Lecture 11

Chapter 04

Completing the Accounting Cycle

Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc.

Lecture Overview

• Unadjusted Trial Balance

• Adjusting entries and their affect on adjustment column

• Adjustment of entries on Adjusted column

Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360Capital Stock 25,000Dividends 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

Adjusted Trial Balance Adjustments Trial Balance

Opportunities Inc.Work Sheet

For the Two Months Ended December 31, 2010

The Unadjusted Trial Balance

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) 120Capital Stock 25,000Dividends 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

Account Title Debit Credit Debit Credit Debit Credit

Adjusted Trial Balance Adjustments Trial Balance

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

2,260 2,260

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 240Capital Stock 25,000 25,000Dividends 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

Account Title Debit Credit Debit Credit Debit Credit

Adjusted Trial Balance Adjustments Trial Balance

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

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 240Capital Stock 25,000 25,000Dividends 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

Account Title Debit Credit Debit Credit Debit Credit

Adjusted Trial Balance Adjustments Trial Balance

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

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

Accounts Dr Cr Dr Cr Dr Cr

Income State. Balance Sheet

The Work Sheet

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

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

Adjusted TB

Accounts Dr Cr Dr Cr Dr Cr

Income State. Balance Sheet

The Work Sheet

To make room on the slides for the Income statement and

Balance Sheet columns, the Trial Balance and Adjustments columns have been removed.

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

Account Title Debit Credit Debit Credit Debit Credit

Adjusted Trial Balance Income Statement Balance Sheet

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

43,400 43,400

Now, let’s extend the balances from the Adjusted Trial Balance column.

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 240Capital Stock 25,000 25,000Dividends 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

Account Title Debit Credit Debit Credit Debit Credit

Adjusted Trial Balance Income Statement Balance Sheet

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

43,400 43,400

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 240Capital Stock 25,000 25,000Dividends 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

Account Title Debit Credit Debit Credit Debit Credit

Adjusted Trial Balance Income Statement Balance Sheet

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

43,400 43,400

These four columns are summed.

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 240Capital Stock 25,000 25,000Dividends 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

Account Title Debit Credit Debit Credit Debit Credit

Adjusted Trial Balance Income Statement Balance Sheet

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

The difference between the Income Statement column totals is the net income

(or net loss) for the period.

The difference between the Balance Sheet column totals is also the income (or net

loss) for the period.

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

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

Income Statement Balance Sheet

Net Income Net Income

Opportunities Inc.Work Sheet

For the Two Months Ended December 31, 2010

Fees earned 16,840Rent revenue 120

Total revenues 16,960Expenses:

Wages expense 4,525Supplies expense2,040Rent 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.

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

Opportunities Inc.Work Sheet

For the Two Months Ended December 31, 2010

Net income for November and December 7,205Less dividends 4,000Retained earnings, December 31, 2005 3,205

Either from the income

statement or the work sheet.

Opportunities Inc.Work Sheet

For the Two Months Ended December 31, 2010

Net income for November and December 7,205Less dividends 4,000Retained earnings, December 31, 2005 3,205

Either from the income

statement or the work sheet.

From the Balance Sheet

debit column of the work sheet.

Opportunities Inc.Balance Sheet

For the Two Months Ended December 31, 2010 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 Capital stock 25,000 Total property, plant Retained earnings 3,205 28,205

and equipment 21,750 Total liabilities and

Total assets 29,595 stockholders’ equity29,595

Stockholders’ Equity

From the Retained Earnings Statement

Lecture Overview

• Structure of Worksheet

• Unadjusted Trial Balance

• Adjusting entries and their affect on adjustment column

• Adjustment of entries on Adjusted column

• Preparation of Income Statement Column

• Preparation of Balance Sheet Column

• End of Lecture 11