The Matching Concept and the Adjusting Process PERTEMUAN

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The Matching Concept and the Adjusting Process PERTEMUAN #7 FEB 103 6542– SRI HANDAYANI,

The Matching Concept and the Adjusting Process PERTEMUAN #7 FEB 103 6542– SRI HANDAYANI, SE, MM, MAk, CPMA PENGANTAR AKUNTANSI I + LAB PROGRAM STUDI MANAJEMEN & AKUNTANSI FAKULTAS EKONOMI DAN BISNIS UNIVERSITAS ESA UNGGUL

KEMAMPUAN AKHIR YANG DIHARAPKAN • Mahasiswa mampu membuat laporan keuangan dengan bantuan neraca lajur

KEMAMPUAN AKHIR YANG DIHARAPKAN • Mahasiswa mampu membuat laporan keuangan dengan bantuan neraca lajur (work sheet) dengan melengkapi siklus akuntansi TKT 306 - Perancangan Tata Letak Fasilitas 6623 - Taufiqur Rachman 2

KEMAMPUAN AKHIR YANG DIHARAPKAN Mahasiswa mampu membuat jurnal penutup dan menyusun neraca saldo post

KEMAMPUAN AKHIR YANG DIHARAPKAN Mahasiswa mampu membuat jurnal penutup dan menyusun neraca saldo post closing trial balance TKT 306 - Perancangan Tata Letak Fasilitas 6623 - Taufiqur Rachman 3

Chapter 4 Completing the Accounting Cycle Financial and Managerial Accounting 8 th Edition Warren

Chapter 4 Completing the Accounting Cycle Financial and Managerial Accounting 8 th Edition Warren Reeve Fess Power. Point Presentation by Douglas Cloud Professor Emeritus of Accounting Pepperdine University © Copyright 2004 South-Western, a division of Thomson Learning. All rights reserved. Task Force Image Gallery clip art included in this electroni presentation is used with the permission of NVTech Inc.

Some of the action has been automated, so click the mouse when you see

Some of the action has been automated, so click the mouse when you see this lightning bolt in the lower right-hand corner of the screen. You can point and click anywhere on the screen.

Objectives 1. Review the seven basic steps of the accounting cycle. After studying this

Objectives 1. Review the seven basic steps of the accounting cycle. After studying this 2. Prepare a work sheet. you should chapter, 3. Prepare financialbe statements able to: from a work sheet. 4. Prepare adjusting and closing entries from a work sheet. 5. Explain what is meant by the fiscal year and the natural business year. 6. Analyze and interpret the financial solvency of a business by computing working capital and the current ratio.

Seven Basic Steps of the Accounting Cycle 1. Transactions are analyzed and recorded in

Seven Basic Steps of the Accounting Cycle 1. Transactions are analyzed and recorded in the journal. 2. Transactions are posted to the ledger. 3. A trial balance is prepared, adjustment data are assembled, and an optional work sheet is completed. 4. Financial statements are prepared. 5. Adjusting entries are journalized and posted. 6. Closing entries are journalized and posted. 7. A post-closing trial balance is prepared.

Assets are commonly divided into classes and that two of these classes are current

Assets are commonly divided into classes and that two of these classes are current assets and property, plant, and equipment.

That’s correct. Cash and other assets that are expected to be converted into cash,

That’s correct. Cash and other assets that are expected to be converted into cash, sold, or used up usually in less than a year are current assets.

For example? Well… besides cash, there’s notes receivable, accounts receivable, supplies, and other prepaid

For example? Well… besides cash, there’s notes receivable, accounts receivable, supplies, and other prepaid items.

There are some exceptions, but that’s basically correct. Assets such So, assets that have

There are some exceptions, but that’s basically correct. Assets such So, assets that have a life as office equipment, machinery, over a year are listed under buildings, and land would appear property, plant, and under that heading. equipment.

Liabilities due usually within one year or less and that are to be paid

Liabilities due usually within one year or less and that are to be paid out of current assets are called current liabilities. Ö Accounts payable Ö Wages payable Ö Interest payable Ö Unearned fees

Liabilities not due for more than a year usually are long-term liabilities. ü Mortgage

Liabilities not due for more than a year usually are long-term liabilities. ü Mortgage note payable ü Mortgage payable ü Bond payable

The work sheet is a useful device for understanding the flow of accounting data

The work sheet is a useful device for understanding the flow of accounting data from the unadjusted trial balance to the financial statements.

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

The Work Sheet Trial Balance Accounts Dr Cr Adjustments Adjusted TB Dr Dr Cr Cr Prepared from the general ledger. Accounts are listed in the following order: assets, liabilities, stockholders’ equity, revenues, and expenses.

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

The 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.

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

The 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.

Net. Solutions Work Sheet For the Two Months Ended December 31, 2005 Trial Balance

Net. Solutions Work Sheet For the Two Months Ended December 31, 2005 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Capital Stock Dividends Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense Debit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 985 800 455 42, 600 Credit 900 360 25, 000 16, 340 42, 600 Adjustments Debit Credit Adjusted Trial Balance Debit The Unadjusted Trial Balance Credit

(a) The Supplies account has a debit of $2, 000. A count of supplies

(a) The Supplies account has a debit of $2, 000. A count of supplies at the end of the period reveals that $760 is on hand. Therefore, $1, 240 in supplies was used during the two-month period.

Net. Solutions Work Sheet For the Two Months Ended December 31, 2005 Trial Balance

Net. Solutions Work Sheet For the Two Months Ended December 31, 2005 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Capital Stock Dividends Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense Debit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 985 800 455 42, 600 Credit Adjustments Debit Credit (a) 1, 240 900 360 25, 000 16, 340 (a) 1, 240 42, 600 Adjusted Trial Balance Debit Credit

(b) The Prepaid Insurance account has a debit balance of $2, 400, which represents

(b) The Prepaid Insurance account has a debit balance of $2, 400, which represents prepayment of insurance for 24 months beginning December 1. Thus, the insurance expense for this month is $100 ($2, 400 ÷ 24).

Net. Solutions Work Sheet For the Two Months Ended December 31, 2005 Trial Balance

Net. Solutions Work Sheet For the Two Months Ended December 31, 2005 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Capital Stock Dividends Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense Insurance Expense (b) 100 Debit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 985 800 455 42, 600 Adjustments Credit Debit Credit (a) 1, 240 (b) 100 900 360 25, 000 16, 340 (a) 1, 240 42, 600 Accounts are added as needed. Adjusted Trial Balance Debit Credit

(c) The Unearned Rent account has a credit balance of $360, which represents the

(c) The Unearned Rent account has a credit balance of $360, which represents the receipt of three-months’ rent beginning with December 1. Thus, the rent revenue for December is $120. FOR RENT

Net. Solutions Work Sheet For the Two Months Ended December 31, 2005 Trial Balance

Net. Solutions Work Sheet For the Two Months Ended December 31, 2005 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Capital Stock Dividends Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense Debit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 985 800 455 42, 600 Insurance Expense (b) 100 Rent Revenue (c) 120 Credit Adjustments Debit Credit (a) 1, 240 (b) 100 900 360 25, 000 (c) 120 16, 340 (a) 1, 240 42, 600 Adjusted Trial Balance Debit Credit

(d) Wages accrued but not paid at the end of December total $250.

(d) Wages accrued but not paid at the end of December total $250.

Net. Solutions Work Sheet For the Two Months Ended December 31, 2005 Trial Balance

Net. Solutions Work Sheet For the Two Months Ended December 31, 2005 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Capital Stock Dividends Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense Debit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 985 800 455 42, 600 Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250 Credit Adjustments Debit Credit (a) 1, 240 (b) 100 900 360 25, 000 16, 340 (c) 120 (d) 250 (a) 1, 240 42, 600 Adjusted Trial Balance Debit Credit

(e) Fees accrued at the end of December, but not recorded, total $500.

(e) Fees accrued at the end of December, but not recorded, total $500.

Net. Solutions Work Sheet For the Two Months Ended December 31, 2005 Trial Balance

Net. Solutions Work Sheet For the Two Months Ended December 31, 2005 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Capital Stock Dividends Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense Debit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 985 800 455 42, 600 Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250 Adjustments Credit Debit (e) 900 360 25, 000 16, 340 (c) (d) 500 (a) 1, 240 (b) 100 120 250 (a) 1, 240 42, 600 Credit (e) 500 Adjusted Trial Balance Debit Credit

(f) Depreciation of the office equipment is $50 for December.

(f) Depreciation of the office equipment is $50 for December.

Net. Solutions Work Sheet For the Two Months Ended December 31, 2005 Trial Balance

Net. Solutions Work Sheet For the Two Months Ended December 31, 2005 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Capital Stock Dividends Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense Debit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 985 800 455 42, 600 Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250 Depreciation Expense (f) 50 Accum. Depreciation (f) 50 Credit 900 360 25, 000 16, 340 Adjustments Debit (e) 500 (c) 120 (d) 250 (a) 1, 240 42, 600 Credit (a) 1, 240 (b) 100 (e) 500 Adjusted Trial Balance Debit Credit

Net. Solutions Work Sheet For the Two Months Ended December 31, 2005 Adjustments To

Net. Solutions Work Sheet For the Two Months Ended December 31, 2005 Adjustments To make more space, Debit Credit Debit 2, 065 let’s remove the 2, 220 (e) 500 heading. (a) 1, 240 2, 000 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 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Capital Stock Dividends Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense Adjusted Trial Balance 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 985 800 455 42, 600 (b) 900 360 25, 000 16, 340 (c) (d) 120 250 (a) 1, 240 42, 600 Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250 Depreciation Expense (f) 50 Accum. Depreciation (f) 50 100 (e) 500 Credit

Trial Balance Account Title 1 2 3 4 5 6 7 8 9 10

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 Accounts Payable Unearned Rent Capital Stock Dividends Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense Debit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 985 800 455 42, 600 Credit Debit 900 360 25, 000 16, 340 (e) 500 (c) 120 (d) 250 (a) 1, 240 42, 600 Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250 Depreciation Expense (f) 50 Summed Accum. Depreciation (f) 2, 260 and ruled Adjustments 50 Credit (a) 1, 240 (b) 100 (e) 500 Adjusted Trial Balance Debit Credit

Next, the unadjusted Trial Balance columns and the Adjustments columns are combined to determine

Next, the unadjusted Trial Balance columns and the Adjustments columns are combined to determine the amounts displayed in the Adjusted Trial Balance.

Trial Balance Account Title 1 2 3 4 5 6 7 8 9 10

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 Accounts Payable Unearned Rent Capital Stock Dividends Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense Debit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 985 800 455 42, 600 Adjustments Credit Debit 900 360 25, 000 16, 340 (e) 500 (c) 120 (d) 250 (a) 1, 240 42, 600 Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250 Depreciation Expense (f) 50 Accum. Depreciation (f) 2, 260 50 Credit (a) 1, 240 (b) 100 (e) 500 Adjusted Trial Balance Debit Credit

Trial Balance Account Title 1 2 3 4 5 6 7 8 9 10

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 Accounts Payable Unearned Rent Capital Stock Dividends Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense Insurance Expense (b) 100 Rent Revenue Wages Payable Depreciation Expense Accum. Depreciation 2, 260 Debit 2, 065 2, 220 2, 000 2, 400 20, 000 1, 800 4, 000 4, 275 1, 600 985 800 455 42, 600 (c) 120 (d) 250 (f) 50 43, 400 Credit Adjustments Debit (e) 900 360 25, 000 16, 340 (c) (d) 500 Credit (a) 1, 240 (b) 100 (f) 50 43, 400 120 250 50 Debit 2, 065 2, 720 760 2, 300 20, 000 1, 800 120 (e) 500 250 (a) 1, 240 42, 600 100 Adjusted Trial Balance 50 4, 000 4, 525 1, 600 985 2, 040 455 Credit 900 240 25, 000 16, 840

The Work Sheet Adjusted TB Accounts Dr Cr Income State. Dr Cr Balance Sheet

The 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.

The Work Sheet Adjusted TB Accounts Dr Cr Income State. Dr Cr Balance Sheet

The Work Sheet Adjusted TB Accounts Dr Cr Income State. Dr Cr Balance Sheet Dr Cr Asset, liability, and stockholders’ equity balances in the Adjusted Trial Balance column are extended to the Balance Sheet column.

To make room on the slides for the Income statement and Balance Sheet columns,

To make room on the slides for the Income statement and Balance Sheet columns, the Trial Balance and Adjustments columns have been removed.

Adjusted Trial Balance Account Title 1 2 3 4 5 6 7 8 9

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 Accounts Payable Unearned Rent Capital Stock Dividends Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense Insurance Expense 100 Rent Revenue Wages Payable Depreciation Expense Accum. Depreciation 43, 400 Debit 2, 065 2, 720 760 2, 300 20, 000 1, 800 4, 000 4, 525 1, 600 985 2, 040 455 120 250 50 Credit Income Statement Debit Credit Balance Sheet Debit Credit 900 240 25, 000 16, 840 50 43, 400

Now, let’s extend the balances from the Adjusted Trial Balance column.

Now, let’s extend the balances from the Adjusted Trial Balance column.

Adjusted Trial Balance Account Title 1 2 3 4 5 6 7 8 9

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 Accounts Payable Unearned Rent Capital Stock Dividends Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense Insurance Expense 100 Rent Revenue Wages Payable Depreciation Expense Accum. Depreciation 43, 400 Debit 2, 065 2, 720 760 2, 300 20, 000 1, 800 4, 000 4, 525 1, 600 985 2, 040 455 120 250 50 Credit Income Statement Debit Balance Sheet Credit Debit 2, 065 2, 720 760 2, 300 20, 000 1, 800 900 240 25, 000 16, 840 100 50 Credit 4, 525 1, 600 985 2, 040 455 120 50 16, 840 4, 000 900 240 25, 000 250 50 43, 400

These four columns are summed.

These four columns are summed.

Adjusted Trial Balance Account Title 1 2 3 4 5 6 7 8 9

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 Accounts Payable Unearned Rent Capital Stock Dividends Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense Insurance Expense 100 Rent Revenue Wages Payable Depreciation Expense Accum. Depreciation 43, 400 9, 755 Debit 2, 065 2, 720 760 2, 300 20, 000 1, 800 4, 000 4, 525 1, 600 985 2, 040 455 120 250 50 16, 960 Credit Income Statement Debit Balance Sheet Credit Debit 2, 065 2, 720 760 2, 300 20, 000 1, 800 900 240 25, 000 16, 840 100 50 33, 645 Credit 4, 525 1, 600 985 2, 040 455 120 50 26, 440 16, 840 4, 000 900 240 25, 000 250 50 43, 400

The difference between the Income Statement column totals is the net income (or net

The difference between the Income Statement column totals is the net income (or net loss) for the period.

The difference between the Balance Sheet column totals is also the income (or net

The difference between the Balance Sheet column totals is also the income (or net loss) for the period.

Income Statement Balance Sheet 9, 755 16, 960 33, 645 26, 440 7, 205

Income Statement Balance Sheet 9, 755 16, 960 33, 645 26, 440 7, 205 16, 960 33, 645 Net Income

Net. Solutions Income Statement For Two Months Ended December 31, 2005 Fees earned Rent

Net. Solutions Income Statement For Two Months Ended December 31, 2005 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 Every amount on this income statement was taken from the Income Statement column of the work sheet.

Net. Solutions Retained Earnings Statement For the Two Months Ended December 31, 2005 Net

Net. Solutions Retained Earnings Statement For the Two Months Ended December 31, 2005 Net income for November and December Less dividends Retained earnings, December 31, 2005 7, 205 4, 000 $3, 205 Either from the From the income statement Balance Sheet or the work sheet. debit column of the work sheet.

Net. Solutions Balance Sheet December 31, 2005 Assets Current assets: Cash $ 2, 065

Net. Solutions Balance Sheet December 31, 2005 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 equip. $1, 800 Less accum. depreciation 50 1, 750 Total property, plant and equipment 21, 750 Total assets $29, 595 Liabilities Current liabilities: Accounts payable $900 the Wages payable From 250 Unearned rent Retained 240 Total liabilities $ 1, 390 Earnings Statement Stockholders’ Equity Capital stock $25, 000 Retained earnings 3, 205 28, 205 Total liabilities and stockholders’ equity $29, 595

Adjusting and Closing Entries Adjusting entries are recorded in the journal at the end

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

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

The Closing Process Income Summary 2 Expenses are transferred to Income Summary 3 1

The 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

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

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 Bal. 25, 000 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

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

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

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

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

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, 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.

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

Post-closing Trial Balance Net. Solutions Post-Closing Trial Balance December 31, 2005 Cash 2 065

Post-closing Trial Balance Net. Solutions Post-Closing Trial Balance December 31, 2005 Cash 2 065 00 Accounts Receivable 2 720 00 Supplies 760 00 Prepaid Insurance 2 300 00 Land 20 00 Office Equipment 1 800 00 Accumulated Depreciation 50 00 Accounts Payable 900 00 Wages Payable 250 00 Unearned Rent 240 00 Capital Stock 25 000 00 Retained Earnings 3 205 00 29 645 00

Financial Analysis for Net. Solutions Working Current – = Capital Assets Liabilities Working $7,

Financial Analysis for Net. Solutions Working Current – = Capital Assets Liabilities Working $7, 845 – $1, 390 = Capital Working $6, 455 = Capital

Financial Analysis for Net. Solutions Current Ratio Current = Assets ÷ Liabilities = $7,

Financial Analysis for Net. Solutions Current Ratio Current = Assets ÷ Liabilities = $7, 845 ÷ = 5. 6 $1, 390

Financial Analysis for Net. Solutions This ratio implies that Net. Solutions is able to

Financial Analysis for Net. Solutions This ratio implies that Net. Solutions is able to pay its current liabilities.

Financial Analysis for Net. Solutions Current ratio Current = Assets ÷ Liabilities Current $7,

Financial Analysis for Net. Solutions Current ratio Current = Assets ÷ Liabilities Current $7, 845 ÷ $1, 390 = ratio Current 5. 6 = ratio

Financial Analysis for Net. Solutions can use the current ratio to make comparisons across

Financial Analysis for Net. Solutions can use the current ratio to make comparisons across companies and with industry averages.

Chapter 4 The End

Chapter 4 The End