chapter 4 completing the accounting cycle. the accounting work sheet what is the work sheet? a work...

Chapter Chapter 44Completing the Completing the

Accounting CycleAccounting Cycle

The Accounting Work Sheet

• What is the work sheet?

• A work sheet is a multi-columned document used by accountants to help move data from the trial balance to the financial statements.

• It is an internal document.

Adjusted Trial Balance Adjustments Trial Balance

Account Title Dr. Cr. Dr. Cr. Dr. Cr.CashAccounts receivableSuppliesEquipmentAccum. depreciationAccounts payableSalary payableUnearned revenueCapitalWithdrawalsRevenueSalary expenseSupplies expenseDepreciation expense

Totals

12,1001,350

25015,500

1,000

12,000

42,200

7,5001,2001,1001,5007,200

23,700

42,200



a The company has earned revenue of $1,700 which will be collected next month.

b Inventory of supplies at month end totaled $150.

c Depreciation for the period was calculated as $200.



Totals

12,1001,350

25015,500

1,000

12,000

42,200

7,5001,2001,1001,5007,200

23,700

42,200

a) 1,700

b) 100c) 200

2,000

b) 100

c) 200

a) 1,700

2,000

12,1003,050

15015,500

1,000

12,000100200

44,100

7,7001,2001,1001,5007,200

25,400

44,100


Adjusted Income Balance Trial Balance Statement Sheet


Totals

7,7001,2001,1001,5007,200

25,400

44,100

12,100

3,050150

15,500

1,000

12,000

100200

44,100

12,100

3,050150

15,500

1,000

31,800

7,7001,2001,1001,5007,200

18,700




Totals

7,7001,2001,1001,5007,200

25,400

44,100

12,100

3,050150

15,500

1,000

12,000

100200

44,100

12,100

3,050150

15,500

1,000

31,800

7,7001,2001,1001,5007,200

18,700

12,000100200

12,300

25,400

25,400




TotalsNet income

7,7001,2001,1001,5007,200

25,400

44,100

12,100

3,050150

15,500

1,000

12,000

100200

44,100

12,100

3,050150

15,500

1,000

31,800

31,800

7,7001,2001,1001,5007,200

18,70013,10031,800

12,000100200

12,30013,10025,400

25,400

25,400

25,400


The Work SheetThe Work Sheet

Trial Balance

Accounts Dr Cr Dr Cr Dr Cr

Adjustments Adjusted TB

Prepared from the general ledger. Accounts are listed in the following order: assets, liabilities, owner’s equity, revenues, and expenses.

Prepared from the general ledger. Accounts are listed in the following order: assets, liabilities, owner’s equity, revenues, and expenses.

Adjustments are entered here. Two possibilities:

1. Deferrals – Existing balances are changed.

2. Accruals – New information is entered.

Adjustments are entered here. Two possibilities:

1. Deferrals – Existing balances are changed.

2. Accruals – New information is entered.

Trial Balance





Adjustments are combined with the trial balance. Account balances are now adjusted.

Adjustments are combined with the trial balance. Account balances are now adjusted.

Trial Balance



Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Wages Expense 4,275Rent Expense 1,600Utilities Expense 985Supplies Expense 800Miscellaneous Expense 455

42,600 42,600

Account Title Debit Credit Debit Credit Debit Credit


NetSolutionsWork Sheet

For the Two Months Ended December 31, 2005

The Unadjusted The Unadjusted Trial BalanceTrial Balance

The Unadjusted The Unadjusted Trial BalanceTrial Balance

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

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

Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Wages Expense 4,275Rent Expense 1,600Utilities Expense 985Supplies Expense 800Miscellaneous Expense 455

42,600 42,600





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10111213141516171819202122

(a) 1,240

(a) 1,240

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

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

Cash 2,065Accounts Receivable 2,220Supplies 2,000 (a) 1,240Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Wages Expense 4,275Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455

42,600 42,600





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Insurance Expense (b) 100

Accounts are added as needed.

(b) 100

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

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

FOR REN

T

Cash 2,065Accounts Receivable 2,220Supplies 2,000 (a) 1,240Prepaid Insurance 2,400 (b) 100Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Wages Expense 4,275Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455

42,600 42,600





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10111213141516171819202122

Insurance Expense (b) 100

(c) 120

Rent Revenue (c) 120

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

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

Cash 2,065Accounts Receivable 2,220Supplies 2,000 (a) 1,240Prepaid Insurance 2,400 (b) 100Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360 (c) 120Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Wages Expense 4,275Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455

42,600 42,600





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10111213141516171819202122

Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250

(d) 250

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

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

Cash 2,065Accounts Receivable 2,220Supplies 2,000 (a) 1,240Prepaid Insurance 2,400 (b) 100Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360 (c) 120Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Wages Expense 4,275 (d) 250Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455

42,600 42,600





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10111213141516171819202122

Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250

(e) 500

(e) 500

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

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

Cash 2,065Accounts Receivable 2,220 (e) 500Supplies 2,000 (a) 1,240Prepaid Insurance 2,400 (b) 100Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360 (c) 120Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340 (e) 500Wages Expense 4,275 (d) 250Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455

42,600 42,600





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10111213141516171819202122

Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250Depreciation Expense (f) 50Accum. Depreciation (f) 50


42,600 42,600



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Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250 Depreciation Expense (f) 50 Accum. Depreciation (f) 50

2,260 2,260Summed Summed

and and ruledruled

Summed Summed and and

ruledruled

31


42,600 42,600



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10111213141516171819202122232425

Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250 Depreciation Expense (f) 50 Accum. Depreciation (f) 50

2,260 2,260

33

Cash 2,065 2,065Accounts Receivable 2,220 (e) 500 2,720Supplies 2,000 (a) 1,240 760Prepaid Insurance 2,400 (b) 100 2,300Land 20,000 20,000Office Equipment 1,800 1,800Accounts Payable 900 900Unearned Rent 360 (c) 120 240Chris Clark, Capital 25,000 25,000Chris Clark, Drawing 4,000 4,000Fees Earned 16,340 (e) 500 16,840Wages Expense 4,275 (d) 250 4,525Rent Expense 1,600 1,600Utilities Expense 985 985Supplies Expense 800 (a) 1,240 2,040Miscellaneous Expense 455 455

42,600 42,600



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Insurance Expense (b) 100 100 Rent Revenue (c) 120 120 Wages Payable (d) 250 250 Depreciation Expense (f) 50 50 Accum. Depreciation (f) 50 50

2,260 2,260 43,400 43,400

34

Revenue and expense balances in the Adjusted Trial Balance column are extended to the Income Statement column.

Revenue and expense balances in the Adjusted Trial Balance column are extended to the Income Statement column.

Adjusted TB


Income State. Balance Sheet


Asset, liability, owner’s equity, and drawing balances in the Adjusted Trial Balance column are extended to the Balance Sheet column.

Asset, liability, owner’s equity, and drawing balances in the Adjusted Trial Balance column are extended to the Balance Sheet column.

Adjusted TB


Income State. Balance Sheet


Cash 2,065Accounts Receivable 2,720Supplies 760Prepaid Insurance 2,300Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 240Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,840Wages Expense 4,525Rent Expense 1,600Utilities Expense 985Supplies Expense 2,040Miscellaneous Expense 455


Adjusted Trial Balance Income Statement Balance Sheet

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Insurance Expense 100 Rent Revenue 120 Wages Payable 250 Depreciation Expense 50 Accum. Depreciation 50

43,400 43,400

38

Cash 2,065 2,065Accounts Receivable 2,720 2,720Supplies 760 760Prepaid Insurance 2,300 2,300Land 20,000 20,000Office Equipment 1,800 1,800Accounts Payable 900 900Unearned Rent 240 240Chris Clark, Capital 25,000 25,000Chris Clark, Drawing 4,000 4,000Fees Earned 16,840 16,840Wages Expense 4,525 4,525Rent Expense 1,600 1,600Utilities Expense 985 985Supplies Expense 2,040 2,040Miscellaneous Expense 455 455



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Insurance Expense 100 100 Rent Revenue 120 120 Wages Payable 250 250 Depreciation Expense 50 50 Accum. Depreciation 50 50

43,400 43,400

40

Cash 2,065 2,065Accounts Receivable 2,720 2,720Supplies 760 760Prepaid Insurance 2,300 2,300Land 20,000 20,000Office Equipment 1,800 1,800Accounts Payable 900 900Unearned Rent 240 240Chris Clark, Capital 25,000 25,000Chris Clark, Drawing 4,000 4,000Fees Earned 16,840 16,840Wages Expense 4,525 4,525Rent Expense 1,600 1,600Utilities Expense 985 985Supplies Expense 2,040 2,040Miscellaneous Expense 455 455



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Insurance Expense 100 100 Rent Revenue 120 120 Wages Payable 250 250 Depreciation Expense 50 50 Accum. Depreciation 50 50

43,400 43,400 9,755 16,960 33,645 26,440

42

9,755 16,960 33,645 26,4407,205 7,205

16,960 16,960 33,645 33,645

Income Statement Balance Sheet

Net IncomeNet Income Net IncomeNet Income

NetSolutionsIncome Statement

For Two Months Ended December 31, 2005

Fees earned $16,840Rent revenue 120

Total revenues $16,960Expenses:

Wages expense $ 4,525Supplies expense 2,040Rent expense 1,600Utilities expense 985Insurance expense 100Depreciation expense 50Miscellaneous expense 455

Total expenses 9,755Net income $ 7,205

Every amount on this income statement was taken from the Income Statement column of the work sheet.

NetSolutionsStatement of Owner’s Equity


Chris Clark, Capital, November 1, 2005 $ 0

Investment on November 1, 2005 $25,000

Net income for November and December 7,205

$32,205

Less withdrawals 4,000

Increase in owner’s equity 28,205

Chris Clark, Capital, December 31, 2005 $28,205Either from the Either from the income income

statement or the statement or the work sheet.work sheet.

Either from the Either from the income income

statement or the statement or the work sheet.work sheet.

From the From the Balance Sheet Balance Sheet

debit column of debit column of the work sheet.the work sheet.

From the From the Balance Sheet Balance Sheet

debit column of debit column of the work sheet.the work sheet.

NetSolutionsBalance Sheet

December 31, 2005

Assets LiabilitiesCurrent assets: Current liabilities:

Cash $ 2,065 Accounts payable $900Accounts receivable 2,720 Wages payable 250Supplies 760 Unearned rent 240Prepaid insurance 2,300 Total liabilities$ 1,390 Total current assets $ 7,845

Property, plant, and equipment:

Land $20,000Office equip. $1,800Less accum.

depreciation 50 1,750 Owner’s Equity Total property, plant Chris Clark, Capital 28,205

and equipment 21,750 Total liabilities and

Total assets $29,595 owner’s equity$29,595

Assets LiabilitiesCurrent assets: Current liabilities:

Cash $ 2,065 Accounts payable $900Accounts receivable 2,720 Wages payable 250Supplies 760 Unearned rent 240Prepaid insurance 2,300 Total liabilities$ 1,390 Total current assets $ 7,845

Property, plant, and equipment:

Land $20,000Office equip. $1,800Less accum.

depreciation 50 1,750 Owner’s Equity Total property, plant Chris Clark, Capital 28,205

and equipment 21,750 Total liabilities and

Total assets $29,595 owner’s equity$29,595

From the From the Statement Statement

of Owner’s of Owner’s EquityEquity

From the From the Statement Statement

of Owner’s of Owner’s EquityEquity

Close the revenue,expense, and

withdrawal accounts.

Closing the Accounts

• Closing the accounts is the end of period process that prepares the accounts for recording transactions during the next period.

Closing the Accounts

• Revenues and Expense accounts are closed to Income Summary.

• Income Summary is closed to Capital.

• Withdrawals are closed to Capital.

• In a corporation, Dividends are closed to Retained Earnings.

Postclosing Trial Balance

• The accounting cycle ends with the postclosing trial balance.

• The postclosing trial balance is dated as of the end of the period for which the statements have been prepared.

Permanent Accounts

• What accounts never close?

– Assets

– Liabilities

– Owner’s equity

• Balances of permanent accounts carry over to the next period.

Report Format

AssetsLiabilities

Owner’s Equity

Account Format

Assets = Liabilities + Owner’s Equity

Different Formats ofthe Balance Sheet

OWNER’S CAPITALOWNER’S CAPITAL

The Closing ProcessThe Closing ProcessThe Closing ProcessThe Closing Process

Income Summary

11Revenues are transferred to Income Summary22

Expenses are transferred to Income Summary

33 Net Income or Net Loss is transferred to Owner’s Capital

44Drawings are transferred to Owner’s Capital

OWNER’S CAPITALOWNER’S CAPITAL

Income Summary

11Revenues are transferred to Income Summary22

Expenses are transferred to Income Summary

33 Net Income or Net Loss is transferred to Owner’s Capital

44Drawings are transferred to Owner’s Capital

The The Income Summary Income Summary account does not appear on account does not appear on

the financial statements.the financial statements.

The The Income Summary Income Summary account does not appear on account does not appear on

the financial statements.the financial statements.

Adjusting and Closing EntriesAdjusting and Closing EntriesAdjusting and Closing EntriesAdjusting and Closing Entries

Wages Expense

Bal. 4,525

Rent Expense

Bal. 1,600

Depreciation Expense

Bal. 50

Utilities Expense

Bal. 985

Supplies Expense

Bal. 2,040

Insurance Expense

Bal. 100

Miscellaneous Expense

Bal. 455

Fees Earned

Bal. 16,840

Rent Revenue

Bal. 120

Chris Clark, Capital

Bal. 25,000

Chris Clark, Drawing

Bal. 4,000

Income Summary

Note: Note: The The balances shown balances shown

are adjusted are adjusted balances before balances before

closing. The closing. The following following sequence sequence

demonstrates the demonstrates the closing process.closing process.

Note: Note: The The balances shown balances shown

are adjusted are adjusted balances before balances before

closing. The closing. The following following sequence sequence

demonstrates the demonstrates the closing process.closing process.


Wages Expense

Bal. 4,525

Rent Expense

Bal. 1,600


Bal. 50

Utilities Expense

Bal. 985

Supplies Expense

Bal. 2,040

Insurance Expense

Bal. 100


Bal. 455

Fees Earned

Bal. 16,840

Rent Revenue

Bal. 120


Bal. 25,000


Bal. 4,000

Income Summary

Debit each revenue account for the amount of its

balance, and credit Income Summary

for the total revenue.

16,840

120

16,960


Wages Expense

Bal. 4,525

Rent Expense

Bal. 1,600


Bal. 50

Utilities Expense

Bal. 985

Supplies Expense

Bal. 2,040

Insurance Expense

Bal. 100


Bal. 455


Bal. 25,000


Bal. 4,000

Income Summary

Debit Income Summary for the total expenses and credit each expense

account for its balance.

Fees Earned

Bal. 16,840

Rent Revenue

Bal. 120

16,840

120

16,9609,775

455

100

2,040

985

50

1,600

4,525


Wages Expense

Bal. 4,525

Rent Expense

Bal. 1,600


Bal. 50

Utilities Expense

Bal. 985

Supplies Expense

Bal. 2,040

Insurance Expense

Bal. 100


Bal. 455


Bal. 25,000


Bal. 4,000

Income Summary

Debit Income Summary for the

amount of its balance (in this

case, the net income) and credit the capital account.

Fees Earned

Bal. 16,840

Rent Revenue

Bal. 120

16,840

120

16,9609,775

455

100

2,040

985

50

1,600

4,525

7,205

7,205


Wages Expense

Bal. 4,525

Rent Expense

Bal. 1,600


Bal. 50

Utilities Expense

Bal. 985

Supplies Expense

Bal. 2,040

Insurance Expense

Bal. 100


Bal. 455


Bal. 25,000


Bal. 4,000

Income Summary

Debit the capital account for the balance of the

drawing account, and credit drawing

for the same amount.

Fees Earned

Bal. 16,840

Rent Revenue

Bal. 120

16,840

120

16,9609,775

455

100

2,040

985

50

1,600

4,525

7,205

7,205

4,000

4,000


Wages Expense

Bal. 4,525

Rent Expense

Bal. 1,600


Bal. 50

Utilities Expense

Bal. 985

Supplies Expense

Bal. 2,040

Insurance Expense

Bal. 100


Bal. 455


Bal. 25,000


Bal. 4,000

Income Summary

Fees Earned

Bal. 16,840

Rent Revenue

Bal. 120

16,480

120

16,9609,775

445

100

2,040

985

50

1,600

4,525

7,205

7,205

4,000

4,000

Close RevenuesClose Revenues

Close ExpensesClose Expenses

Close Income SummaryClose Income Summary

Close DrawingClose Drawing

16,84016,840

120120

16,96016,960

4,5254,525

1,6001,600

5050

985985

2,0402,040

100100

455455

9,7759,775

7,2057,205

7,2057,205

4,0004,000

4,0004,000

Review of the Closing ProcessReview of the Closing ProcessReview of the Closing ProcessReview of the Closing Process

Post-closing Trial BalancePost-closing Trial BalancePost-closing Trial BalancePost-closing Trial Balance

NetSolutionsPost-Closing Trial Balance

December 31, 2005Cash 2 065 00Accounts Receivable 2 720 00Supplies 760 00Prepaid Insurance 2 300 00Land 20 000 00Office Equipment 1 800 00Accumulated Depreciation 50 00Accounts Payable 900 00Wages Payable 250 00Unearned Rent 240 00Chris Clark, Capital 28 205 00

29 645 00 29 645 00

chapter 4 completing the accounting cycle. the accounting work sheet what is the work sheet? a work...

Documents

internal document

month end

multicolumned document

owners equity

following order

general ledger

financial statements

inventory of supplies