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


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


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


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.


Adjustment -Depreciation of Property Plant & Equipment

Date Account Title and Description Debit Credit31.Oca Depreciation Expense

Accumulated DepreciationTo record depreciation expense of January


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






Adjusting Entries


Adjustment -Unearned Revenues

Date Account Title and Description Debit Credit31.Oca Unearned Revenues

Commission RevenuesTo record commissions earned in January






Adjusting Entries


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






Adjusting Entries


Adjustment Accrued Revenues

Date Account Title and Description Debit Credit31.Oca Receivable

RevenuesTo accrue fees earned in January


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.


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.


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


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


Accounting Cycle







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)


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 )


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


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


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


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



Accounting Cycle







Revenues 3.360Salary Expense 1.620Rent Expense 400Insurance Expense 40Office Supplies Expense 105Depreciation Expense 100

1.095

Cradle CorporationIncome Statement31 December 2004

(in TL )


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



`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


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)


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)


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)

chapter 3 completing the accounting cycle. chapter 3mugan-akman 20072 accounting cycle analyze and...

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