Transparency Master 4-1
STEPS IN THE ACCOUNTING CYCLE
Instructions: List the following steps in the correct order.
- Financial statements prepared.
- Adjusted trial balance prepared.
- Adjustment data assembled and analyzed.
- Transactions posted to the ledger.
- Closing entries journalized and posted to ledger.
- Transactions analyzed and recorded in journal.
- Unadjusted trial balance prepared.
- Optional end-of–period spreadsheet prepared.
- Post-closing trial balance prepared.
- Adjusting entries journalized and posted to ledger.
Transparency Master 4-2
PURPOSE OF WORK SHEET
1.Tool to assist with end-of-accounting-period work
2.Information to prepare adjusting entries and financial statements on one continuous form
3.Format that is easily adapted to a computer spreadsheet program
Transparency Master 4-3
WORK SHEET
To complete the columns of a work sheet:
1.List all account balances from the ledger in the Trial Balance columns. Total the Debit and Credit columns; they should be equal.
2.Record the adjusting entries in the Adjustments columns. Total the Debit and Credit columns; they should be equal.
3.Enter the balance of each account, after computing any changes due to adjusting entries, in the Adjusted Trial Balance columns. Total the Debit and Credit columns; they should be equal.
4.Enter the balance of all revenue and expense accounts in the Income Statement columns. Total the Debit and Credit columns; the difference between these columns is Net Income.
5. Enter the balance of assets, liabilities, capital, and drawings in the Balance Sheet columns. Total the Debit and Credit columns. Net income must be added to the Credit column (or net loss added to the Debit column) to make the Balance Sheet columns balance.
Transparency Master 4-4
END-OF-PERIOD SPREADSHEET (WORK SHEET)
Enter the following adjusting entries on the end-of-period spreadsheet (work sheet) for Dixie Machinery:
1.$375 of the prepaid insurance has expired.
3.Depreciation to be recorded on the office equipment is $400.
4.$350 of salaries are owed to Dixie Machinery’s employees.
Transparency Master 4-5
A / B / C / D / E / F / G1 / Dixie Machinery
2 / End-of-Period Spreadsheet (Work Sheet)
3 / For the Year Ended December 31, 20--
4 / Unadjusted / Adjusted
5 / Trial Balance / Adjustments / Trial Balance
6 / Account Title / Dr. / Cr. / Dr. / Cr. / Dr. / Cr.
7 / Cash / 825 / 825
8 / Accounts Receivable / 300 / 300
9 / Prepaid Insurance / 500 / 375 / 125
10 / Office Equipment / 5,050 / 5,050
11 / Acc. Depr.—Office Equip. / 180 / 400 / 580
12 / Accounts Payable / 250 / 250
13 / Salaries Payable / 350 / 350
14 / Bill McCowan, Capital / 2,370 / 2,370
15 / Bill McCowan, Drawing / 1,100 / 1,100
16 / Repair Revenue / 15,140 / 15,140
17 / Salaries Expense / 8,025 / 350 / 8,375
18 / Rent Expense / 1,500 / 1,500
19 / Utilities Expense / 640 / 640
20 / Insurance Expense / 375 / 375
21 / Depr. Exp.—Office Equip. / 400 / 400
22 / 17,940 / 17,940 / 1,125 / 1,125 / 18,690 / 18,690
23
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25
26
27
Transparency Master 4-6
A / F / G / H / I / J / K1 / Dixie Machinery
2 / End-of-Period Spreadsheet (Work Sheet)
3 / For the Year Ended December 31, 20--
4 / Adjusted / Income / Balance
5 / Trial Balance / Statement / Sheet
6 / Account Title / Dr. / Cr. / Dr. / Cr. / Dr. / Cr.
7 / Cash / 825 / 825
8 / Accounts Receivable / 300 / 300
9 / Prepaid Insurance / 125 / 125
10 / Office Equipment / 5,050 / 5,050
11 / Acc. Depr.—Office Equip. / 580 / 580
12 / Accounts Payable / 250 / 250
13 / Salaries Payable / 350 / 350
14 / Bill McCowan, Capital / 2,370 / 2,370
15 / Bill McCowan, Drawing / 1,100 / 1,100
16 / Repair Revenue / 15,140 / 15,140
17 / Salaries Expense / 8,025 / 8,375
18 / Rent Expense / 1,500 / 1,500
19 / Utilities Expense / 640 / 640
20 / Insurance Expense / 375 / 375
21 / Depr. Exp.—Office Equip. / 400 / 400
22 / 18,690 / 18,690 / 11,290 / 15,140 / 7,400 / 3,550
23 / Net Income
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25
26
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Transparency Master 4-7
FINANCIAL STATEMENTS
Income Statement
Revenues(from the work sheet)
– Expenses (from the work sheet)
Net Income
Statement of Owner's Equity
Beginning Capital (from the work sheet or owner’s
Balancecapital account in the ledger)
+Investments(from the owner’s capital account
in the ledger)
+Net Income(from the income statement)
–Drawing (from the work sheet)
Ending Capital Balance
Balance Sheet
Current Assets(from the work sheet)
+Property, Plant & Equip.(from the work sheet)
Total Assets
Current Liabilities(from the work sheet)
+Long-Term Liabilities (from the work sheet)
Total Liabilities
+Capital Balance (from statement of owner's equity)
Total Liabilities and
Owner's Equity
Transparency Master 4-8
FINANCIAL STATEMENTS
Dixie Machinery
Income Statement
For the Year Ended December 31, 20--
Revenues:
Repair revenue...... $15,140
Expenses:
Salaries expense...... $8,375
Rent expense...... 1,500
Utilities expense...... 640
Depreciation expense—office
equipment...... 400
Insurance expense...... 375
Total expenses...... 11,290
Net income...... $3,850
Dixie Machinery
Statement of Owner's Equity
For the Year Ended December 31, 20--
Bill McCowan, capital, January 1...... $ 2,370
Net income...... $3,850
Less withdrawals...... 1,100
Increase in owner’s equity...... 2,750
Bill McCowan, capital, December 31..$ 5,120
Transparency Master 4-9
FINANCIAL STATEMENTS
Dixie Machinery
Balance Sheet
December 31, 20--
AssetsLiabilities
Current assets:Current liabilities:
Cash...... $825 Accounts payable...... $250
Accounts receivable.300 Salaries payable...... 350
Prepaid insurance...125Total liabilities...... $600
Total current assets$1,250
Owner’s Equity
Property, plant , and equipment:
Office equipment....$5,050Bill McCowan, capital..... 5,120
Less accumulated
depreciation...580
Total property, plant,
and equipment 4,470 Total liabilities and
Total assets...... $5,720 owner’s equity...... $5,720
Transparency Master 4-10
WRITING EXERCISE
Keith Martin is the controller for Daniels Printing Service. Keith has been putting in a lot of overtime; therefore, Mr. Daniels has allowed Keith to hire an assistant. Keith's assistant is a bright high school graduate, but he has never taken an accounting class. Keith is trying to decide which accounting activities could be delegated to his assistant. Keith is willing to give the assistant a few simple instructions on how to complete each task, but he doesn't have time to teach the assistant to be an accountant.
For each task listed, state whether Keith should continue to do the work or delegate the task to his assistant. Explain each answer.
1.List the account balances from the general ledger in the Trial Balance columns of the end-of-period spreadsheet.
2.Add the Debit and Credit columns of the trial balance.
3.Make the adjusting entries on the spreadsheet.
4.Complete the spreadsheet.
5.Type the formal financial statements using the data from the Income Statement and Balance Sheet columns of the spreadsheet.
6.Journalize and post the adjusting entries.
Transparency Master 4-11
CLOSING ENTRIES
Part A
Service Revenue3,500 / Bal.3,500
Bal.0
Salaries Expense / Rent Expense
Bal.1,400 / 1,400 / Bal.600 / 600
Bal.0 / Bal.0
J. Jones, Drawing / J. Jones, Capital
Bal.1,200 / 1,200 / 1,400 / Bal.10,000
600 / 3,500
1,200
Bal.0 / Bal.10,300
Transparency Master 4-12
J. Jones Company
Income Statement
For the Year Ended December 31, 20--
Service revenue...... $3,500
Expenses:
Salaries expense...... $1,400
Rent expense...... 600
Total expenses...... 2,000
Net income...... $1,500
J. Jones Company
Statement of Owner's Equity
For the Year Ended December 31, 20--
J. Jones, capital, January 1...... $10,000
Net income...... $1,500
Less withdrawals...... 1,200
Increase in owner’s equity...... 300
J. Jones, capital, December 31....$10,300
Transparency Master 4-13
CLOSING ENTRIES
Part B
Service Revenue / Salaries ExpenseBal.3,500 / Bal.1,400
a.3,500 / b.1,400
Bal.0 / Bal.0
Rent Expense / J. Jones, Drawing
Bal.600 / Bal.1,200
b.600 / d.1,200
Bal.0 / Bal.0
Income Summary / J. Jones, Capital
a.3,500 / Bal.10,000
b.2,000 / c.1,500
Bal.1,500* / d.1,200
c.1,500
Bal.0 / Bal.10,300
*$1,500 Balance = Net Income
Transparency Master 4-14
WRITING EXERCISE
1.Why are closing entries prepared?
2.Why do we use Income Summary when preparing closing entries?
3.Why are closing entries prepared after financial statements?
4.What are some examples of temporary accounts that would be closed for a physician?
Transparency Master 4-15
STEPS IN THE ACCOUNTING CYCLE
- Transactions analyzed and recorded in journal.
- Transactions posted to the ledger.
- Unadjusted trial balance prepared.
- Adjustment data assembled and analyzed.
- Optional end-of–period spreadsheet prepared.
- Adjusting entries journalized and posted to ledger.
- Adjusted trial balance prepared.
- Financial statements prepared.
- Closing entries journalized and posted to ledger.
- Post-closing trial balance prepared.