Accounting is a systematic process of measuring and reporting

to various users relevant financial information for decisionmaking regarding the economic activity of an organization.

Financial Statements:
Income Statement
Balance Sheet
Statement of Changes in Owners Equity
Statement of Retained Earnings
Statement of Cash Flows

Accounting Cycle
Journalize Transactions
Post to the Ledger
Prepare a Trial Balance
Prepare Adjusting Entries
Journalize and Post
Prepare Financial Statements
Prepare Closing Entries

Revenues

Compensation received for selling a good or providing

a service

Expenses

Costs incurred in generating revenues

Cost of operating a business
Value of an asset lost or used up

Assets

Probable future economic benefits obtained by an

entity
Economic resources owned or controlled by the
business

Liabilities

Probable future sacrifices of economic benefits

Owners= Equity - Residual interest in the assets of an entity

Transaction -

An economic exchange between the business and an

outside party

Account -

A descriptive classification for gathering bits of

economic information

Review of the Accounting Cycle

Lecture Problem 1
On October 1, 2004, Charlie Rawls opened the Rawls Repair Corporation, which specialized in
bicycle repairs. The following transactions occurred during the first two months.
Oct.

1
1
1
3

Nov.

8
12
16
19
31
31
1
1
7
15
16
17
30
30

Began business by making a deposit into a company bank account of

$12,000 in exchange for 1,200 shares if stock.
Paid the premium on a one-year insurance policy, $1,200.
Paid the current months rent, $1,040.
Purchased repair equipment from Conklin Company, $4,400. The terms
were $600 down and $200 per month for nineteen months. The first
payment is due November 1.
Purchased repair supplies from McKenna Company on credit, $390.
Paid utility bill for October, $154.
Cash received from customers for the first half of October, $1,362.
Made payment to McKenna Company, $200.
Cash received from customers for the second half of October, $1,310.
Declared and paid cash dividend of $800.
Paid the monthly rent, $1,040.
Made the monthly payment to Conklin Company, $200.
Purchased repair supplies from McKenna Company on credit, $894.
Cash received from customers for the first half of November, $1,050.
Paid utility bill for November, $166.
Paid McKenna Company on account, $400.
Cash received from customers for the second half of November, $1,874.
Declared and paid cash dividend of $800.

Required:
1.

Using the Chart of Accounts below, prepare the journal entries to record the October
transactions.

Assets:
Cash
Prepaid Insurance
Repair Supplies
Repair Equipment
Accumulated Depreciation

2.
3.
4.

Liabilities:
Accounts Payable
Income Taxes Payable
Stockholders Equity:
Common Stock
Retained Earnings
Dividends

Revenues:
Bicycle Repair Revenue
Expenses:
Store Rent Expense
Utility Expense
Insurance Expense
Repair Supply Expense
Depreciation Expense
Income Tax Expense

Post your entries to the ledger. (Use T accounts for the ledger.)
Prepare a trial balance for October 31.
Prepare adjusting entries for October assuming:

5.
6.
7.
8.
9.
10.

11.
12.

One months insurance has expired.

There are $194 of supplies left at month-end.
The estimated monthly depreciation on store equipment is $70.
The estimated income taxes are $40.
Prepare an income statement, statement of retained earnings, and balance sheet for Rawls
Corporation for October, 2004.
Prepare closing entries.
Journalize Novembers transactions.
Post Novembers transactions.
Prepare a trial balance for November 30.
Prepare adjusting entries for November assuming:
One months insurance has expired.
There are $418 of supplies left at month-end.
The estimated monthly depreciation on store equipment is $70.
The estimated income taxes are $40.
Prepare an income statement, statement of retained earnings, and balance sheet for Rawls
Corporation for November, 2004.
Prepare closing entries.