Chapter 3 Completing the Accounting Cycle. Chapter 3Mugan-Akman 20072 Accounting Cycle Analyze and...
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Transcript of Chapter 3 Completing the Accounting Cycle. Chapter 3Mugan-Akman 20072 Accounting Cycle Analyze and...
Chapter 3
Completing the Accounting Cycle
Chapter 3 Mugan-Akman 2007 2
Accounting Cycle
Analyze and record the transactions
Post the transactions and prepare trial balance
Adjust the accounts and prepare trial balance
Close the accounts and prepare trial balance
Prepare the financial statements
Chapter 3 Mugan-Akman 2007 3
Matching Principle
All revenues must be recorded in the accounting period in which the goods are sold or services are rendered and all expenses must be recorded in the accounting period in which they are incurred to produce such revenues
Chapter 3 Mugan-Akman 2007 4
1. Allocation of costs between accounting periods
3. Expenses incurred but not recorded
2. Allocation of unearned revenues between accounting periods
4. Revenues earned but not recorded
Adjusting Entries
Chapter 3 Mugan-Akman 2007 5
Adjustment –Prepaid Rent
Date Account Title and Description Debit Credit31.Oca Rent Expense (Income Statement)
Prepaid Rent (Balance Sheet)To record rent expense incurred in
Adjustment -Office Supplies
Date Account Title and Description Debit Credit31.Oca Supplies Expense
Office SuppliesTo record supplies used in January.
Chapter 3 Mugan-Akman 2007 6
Adjustment -Depreciation of Property Plant & Equipment
Date Account Title and Description Debit Credit31.Oca Depreciation Expense
Accumulated DepreciationTo record depreciation expense of January
Chapter 3 Mugan-Akman 2007 7
Express Travel AgencyPartial Balance Sheet
31January 2004In TL
Plant and EquipmentOffice Equipment and Furniture 15.000Less: Accumulated Depreciation (250)Plant and Equipment, net 14.750
Chapter 3 Mugan-Akman 2007 8
1. Allocation of costs between accounting periods
3. Expenses incurred but not recorded
2. Allocation of unearned revenues between accounting periods
4. Revenues earned but not recorded
Adjusting Entries
Chapter 3 Mugan-Akman 2007 9
Adjustment -Unearned Revenues
Date Account Title and Description Debit Credit31.Oca Unearned Revenues
Commission RevenuesTo record commissions earned in January
Chapter 3 Mugan-Akman 2007 10
1. Allocation of costs between accounting periods
3. Expenses incurred but not recorded
2. Allocation of unearned revenues between accounting periods
4. Revenues earned but not recorded
Adjusting Entries
Chapter 3 Mugan-Akman 2007 11
Adjustment -Accrued Salary Expense
Date Account Title and Description Debit Credit31.Oca Salary Expense
Salaries PayableTo record salaries for the services received
Adjustment (7)Accrued Interest Expense
Date Account Title and Description Debit Credit31.Oca Interest Expense
Interest PayableTo record interest expense of the bank loan incurred but not paid
Chapter 3 Mugan-Akman 2007 12
1. Allocation of costs between accounting periods
3. Expenses incurred but not recorded
2. Allocation of unearned revenues between accounting periods
4. Revenues earned but not recorded
Adjusting Entries
Chapter 3 Mugan-Akman 2007 13
Adjustment Accrued Revenues
Date Account Title and Description Debit Credit31.Oca Receivable
RevenuesTo accrue fees earned in January
Chapter 3 Mugan-Akman 2007 14
Yağmur Bulut, SMMM
Trial Balance
31 October
Debit Credit
Cash 46.675
Accounts Receivable 100
Supplies 150
Office Equipment 2.000
Office Furniture 5.400
Accounts Payable 5.400
Unearned Revenue 1.200
Y. Bulut, Capital 50.000
Y. Bulut, Withdrawal 1.600
Revenues 525
Rent Expense 1.200
57.125 57.125
• Consulting services performed but not yet billed to the clients, TL 3.800• Earned one month portion of advance received on 22 October.• The count of supplies as of 31 October identified TL 40 of supplies on hand.• Monthly depreciation should be recorded for the computer and furniture and
fixtures.• Salary of the student accrued but was not paid.
Chapter 3 Mugan-Akman 2007 15
Yagmur Bulut
• Consulting services performed but not yet billed to the clients, TL 3.800
• Earned one month portion of advance received on 22 October.
• The count of supplies as of 31 October identified TL 40 of supplies on hand.
• Monthly depreciation should be recorded for the computer and furniture and fixtures.
• Salary of the student accrued but was not paid.
Chapter 3 Mugan-Akman 2007 16
Date Account Debit Credit 31 October Fees Receivable 3.800 Revenues 3.800 31 October Unearned Revenues 200 Revenues 200 31 October Supplies Expense 110 Office Supplies 110 31 October Depreciation Expense 123 Accumulated Depreciation 123 31 October Salary Expense 125 Salary Payable 125
Chapter 3 Mugan-Akman 2007 17
Yagmur Bulut,SMMM Trial Balance 31 October Debit Credit Cash 46.675 Accounts Receivable 100 Fees Receivable 3.800 Supplies 40 Office Equipment 2.000 Office Furniture 5.400 Accumulated Depreciation 123 Accounts Payable 5.400 Unearned Revenues 1.000 Salary Payable 125 Capital 50.000 Withdrawals 1.600 Revenues 4.525 Rent Expense 1.200 Salary Expense 125 Supplies Expense 110 Depreciation Expense 123 Total 61.173 61.173
Chapter 3 Mugan-Akman 2007 18
Accounting Cycle
Analyze and record the transactions
Post the transactions and prepare trial balance
Adjust the accounts and prepare trial balance
Close the accounts and prepare trial balance
Prepare the financial statements
Chapter 3 Mugan-Akman 2007 19
Steps to Close Accounts
• Close temporary accounts with credit balances to period income (income summary)
• Close temporary accounts with debit balances to period income (income summary)
• Close Period income (income summary)• Close dividends (owners’ withdrawals)
Chapter 3 Mugan-Akman 2007 20
Cash 2.160
Accounts Receivable 1.250
Office Supplies 475
Prepaid Insurance 200
Equipment 3.400
Accumulated Depreciation Equipment 700
Accounts Payable 400
Unearned Revenue 300
Salaries Payable 120
Share Capital 4.870
Revenues 3.360
Salary Expense 1.620
Rent Expense 400
Insurance Expense 40
Office Supplies Expense 105
Depreciation Expense 100
9.750 9.750
Cradle CorporationAdjusted Trial Balance
31 December 2004(in TL )
Chapter 3 Mugan-Akman 2007 21
Date Account Title and Description Debit Credit 31 Dec 2004 Revenues 3.360
Period Income/Loss 3.360
To close revenue accounts
Closing Credit Balances
Chapter 3 Mugan-Akman 2007 22
Closing Debit Balances
Date Account Title and Description Debit Credit 31 Dec 2004 Period Income/Loss 2.265
Salary Expense 1.620
Rent Expense 400
Insurance Expense 40
Supplies Expense 105
Depreciation Expense 100
To close expense accounts
Chapter 3 Mugan-Akman 2007 23
Closing Period Income Loss Period Income/Loss
31.Dec.04 2265 31.Dec.04 3360
Balance 1095
Date Account Title and Description Debit Credit 31 Jan 2004 Period Income/Loss 1.095
Net Income For the Period 1.095
To close income summary account
Chapter 3 Mugan-Akman 2007 24
Cash 2.160Accounts Receivable 1.250Office Supplies 475Prepaid Insurance 200Equipment 3.400Accumulated DepreciationEquipment
700
Accounts Payable 400Unearned Revenue 300Salaries Payable 120Share Capital 4.870Net Income for the Period 1.095Revenues 0Salary Expense 0Rent Expense 0Insurance Expense 0Office Supplies Expense 0Depreciation Expense 0
7.485 7.485
Cradle CorporationPost Closing Trial Balance
31 December 2004(in TL )
Chapter 3 Mugan-Akman 2007 25
Accounting Cycle
Analyze and record the transactions
Post the transactions and prepare trial balance
Adjust the accounts and prepare trial balance
Close the accounts and prepare trial balance
Prepare the financial statements
Chapter 3 Mugan-Akman 2007 26
Revenues 3.360Salary Expense 1.620Rent Expense 400Insurance Expense 40Office Supplies Expense 105Depreciation Expense 100
1.095
Cradle CorporationIncome Statement31 December 2004
(in TL )
Chapter 3 Mugan-Akman 2007 27
Assets Liabilities and Shareholders' Equity
Cash 2.160 Liabilities
Accounts Receivable 1.250 Accounts Payable 400Office Supplies 475 Unearned Revenue 300Prepaid Insurance 200 Salaries Payable 120Equipment 3.400 Shareholders' EquityAccumulated - 700 Share Capital 4.870
Net Income for the Period 1.095Total Assets 6.785 Total Liab.and Shareholders' Equity 6.785
Cradle CorporationBalance Sheet
31 December 2004(in TL )
Chapter 3 Mugan-Akman 2007 28
`Yagmur Bulut, SMMM Income Statement 31 October 2002 Revenues 4.525
Expenses
Rent Expense 1.200 Supplies Expense 110 Depreciation Expense 123 Salary Expense 125 Total Expenses 1.558
Net Income 2.967
Chapter 3 Mugan-Akman 2007 29
Assets Liabilities Cash 46.675 Accounts Payable 5.400 Accounts Receivable 100 Unearned Revenues 1.000 Fees Receivable 3.800 Salaries Payable 125 Supplies 40 Total Liabilities 6.525 Office Equipment 2.000 Office Furniture 5.400 Owners' EquityAccumulated Depreciation 123 - Capital 51.367 Total Assets 57.892 Total Liab. And OE 57.892
Yağmur BulutBalance SheetAt 31 October
(in TL)
Chapter 3 Mugan-Akman 2007 30
Sales 1.009.294Interest Income 24.146Total revenues 1.033.440
Selling and Marketing Expenses 314.169General and Administrative Expenses 423.652Interest Expense 195.481Total Expenses 933.302Net Income before Tax 100.138
Deli Pet FoodIncome Statement
For the Year Ended 31 December 2006(in TL)
Chapter 3 Mugan-Akman 2007 31
Assets Liabilities and Shareholders' EquityCash and banks 103.416 Bank Loans 160.200Marketable Securities 42.280 Accounts Payable 109.333Accounts Receivable 592.667 Salaries Payable 73.931Notes Receivable 293.333 Taxes Payable 95.826Merchandise Inventory 417.333 Total Current Liabilities 439.290Prepaid Expenses 1.312Current Assets 1.450.341 Bonds Issued 233.333
Land 1.503 Total Liabilities 672.623Buildings 66.560Machinery and Equipment 530.167 Shareholders' EquityAccumulated Depreciation -249.143 Share Capital 666.667Long-term Assets 349.087 Retained Earnings 360.000
Net Income for the year 100.138Total Shareholders' Equity 1.126.805
Total Assets 1.799.428 Total Liabilities & SH. Equity 1.799.428
Deli Pet FoodBalance Sheet
As of 31 December 2006(in TL)