Ch04 wrd25e instructor
Transcript of Ch04 wrd25e instructor
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Completing the
Completing the
Accounting Cycle
Accounting Cycle
Chapter 4Chapter 4
Learning ObjectivesLearning Objectives
1.1. Describe the flow of accounting information Describe the flow of accounting information from the unadjusted trial balance into the from the unadjusted trial balance into the adjusted trial balance and financial adjusted trial balance and financial statements.statements.
2.2. Prepare financial statements from adjusted Prepare financial statements from adjusted account balances.account balances.
3.3. Prepare closing entries.Prepare closing entries.
4.4. Describe the accounting cycle.Describe the accounting cycle.
5.5. Illustrate the accounting cycle for one period.Illustrate the accounting cycle for one period.
Learning ObjectivesLearning Objectives
6.6. Explain what is meant by the fiscal year and Explain what is meant by the fiscal year and the natural business the natural business
7.7. Describe and illustrate the use of working Describe and illustrate the use of working capital and the current ratio in evaluating a capital and the current ratio in evaluating a company’s financial condition. company’s financial condition.
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objective
Learning ObjectiveDescribe the flow of accounting
Describe the flow of accounting
information from the unadjusted
information from the unadjusted
trial balance into the adjusted trial
trial balance into the adjusted trial
balance and financial statements.
balance and financial statements.
11
Flow of Accounting InformationFlow of Accounting Information
o Account balances are listed in the Unadjusted Trial Account balances are listed in the Unadjusted Trial Balance column using the ending balances found Balance column using the ending balances found in the general ledger.in the general ledger.
End-of-Period Spreadsheet (Work Sheet)End-of-Period Spreadsheet (Work Sheet)
Unadjusted TB
Accounts Dr Cr Dr Cr Dr Cr
Adjustments Adjusted TB
(continued)
Flow of Accounting InformationFlow of Accounting Information
o Adjustments are entered here. Two possibilities:Adjustments are entered here. Two possibilities: Deferrals – Existing balances are changedDeferrals – Existing balances are changed Accruals – New information is enteredAccruals – New information is entered
End-of-Period Spreadsheet (Work Sheet)End-of-Period Spreadsheet (Work Sheet)
Accounts Dr Cr Dr Cr Dr Cr
Adjustments Adjusted TB
(continued)
Unadjusted TB
Flow of Accounting InformationFlow of Accounting Information
Adjustments are combined with the unadjusted trial Adjustments are combined with the unadjusted trial balance amounts. Account balances are now balance amounts. Account balances are now adjusted.adjusted.
Accounts Dr Cr Dr Cr Dr Cr
Adjustments Adjusted TB
End-of-Period Spreadsheet (Work Sheet)End-of-Period Spreadsheet (Work Sheet)
(continued)
Unadjusted TB
Flow of Accounting InformationFlow of Accounting Information
o Revenue and expense balances in Revenue and expense balances in the Adjusted Trial Balance column are the Adjusted Trial Balance column are extended to the Income Statement column.extended to the Income Statement column.
Adjusted TB
Accounts Dr Cr Dr Cr Dr Cr
Income State. Balance Sheet
End-of-Period Spreadsheet (Work Sheet)End-of-Period Spreadsheet (Work Sheet)
(continued)
Flow of Accounting InformationFlow of Accounting Information
o Asset, liability, owner’s equity, and drawing Asset, liability, owner’s equity, and drawing balances in the Adjusted Trial Balance column balances in the Adjusted Trial Balance column are extended to the Balance Sheet column.are extended to the Balance Sheet column.
Adjusted TB
Accounts Dr Cr Dr Cr Dr Cr
Income State. Balance Sheet
End-of-Period Spreadsheet (Work Sheet)End-of-Period Spreadsheet (Work Sheet)
(concluded)
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objective
Learning ObjectivePrepare financial statements from
Prepare financial statements from
adjusted account balances.
adjusted account balances.
22
Income StatementIncome Statement
o The income statement is prepared directly The income statement is prepared directly from the Income Statement or Adjusted Trial from the Income Statement or Adjusted Trial Balance columns of the end-of-period Balance columns of the end-of-period spreadsheet (work sheet) beginning with fees spreadsheet (work sheet) beginning with fees earned of $16,840.earned of $16,840.
FINANCIAL STATEMENT FINANCIAL STATEMENT PREPARATION FROM PREPARATION FROM
END-OF-PERIOD END-OF-PERIOD SPREADSHEET – INCOME SPREADSHEET – INCOME
STATEMENTSTATEMENT
to statement of owner’s equity
Statement of Owner’s EquityStatement of Owner’s Equity
o The first item presented on the statement of The first item presented on the statement of owner’s equity is the balance of the owner’s owner’s equity is the balance of the owner’s capital account at the beginning of the period.capital account at the beginning of the period.
FINANCIAL STATEMENT FINANCIAL STATEMENT PREPARATION FROM END-PREPARATION FROM END-
OF-PERIODOF-PERIODSPREADSHEET – STATEMENT SPREADSHEET – STATEMENT
OF OWNER’S EQUITYOF OWNER’S EQUITY from the income statement
to the balance sheet
Balance SheetBalance Sheet
o The balance sheet is prepared directly from The balance sheet is prepared directly from the Balance Sheet or Adjusted Trial Balance the Balance Sheet or Adjusted Trial Balance columns of the end-of-period spreadsheet (or columns of the end-of-period spreadsheet (or work sheet), beginning with Cash of $2,065.work sheet), beginning with Cash of $2,065.
FINANCIAL STATEMENT FINANCIAL STATEMENT PREPARATION FROM PREPARATION FROM
END-OF-PERIOD END-OF-PERIOD SPREADSHEET – BALANCE SPREADSHEET – BALANCE
SHEETSHEET from the statement of owner’s equity
Classified Balance SheetClassified Balance Sheet
o A A classified balance sheetclassified balance sheet is a balance sheet is a balance sheet that was expanded by adding subsections for that was expanded by adding subsections for (1) current assets, (2) property, plant, and (1) current assets, (2) property, plant, and equipment, (3) current liabilities, and (4) long-equipment, (3) current liabilities, and (4) long-term liabilities.term liabilities.
CURRENT ASSETSCURRENT ASSETS
Cash and other assets Cash and other assets that are expected to be that are expected to be converted into cash, converted into cash, sold, or used up usually sold, or used up usually within a year or less, within a year or less, through the normal through the normal operations of the operations of the business, are called business, are called currentcurrent assetsassets..
CashCash
Accounts Accounts ReceivableReceivable
Notes ReceivableNotes Receivable
SuppliesSupplies
Notes ReceivableNotes Receivable
o Notes receivable Notes receivable are written promises by the are written promises by the customer to pay the amount of the note and customer to pay the amount of the note and possibly interest at an agreed rate.possibly interest at an agreed rate.
FIXED ASSETSFIXED ASSETS
Property,Property, plant, andplant, and equipmentequipment (also called (also called fixed assetsfixed assets or or plant plant assetsassets) include assets that ) include assets that depreciate over a period depreciate over a period of time. Land is an of time. Land is an exception, since it is not exception, since it is not subject to depreciation.subject to depreciation.
EquipmentEquipment
MachineryMachinery
BuildingsBuildings
LandLand
CURRENT LIABILITIESCURRENT LIABILITIES
Liabilities that will be Liabilities that will be due within a short time due within a short time (usually one year or (usually one year or less) and that are to be less) and that are to be paid out of current paid out of current assets are called assets are called current liabilitiescurrent liabilities..
Accounts payableAccounts payable
Wages payableWages payable
Interest payableInterest payable
Unearned feesUnearned fees
LONG-TERM LIABILITIESLONG-TERM LIABILITIES
Liabilities not due for a Liabilities not due for a long time (usually more long time (usually more than one year) are than one year) are called called long-term long-term liabilitiesliabilities..
Long-term notes Long-term notes payablepayable
Mortgage Mortgage payablepayable
Bond payableBond payable
Owner’s EquityOwner’s Equity
o Owner’s equityOwner’s equity is the owner’s right to the is the owner’s right to the assets of the business. Owner’s equity is assets of the business. Owner’s equity is added to the total liabilities, and this added to the total liabilities, and this combined total must be equal to the total combined total must be equal to the total assets.assets.
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objective
Learning ObjectivePrepare closing entries.
Prepare closing entries.
33
Closing EntriesClosing Entries
o Accounts that are relatively permanent from Accounts that are relatively permanent from year to year are called year to year are called permanent accounts permanent accounts or or real accountsreal accounts. These accounts are carried . These accounts are carried forward from year to year.forward from year to year.
Closing EntriesClosing Entries
o Accounts that report amounts for only one Accounts that report amounts for only one period are called period are called temporary accounts temporary accounts or or nominal accountsnominal accounts. Temporary accounts are not . Temporary accounts are not carried forward because they relate to only carried forward because they relate to only one period. one period.
Closing EntriesClosing Entries
o To report amounts for only one period, To report amounts for only one period, temporary accounts should have zero temporary accounts should have zero balances at the beginning of the next period. balances at the beginning of the next period.
o To achieve this, the revenue and expense To achieve this, the revenue and expense account balances are transferred to Income account balances are transferred to Income Summary at the end of the period.Summary at the end of the period.
Closing EntriesClosing Entries
o The balance of Income Summary (net income The balance of Income Summary (net income or net loss) is then transferred to the owner’s or net loss) is then transferred to the owner’s capital account. capital account.
o The balance of the owner’s drawing account is The balance of the owner’s drawing account is also transferred to the owner’s capital account. also transferred to the owner’s capital account.
o The entries that transfer these balances are The entries that transfer these balances are called called closing entriesclosing entries..
Closing EntriesClosing Entries
o Income Summary Income Summary is a temporary account that is a temporary account that is only used during the closing process.is only used during the closing process.
o At the end of the At the end of the closing processclosing process, the Income , the Income Summary account will have a zero balance.Summary account will have a zero balance.
o Income Summary is sometimes called a Income Summary is sometimes called a clearing accountclearing account..
Temporary Account BalancesTemporary Account Balances
o After the closing entries are posted, all of the After the closing entries are posted, all of the temporary accounts have zero balances.temporary accounts have zero balances.
Post-Closing Trial BalancePost-Closing Trial Balance
o A post-closing trial balance is prepared after A post-closing trial balance is prepared after the closing entries have been posted. The the closing entries have been posted. The purpose of the post-closing (after closing) purpose of the post-closing (after closing) trial balance is to verify that the ledger is in trial balance is to verify that the ledger is in balance at the beginning of the next period.balance at the beginning of the next period.
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objective
Learning ObjectiveDescribe the accounting cycle.
Describe the accounting cycle.
44
Accounting CycleAccounting Cycle
o The accounting process that begins with The accounting process that begins with analyzing and journalizing transactions and analyzing and journalizing transactions and ends with preparing the accounting records ends with preparing the accounting records for the next period’s transactions is called the for the next period’s transactions is called the accounting cycleaccounting cycle. There are ten steps in the . There are ten steps in the accounting cycle.accounting cycle.
Accounting CycleAccounting Cycle
1.1. Transactions are analyzed and recorded in Transactions are analyzed and recorded in the journal.the journal.
2.2. Transactions are posted to the ledger.Transactions are posted to the ledger.
3.3. An unadjusted trial balance is prepared.An unadjusted trial balance is prepared.
4.4. Adjustment data are assembled and Adjustment data are assembled and analyzed.analyzed.
5.5. An optional end-of-period spreadsheet An optional end-of-period spreadsheet (work sheet) is prepared.(work sheet) is prepared.
(continued)
Accounting CycleAccounting Cycle
6.6. Adjusting entries are journalized and posted Adjusting entries are journalized and posted to the ledger.to the ledger.
7.7. An adjusted trial balance is prepared.An adjusted trial balance is prepared.
8.8. Financial statements are prepared.Financial statements are prepared.
9.9. Closing entries are journalized and posted to Closing entries are journalized and posted to the ledger.the ledger.
10.10. A post-closing trial balance is prepared.A post-closing trial balance is prepared.
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objective
Learning ObjectiveIllustrate the accounting cycle for
Illustrate the accounting cycle for one period.one period.
55
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objective
Learning ObjectiveExplain what is meant by the fiscal
Explain what is meant by the fiscal
year and the natural business year.
year and the natural business year.
66
Accounting PeriodAccounting Period
o The annual accounting period adopted by a The annual accounting period adopted by a business is known as its business is known as its fiscal yearfiscal year..
o When a business adopts a fiscal year that ends When a business adopts a fiscal year that ends when business activities have reached the when business activities have reached the lowest point in its annual operation, such a lowest point in its annual operation, such a fiscal year is also called the fiscal year is also called the natural business natural business yearyear..
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objective
Learning ObjectiveDescribe and illustrate the use of
Describe and illustrate the use of
working capital and the current
working capital and the current
ratio in evaluating a company’s
ratio in evaluating a company’s financial condition.
financial condition.
77
Working Capital and Current RatioWorking Capital and Current Ratio
o The ability to convert assets into cash is called The ability to convert assets into cash is called liquidityliquidity..
Working Capital and Current RatioWorking Capital and Current Ratio
o The ability of a business to pay its debts is The ability of a business to pay its debts is called called solvencysolvency..
Working Capital and Current RatioWorking Capital and Current Ratio
o Working capital Working capital is the excess of the current is the excess of the current assets of a business over its current liabilities.assets of a business over its current liabilities.
Working Capital and Current RatioWorking Capital and Current Ratio
o NetSolutions’ working capital at the end of NetSolutions’ working capital at the end of 2013 is $6,355 as computed below. This amount 2013 is $6,355 as computed below. This amount of working capital implies that NetSolutions is of working capital implies that NetSolutions is able to pay its current liabilities.able to pay its current liabilities.
Working Capital = Current Assets – Current liabilities
= $7,745 – $1,390
= $6,355
Working Capital and Current RatioWorking Capital and Current Ratio
o The The current ratio current ratio is another means of is another means of expressing the relationship between current expressing the relationship between current assets and current liabilities. The current ratio assets and current liabilities. The current ratio is computed by dividing current assets by is computed by dividing current assets by current liabilities.current liabilities.
Current Ratio = Current Assets
Current Liabilities
= $7,745
$1,390
= 5.6 (Rounded)
Working Capital and Current RatioWorking Capital and Current Ratio
o The current ratio for NetSolutions at the end of The current ratio for NetSolutions at the end of 2013 is 5.6, computed as follows:2013 is 5.6, computed as follows:
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Appendix:Appendix:
End-of-Period
End-of-Period
SpreadsheetSpreadsheet
81
Account Title Debit Credit Debit Credit Debit Credit
12345678910111213141516171819202122232425
Unadjusted Trial Balance Adjustments Trial Balance
Adjusted
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accumulated Depr.Accounts Payable 900Wages PayableUnearned Rent 360Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Rent RevenueWages Expense 4,275Rent Expense 1,600Depreciation ExpenseUtilities Expense 985Supplies Expense 800Insurance ExpenseMiscellaneous Exp. 455
42,600 42,600
The The unadjusted unadjusted trial balance trial balance is checked is checked
for equalityfor equality..
82
Account Title Debit Credit Debit Credit Debit Credit
12345678910111213141516171819202122232425
Trial Balance Adjustments Trial Balance
Adjusted
Supplies Supplies needs needs adjusting adjusting
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accumulated Depr.Accounts Payable 900Wages PayableUnearned Rent 360Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Rent RevenueWages Expense 4,275Rent Expense 1,600Depreciation ExpenseUtilities Expense 985Supplies Expense 800Insurance ExpenseMiscellaneous Exp. 455
42,600 42,600
Unadjusted
83
Account Title Debit Credit Debit Credit Debit Credit
12345678910111213141516171819202122232425
Trial Balance Adjustments Trial Balance
Adjusted
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accumulated Depr.Accounts Payable 900Wages PayableUnearned Rent 360Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Rent RevenueWages Expense 4,275Rent Expense 1,600Depreciation ExpenseUtilities Expense 985Supplies Expense 800Insurance ExpenseMiscellaneous Exp. 455
42,600 42,600
(a) Cost of supplies on hand at December 31 is $760.
Unadjusted
(a) 1,240
(a) 1,240
84
Account Title Debit Credit Debit Credit Debit Credit
12345678910111213141516171819202122232425
Trial Balance Adjustments Trial Balance
Adjusted
(a) 1,240
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accumulated Depr.Accounts Payable 900Wages PayableUnearned Rent 360Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Rent RevenueWages Expense 4,275Rent Expense 1,600Depreciation ExpenseUtilities Expense 985Supplies Expense 800Insurance ExpenseMiscellaneous Exp. 455
42,600 42,600
(a) 1,240
(b) The insurance expense for December is $200 ($2,400 ÷ 12).
Unadjusted
(b) 200
(b) 200
85
Account Title Debit Credit Debit Credit Debit Credit
12345678910111213141516171819202122232425
(c) 120
(c) 120
Trial Balance Adjustments Trial Balance
Adjusted
(b) 200(a) 1,240
(b) 200
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accumulated Depr.Accounts Payable 900Wages PayableUnearned Rent 360Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Rent RevenueWages Expense 4,275Rent Expense 1,600Depreciation ExpenseUtilities Expense 985Supplies Expense 800Insurance ExpenseMiscellaneous Exp. 455
42,600 42,600
(a) 1,240
(c) Rent revenue earned during December was $120 ($360 ÷ 3).
Unadjusted
86
Account Title Debit Credit Debit Credit Debit Credit
12345678910111213141516171819202122232425
Trial Balance Adjustments Trial Balance
Adjusted
(b) 200(a) 1,240
(b) 200
(c) 120
(c) 120
(d) 500
(d) 500
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accumulated Depr.Accounts Payable 900Wages PayableUnearned Rent 360Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Rent RevenueWages Expense 4,275Rent Expense 1,600Depreciation ExpenseUtilities Expense 985Supplies Expense 800Insurance ExpenseMiscellaneous Exp. 455
42,600 42,600
(a) 1,240
(d) Fees accrued at the end of December, but not recorded, totaled $500.
Unadjusted
87
Account Title Debit Credit Debit Credit Debit Credit
12345678910111213141516171819202122232425
(e) 250
Trial Balance Adjustments Trial Balance
Adjusted
(b) 200(a) 1,240
(d) 500
(b) 200
(c) 120
(c) 120
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accumulated Depr.Accounts Payable 900Wages PayableUnearned Rent 360Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Rent RevenueWages Expense 4,275Rent Expense 1,600Depreciation ExpenseUtilities Expense 985Supplies Expense 800Insurance ExpenseMiscellaneous Exp. 455
42,600 42,600
(d) 500
(e) 250
(a) 1,240
((e) Wages accrued, but not paid, at the end of December totaled $250.
Unadjusted
88
Account Title Debit Credit Debit Credit Debit Credit
12345678910111213141516171819202122232425
Trial Balance Adjustments Trial Balance
Adjusted
(b) 200(a) 1,240
(d) 500
(c) 120
(c) 120(d) 500
(f) 50
(f) 50
(b) 200
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accumulated Depr.Accounts Payable 900Wages PayableUnearned Rent 360Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Rent RevenueWages Expense 4,275Rent Expense 1,600Depreciation ExpenseUtilities Expense 985Supplies Expense 800Insurance ExpenseMiscellaneous Exp. 455
42,600 42,600
(e) 250
(a) 1,240
(e) 250
(f) Depreciation of office equipment is $50 for December.
Unadjusted
89
Account Title Debit Credit Debit Credit Debit Credit
12345678910111213141516171819202122232425
2,360 2,360
Trial Balance Adjustments Trial Balance
Adjusted
(b) 200(a) 1,240
(d) 500
(c) 120
(c) 120
(f) 50
(b) 200(a) 1,240
(e) 250
(e) 250
(d) 500
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accumulated Depr.Accounts Payable 900Wages PayableUnearned Rent 360Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Rent RevenueWages Expense 4,275Rent Expense 1,600Depreciation ExpenseUtilities Expense 985Supplies Expense 800Insurance ExpenseMiscellaneous Exp. 455
42,600 42,600 Summed and ruled
(f) 50
Unadjusted
Add / Subtract AdjustmentsAdd / Subtract Adjustments
o The next step is to add or subtract the The next step is to add or subtract the adjustments to (or from) the amounts found in adjustments to (or from) the amounts found in the Unadjusted Trial Balance columns and the Unadjusted Trial Balance columns and enter the results in the Adjusted Trial Balance enter the results in the Adjusted Trial Balance columns.columns.
91
Account Title Debit Credit Debit Credit Debit Credit
Trial Balance Adjustments Trial Balance
12345678910111213141516171819202122232425
Adjusted
2,360 2,360
(b) 200(a) 1,240
(d) 500
(c) 120
(c) 120(d) 500
(f) 50
(b) 200(a) 1,240
(e) 250
Cash 2,065 2,065Accounts Receivable 2,220 2,720Supplies 2,000 760Prepaid Insurance 2,400 2,200Land 20,000 20,000Office Equipment 1,800 1,800Accumulated Depr. 50Accounts Payable 900 900Wages Payable 250Unearned Rent 360 240Chris Clark, Capital 25,000 25,000Chris Clark, Drawing 4,000 4,000Fees Earned 16,340 16,840Rent Revenue 120Wages Expense 4,275 4,525Rent Expense 1,600 1,600Depreciation Expense 50Utilities Expense 985 985Supplies Expense 800 2,040Insurance Expense 200Miscellaneous Exp. 455 455
42,600 42,600 43,400 43,400
(f) 50
Unadjusted
(e) 250
SpreadsheetSpreadsheet
o Preparing the work sheet as a spreadsheet Preparing the work sheet as a spreadsheet allows the computer to assist you in the allows the computer to assist you in the process. The spreadsheet illustrated in Exhibit process. The spreadsheet illustrated in Exhibit 1 has been reproduced on the next slide. 1 has been reproduced on the next slide.
Extending Amounts to Statement ColumnsExtending Amounts to Statement Columns
o The next step is to extend amounts in the The next step is to extend amounts in the Adjusted Trial Balance columns to the Income Adjusted Trial Balance columns to the Income Statement and Balance Sheet columns. Because Statement and Balance Sheet columns. Because of space limitations, the unadjusted trial of space limitations, the unadjusted trial balance and the adjustments columns have balance and the adjustments columns have been removed for the remainder of this slide been removed for the remainder of this slide presentation.presentation.
95
Account Title Debit Credit Debit Credit Debit Credit
Trial Balance Income Statement Balance Sheet
12345678910111213141516171819202122232425
Adjusted
Cash 2,065 2,065Accounts Receivable 2,720 2,720Supplies 760 760Prepaid Insurance 2,200 2,200Land 20,000 20,000Office Equipment 1,800 1,800Accumulated Depr. 50 50Accounts Payable 900 900Wages Payable 250 250Unearned Rent 240 240Chris Clark, Capital 25,000 25,000Chris Clark, Drawing 4,000 4,000Fees Earned 16,840 16,840Rent Revenue 120 120Wages Expense 4,525 4,525Rent Expense 1,600 1,600Depreciation Expense 50 50Utilities Expense 985 985Supplies Expense 2,040 2,040Insurance Expense 200 200Miscellaneous Exp. 455 455
43,400 43,400
96
Account Title Debit Credit Debit Credit Debit Credit
Trial Balance Income Statement Balance Sheet
12345678910111213141516171819202122232425
Adjusted
The four columns are summed.
Cash 2,065 2,065Accounts Receivable 2,720 2,720Supplies 760 760Prepaid Insurance 2,200 2,200Land 20,000 20,000Office Equipment 1,800 1,800Accumulated Depr. 50 50Accounts Payable 900 900Wages Payable 250 250Unearned Rent 240 240Chris Clark, Capital 25,000 25,000Chris Clark, Drawing 4,000 4,000Fees Earned 16,840 16,840Rent Revenue 120 120Wages Expense 4,525 4,525Rent Expense 1,600 1,600Depreciation Expense 50 50Utilities Expense 985 985Supplies Expense 2,040 2,040Insurance Expense 200 200Miscellaneous Exp. 455 455
43,400 43,400 9,855 16,960 33,545 26,440
Determining Net Income (Net Loss)Determining Net Income (Net Loss)
o The difference between the Income Statement The difference between the Income Statement column totals and Balance Sheet column totals is column totals and Balance Sheet column totals is net income (or net loss) for the period.net income (or net loss) for the period.
9,855 16,960 33,545 26,4407,105 7,105
16,960 16,960 33,545 33,545
Income Statement Balance Sheet
Net IncomeNet Income
98
Account Title Debit Credit Debit Credit Debit Credit
Trial Balance Income Statement Balance Sheet
12345678910111213141516171819202122232425
Adjusted
Cash 2,065 2,065Accounts Receivable 2,720 2,720Supplies 760 760Prepaid Insurance 2,200 2,200Land 20,000 20,000Office Equipment 1,800 1,800Accumulated Depr. 50 50Accounts Payable 900 900Wages Payable 250 250Unearned Rent 240 240Chris Clark, Capital 25,000 25,000Chris Clark, Drawing 4,000 4,000Fees Earned 16,840 16,840Rent Revenue 120 120Wages Expense 4,525 4,525Rent Expense 1,600 1,600Depreciation Expense 50 50Utilities Expense 985 985Supplies Expense 2,040 2,040Insurance Expense 200 200Miscellaneous Exp. 455 455
43,400 43,400 9,855 16,960 33,545 26,440Net income 7,105 7,105
16,960 16,960 33,545 33,545