Mega Stores Unadjusted Trial Balance December 31 2002

Mega Stores Unadjusted Trial Balance December 31, 2002 Assets 11 12 14 15 17 18 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800

Mega Stores Unadjusted Trial Balance December 31, 2002 Liabilities 11 12 14 15 17 18 21 23 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 900 360

Mega Stores Unadjusted Trial Balance December 31, 2002 Stockholders’ Equity 11 12 14 15 17 18 21 23 31 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Capital Stock 25, 000 33 Dividends 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 900 360 4, 000

Mega Stores Unadjusted Trial Balance December 31, 2002 11 12 14 15 17 18 21 23 31 Revenue Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Capital Stock 25, 000 33 Dividends 41 Fees Earned 16, 340 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 900 360 4, 000

Mega Stores Unadjusted Trial Balance December 31, 2002 11 12 14 15 17 18 21 23 31 32 41 Expenses 51 52 54 55 59 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Pat King, Capital 25, 000 Pat King, Drawing Fees Earned 16, 340 Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 900 360 4, 000 4, 275 1, 600 985 800 455 42, 600

Mega Stores Unadjusted Trial Balance December 31, 2002 11 12 14 15 17 18 21 23 31 33 41 51 52 54 55 59 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Capital Stock 25, 000 Dividends Fees Earned 16, 340 Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 900 360 4, 000 4, 275 1, 600 985 800 455 42, 600

Mega Stores Expanded Chart of Accounts Balance Sheet 1. 11 12 14 15 17 18 19 Assets Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depreciation 2. 21 22 23 Liabilities Accounts Payable Wages Payable Unearned Rent 3. 31 32 33 Stockholders’ Equity Capital Stock Retained Earnings Dividends Income Statement 4. Revenue 41 Fees Earned 42 Rent Revenue 5. 51 52 53 54 55 56 59 Expenses Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Expense

Mega Stores Expanded Chart of Accounts Balance Sheet 1. 11 12 14 15 17 18 19 Assets Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depreciation 2. 21 22 23 Liabilities Accounts Payable Wages Payable Unearned Rent 3. 31 32 33 Stockholders’ Equity Capital Stock Retained Earnings Dividends Income Statement 4. Revenue 41 Fees Earned 42 Rent Revenue 5. 51 52 53 54 55 56 59 Expenses Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Expense

Mega Stores Expanded Chart of Accounts Balance Sheet 1. 11 12 14 15 17 18 19 Assets Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depreciation 2. 21 22 23 Liabilities Accounts Payable Wages Payable Unearned Rent 3. 31 32 33 Stockholders’ Equity Capital Stock Retained Earnings Dividends Income Statement 4. Revenue 41 Fees Earned 42 Rent Revenue 5. 51 52 53 54 55 56 59 Expenses Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Expense

Mega Stores Expanded Chart of Accounts Balance Sheet 1. 11 12 14 15 17 18 19 Assets Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depreciation 2. 21 22 23 Liabilities Accounts Payable Wages Payable Unearned Rent 3. 31 32 33 Stockholders’ Equity Capital Stock Retained Earnings Dividends Income Statement 4. Revenue 41 Fees Earned 42 Rent Revenue 5. 51 52 53 54 55 56 59 Expenses Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Expense

Mega Stores Expanded Chart of Accounts Balance Sheet 1. 11 12 14 15 17 18 19 Assets Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depreciation 2. 21 22 23 Liabilities Accounts Payable Wages Payable Unearned Rent 3. 31 32 33 Stockholders’ Equity Capital Stock Retained Earnings Dividends Income Statement 4. Revenue 41 Fees Earned 42 Rent Revenue 5. 51 52 53 54 55 56 59 Expenses Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Expense

Business Transactions Supplier (seller) Entry C. Mega Stores buys supplies for $1, 350, agreeing to pay in the near future. Supplies receive Debit A promise to pay later Mega Stores (buyer) General Journal Date Description 11/10 Supplies Accounts Payable 1, 350 Debit 1, 350 Credit give Credit

Business Transactions Entry G. At the end of the month, the cost of supplies on hand is $550. Internal Transaction (no external entity) Use of supplies receive Debit Supplies Mega Stores (user) give Credit General Journal Date Description 11/30 Supplies Expense Supplies Debit Credit 800 Balance of Supplies account $1, 350 less $550 on hand = $800 used

Adjustments – Deferred Expense On December 1, Mega Stores purchased insurance for 24 months at a cost of $2, 400. Example P 1 – Purchase initially recorded as an asset. Cash P 1. . . 2, 400 Prepaid Insurance P 1. . . 2, 400 Adjustment A 1 – Record insurance used for December, $100. Assets Insurance Expenses

Adjustments – Deferred Expense On December 1, Mega Stores purchased insurance for 24 months at a cost of $2, 400. Example P 1 – Purchase initially recorded as an asset. Adjustment A 1 – Record insurance used for December, $100. Cash P 1. . . 2, 400 Prepaid Insurance P 1. . . 2, 400 Assets A 1. . . 100 A 1 Insurance Expense A 1. . . 100 A 1 Expenses

Adjustments – Deferred Expense On December 1, Mega Stores purchased insurance for 24 months at a cost of $2, 400. Example P 2 – Purchase initially recorded as an expense. Cash P 2. . . 2, 400 Prepaid Insurance Adjustment A 2 – Record insurance unused as of December 31. Assets Insurance Expense P 2. . . 2, 400 Expenses

Adjustments – Deferred Expense On December 1, Mega Stores purchased insurance for 24 months at a cost of $2, 400. Example P 2 – Purchase initially recorded as an expense. Adjustment A 2 – Record insurance unused as of December 31. Cash P 2. . . 2, 400 Prepaid Insurance Assets A 2. . . 2, 300 A 2 Insurance Expense P 2. . . 2, 400 A 2. . . 2, 300 Expenses

Adjustments – Deferred Revenue On December 1, Mega Stores received cash of $360 for three months’ rent beginning December 1. Example S 1 – Sale initially recorded as a liability. Cash S 1. . . 360 Unearned Rent S 1. . . 360 Adjustment A 3 – Record rent earned for December. Liabilities Rent Revenues

Adjustments – Deferred Revenue On December 1, Mega Stores received cash of $360 for three months’ rent beginning December 1. Example S 1 – Sale initially recorded as a liability. Cash S 1. . . 360 Unearned Rent A 3. . . 120 A 3 S 1. . . 360 Adjustment A 3 – Record rent earned for December. Liabilities A 3 Rent Revenue A 3. . . 120 Revenues

Adjustments – Deferred Revenue On December 1, Mega Stores received cash of $360 for three months’ rent beginning December 1. Example S 2 – Sale initially recorded as revenue. Cash S 2. . . 360 Unearned Rent Adjustment A 4 – Record rent unearned as of December 31. Liabilities Rent Revenue S 2. . . 360 Revenues

Adjustments – Deferred Revenue On December 1, Mega Stores received cash of $360 for three months’ rent beginning December 1. Example S 2 – Sale initially recorded as revenue. Cash S 2. . . 360 Unearned Rent Adjustment A 4 – Record rent unearned as of December 31. Liabilities A 4. . . 240 A 4 Rent Revenue A 4. . . 240 S 2. . . 360 A 4 Revenues

Adjustments – Accrued Expense Mega Stores received employee services for the last two days of December amounting to $250, to be paid later. Adjustment A 5 – Record accrued wages of $250. Wages Payable Liabilities Wages Expense Bal. . . 4, 275 Expenses

Adjustments – Accrued Expense Mega Stores received employee services for the last two days of December amounting to $250, to be paid later. Adjustment A 5 – Record accrued wages of $250. Wages Payable Liabilities A 5. . . 250 A 5 Wages Expense Bal. . . 4, 275 A 5. . . 250 A 5 Expenses

Adjustments – Accrued Revenue As of December 31, Mega Stores provided 25 hours of services at $20 per hour to be billed next month. Adjustment A 6 – Record accrued fees earned of $500. Accounts Receivable Bal. . . 2, 220 Assets Fees Earned Bal. . 16, 340 Revenues

Adjustments – Accrued Revenue As of December 31, Mega Stores provided 25 hours of services at $20 per hour to be billed next month. Adjustment A 6 – Record accrued fees earned of $500. Accounts Receivable Assets Bal. . . 2, 220 A 6. . . 500 A 6 Fees Earned Bal. . 16, 340 A 6. . . 500 A 6 Revenues

Mega Stores - Work Sheet - Two Months Ended 12/31/02 Account 11 12 14 15 17 18 19 21 22 23 31 33 41 42 51 52 53 54 55 56 59 Cash Accounts Receivable Supplies Prepaid Insurance Land 20, 000 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 Misc. Expense Trial Balance Debit Credit 2, 065 2, 220 2, 000 2, 400 1, 800 4, 000 4, 275 1, 600 0 985 800 0 455 42, 600 Adjustments Debit Credit (e) 0 900 0 360 25, 000 16, 340 0 (c) 500 (a) 1, 240 (b) 100 120 (d) 250 (f) 50 (d) 250 (e) (c) 500 120 (a) 1, 240 (b) 100 42, 600 2, 260 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 50 900 250 240 25, 000 16, 840 120 43, 400

Mega Stores - 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 Capital Stock 33 Dividends 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

Mega Stores - 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 Capital Stock 33 Dividends 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

Mega Stores - 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 Capital Stock 33 Dividends 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

Mega Stores - 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 Capital Stock 33 Dividends 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

Mega Stores - 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 Capital Stock 33 Dividends 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

Mega Stores - Work Sheet - Two Months Ended 12/31/99 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 Capital Stock 33 Dividends 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 10, 000 1, 800 4, 000 4, 275 1, 600 0 985 800 0 455 32, 600 Adjustments Debit Credit (e) 500 0 900 0 360 15, 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 10, 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 33, 400 50 900 250 240 15, 000 16, 840 120 33, 400

Mega Stores - 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 Capital Stock 33 Dividends 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

Mega Stores - Work Sheet - Two Months Ended 12/31/02 Account 11 12 14 15 17 18 19 21 22 23 31 33 41 42 51 52 53 54 55 56 59 Cash 2, 065 Accounts Receivable Supplies Prepaid Insurance Land 20, 000 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 Misc. Expense Trial Balance Debit Credit 2, 220 2, 000 2, 400 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 (c) 120 (d) 250 (f) 2, 065 (a) 1, 240 (b) 100 20, 000 (f) 50 (d) 250 (e) (c) 500 120 50 (a)1, 240 (b) 100 42, 600 2, 260 Adj. Trial Balance Debit Credit 2, 720 760 2, 300 1, 800 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

Mega Stores - 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 Capital Stock 33 Dividends 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 33, 645 50 900 250 240 25, 000 26, 440 7, 205 33, 645

Mega Stores - 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 Capital Stock 33 Dividends 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 33, 645 50 900 250 240 25, 000 26, 440 7, 205 33, 645

Mega Stores - 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 Capital Stock 33 Dividends 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 10, 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 33, 645 50 900 250 240 25, 000 26, 440 7, 205 33, 645

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

Mega Stores Retained Earnings Statement For Two Months Ended December 31, 2002 Net income for November and December Less dividends Retained earnings, December 31, 2002 $7, 205 4, 000 $3, 205

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

Mega Stores Balance Sheet December 31, 2002 Current liabilities: Accounts payable Wages payable Unearned rent Total liabilities 1, 390 LIABILITIES $ 900 250 240 $ STOCKHOLDERS’ EQUITY Capital stock $25, 000 Retained earnings 3, 205 Total stockholders’ equity 28, 205 Total liabilities and stockholders’ equity $29, 595

The Closing Process Wages Expense Bal. 4, 525 Fees Earned Bal. 16, 840 Income Summary Rent Expense Bal. Rent Revenue 1, 600 Bal. 120 Depreciation Expense Bal. 50 Utilities Expense Bal. 985 Retained Earnings Bal. Supplies Expense Bal. 2, 040 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 Dividends Bal. 4, 000 0 Note: The balances shown are adjusted balances before closing. The following sequence demonstrates the closing process.

The Closing Process Wages Expense Bal. 4, 525 Fees Earned Rent Expense Bal. 16, 960 1, 600 Total Revenues Depreciation Expense Bal. 16, 840 Income Summary 985 Bal. 2, 040 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 120 Bal. 455 Close Revenues Retained Earnings Supplies Expense Bal. Rent Revenue 50 Utilities Expense Bal. 16, 840 Dividends Bal. 4, 000 0 120

The Closing Process Fees Earned Wages Expense Bal. 4, 525 Rent Expense Bal. 1, 600 Depreciation Expense Bal. 9, 755 Total Expenses 16, 960 Total Revenues 50 Utilities Expense 985 Bal. 2, 040 Rent Revenue 120 Bal. 985 100 Bal. 2, 040 100 Miscellaneous Expense 455 Close Revenues Retained Earnings Insurance Expense Bal. 16, 840 50 Supplies Expense Bal. 16, 840 Income Summary Dividends Bal. 4, 000 0 Close Expenses 120

The Closing Process Fees Earned Wages Expense Bal. 4, 525 Rent Expense Bal. 1, 600 Depreciation Expense Bal. 50 50 Utilities Expense 985 Income Summary 9, 755 7, 205 100 Bal. 7, 205 Net Income 2, 040 100 Miscellaneous Expense Bal. 455 Rent Revenue 120 Retained Earnings Insurance Expense Bal. 16, 840 Bal. 120 Closed Supplies Expense Bal. 2, 040 16, 960 16, 840 Dividends Bal. 4, 000 Close Revenues Close Expenses Close Income Summary 0

The Closing Process Fees Earned Wages Expense Bal. 4, 525 Rent Expense Bal. 1, 600 Depreciation Expense Bal. 50 50 Utilities Expense 985 Supplies Expense Bal. 2, 040 Income Summary 9, 755 7, 205 100 Miscellaneous Expense Bal. 455 Bal. 16, 840 Rent Revenue 120 Bal. 120 Closed Retained Earnings Bal. 4, 000 Dividends Insurance Expense Bal. 16, 960 16, 840 7, 205 Net Income Close Revenues Close Expenses Close Income Summary Close Dividends Bal. 4, 000 Closed 0

The Closing Process Fees Earned Wages Expense Income Summary Rent Expense Rent Revenue Depreciation Expense Utilities Expense Retained Earnings Supplies Expense Insurance Expense Miscellaneous Expense 4, 000 Dividends Bal. 7, 205 Net Income Bal. 3, 205 Dividends All temporary accounts now have zero balances and are ready for the next accounting period. 0

Mega Stores 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 Capital Stock 25, 000 32 Retained Earnings 3, 205 2, 065 2, 720 760 2, 300 20, 000 1, 800 50 900 250 240 29, 645

Mega Stores 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 Capital Stock 25, 000 32 Retained Earnings 3, 205 2, 065 2, 720 760 2, 300 20, 000 1, 800 50 900 250 240 29, 645

Mega Stores Post-Closing Trial Balance December 31, 2002 Stockholders’ 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 Capital Stock 25, 000 32 Retained Earnings 3, 205 2, 065 2, 720 760 2, 300 20, 000 1, 800 50 900 250 240 29, 645

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

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

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

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 Financial Statements SCF

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

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

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. ?

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 2. Preliminary reports are analyzed, adjustments are prepared and entered in the computer. Computer Reports Computer

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 Financial Statements SCF

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 Financial Statements 4. Reports are analyzed and interpreted for decisionmaking purposes. ? SCF

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 non-current liabilities. This ability is normally assessed by examining balance sheet relationships.

Solvency Measures — The Short-Term Creditor Working Capital and Current Ratio 2001 Current assets $550, 000 Current liabilities 210, 000 2002 $533, 000 243, 000

Solvency Measures — The Short-Term Creditor Working Capital and Current Ratio 2001 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.

Solvency Measures — The Short-Term Creditor Working Capital and Current Ratio 2001 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.

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 Mega Stores WC = $7, 845 - $1, 390 = $6, 455 CR = $7, 845 / $1, 390 = 5. 6