 040 Bal. 2, 040 7, 205 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 Dividends Bal. 4, 000 Debit Retained Earnings for the balance of Dividends and credit Dividend for the same amount.

Review of the Closing Process Fees Earned Wages Expense Bal. 4, 525 Income Summary 4, 525 9, 775 7, 205 Rent Expense Bal. 1, 600 16, 960 16, 840 16, 480 Bal. 16, 840 Rent Revenue 120 Bal. 120 Depreciation Expense Bal. 50 50 50 Utilities Expense Bal. 985 Retained Earnings 985 4, 000 Supplies Expense 2, 040 Bal. 2, 040 7, 205 Close Revenues Close Expenses Close Income Summary Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 Close Dividends 100 455 445 Dividends Bal. 4, 000

After the closing entries are posted, all of the temporary accounts have zero balances.

Post Closing Trial Balance Opportunities Inc. Post-Closing Trial Balance December 31, 2010 Cash 2 065 Accounts Receivable 2 720 Supplies 760 Prepaid Insurance 2 300 Land 20 000 Office Equipment 1 800 Accumulated Depreciation Accounts Payable 900 Wages Payable 250 Unearned Rent 240 Capital Stock 25 000 Retained Earnings 3 205 29 645 50

Review of Lecture • Review the seven basic steps of the accounting cycle. • The Matching Concept and the Adjusting Process • Reporting Revenues and Expenses • Adjusting Entries • Deferred Expenses (Prepaid Expenses) • Deferred Revenue (Unearned Revenue) • Accrued Expenses (Accrued Liabilities) • Accrued Revenues (Accrued Assets)

Overview Chapter 4 • • Fixed Assets Effect of Omitting Adjustment Summary of Basic Adjustments Preparation of Income Statement Column Preparation of Balance Sheet Column Closing Entries After Closing Trial Balance

Chapter 4 The End