Dr Winston Kwok

1. Prepare an adjusted trial balance

2. Explain a classified statement of financial
position
3. Prepare financial statements from an
adjusted trial balance
4. Describe and prepare closing entries
Prepare an adjusted trial balance
ACCOUNTING PROCESS OR
ACCOUNTING CYCLE
FastForward - Trial Balance

Unadjusted Adjusted
Trial Balance Adjustments Trial Balance

First, the
initial
unadjusted
amounts are
added to the
worksheet.
FastForward - Trial Balance

Unadjusted Adjusted
Trial Balance Adjustments Trial Balance

Next,
FastForwards
adjustments
are added.
FastForward Adjusted Trial Balance

Unadjusted Adjusted
Trial Balance Adjustments Trial Balance

Finally, the
totals are
determined.
LINKS TO FINANCIAL STATEMENTS
Explain a classified statement of
financial position
CLASSIFIED STATEMENT OF FINANCIAL POSITION
Categories of a Classified Statement of Financial Position
Assets Liabilities and Equity
Current assets Current liabilities
Noncurrent assets Noncurrent liabilities
Long-term investments Equity
Property, plant and equipment
Intangible assets

Current items are those expected to come due (both

collected and owed) within the longer of one year or the
companys normal operating cycle.
This consistency in presentation allows users to quickly
identify current assets that are most easily converted to
cash and current liabilities that are shortly coming due.
Current or short-term assets are expected to be
sold, collected, or used within one year or the
companys operating cycle, whichever is longer.
Noncurrent or long-term assets are assets not
used up within one year or the operating cycle,
whichever is longer.
Current or short-term liabilities are obligations due
within one year or the companys operating cycle,
whichever is longer.
 Noncurrent or long-term liabilities are obligations not due
within one year or the companys operating cycle, whichever
is longer.
Equity is the owners or shareholders claim on the assets.
Prepare financial statements from
an adjusted trial balance
 1. PREPARE THE INCOME STATEMENT
Adjusted
Trial Balance FastForward
December 31, 2011
Dr. Cr. Income Statement
Cash
Accounts receivable
$ 4,350
1,800
For Month Ended December 31, 2011
Supplies 8,670 Revenues:
Prepaid insurance 2,300
Equipment 26,000 Consulting revenue $7,850
Accum. depr. - Equip. $ 375
Accounts payable 6,200 Rental revenue 300
Salaries payable
Unearned consulting revenue
210
2,750
$8,150
Share capital
Retained earnings
30,000
0
Operating expenses:
Dividends 200 Depr. expense - Equip. $ 375
Consulting revenue 7,850
Rental revenue 300 Salaries expense 1,610
Depr. expense 375
Salaries expense 1,610 Insurance expense 100
Insurance expense
Rent expense
100
1,000
Rent expense 1,000
Supplies expense 1,050 Supplies expense 1,050
Utilities expense 230
Totals $ 47,685 $ 47,685 Utilities expense 230
Total expenses 4,365
Net income $ 3,785
 2. PREPARE THE STATEMENT
OF CHANGES IN EQUITY
FastForward
Income Statement
For Month Ended December 31, 2011
Revenues: Note: Net Income from the Income
Consulting revenue $7,850
Rental revenue 300 Statement carries to the Statement of
$8,150 Changes in Equity.
Operating expenses:
Depr. expense - Equip. $ 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Total expenses 4,365
Net income $ 3,785 FastForward
Statement of Changes in Equity
For Month Ended December 31, 2011
Share Capital Retained Earnings Total Equity
Balance at December 1 0 0 0
Plus: Issuance of shares $ 30,000 $ $ 30,000
Net income $ 3,785 3,785
Less: Dividends 200 200
Balance at December 31 $ 30,000 $ 3,585 $ 33,585
 3. PREPARE THE STATEMENT OF FINANCIAL POSITION
FastForward
FastForward Statement of Financial Position
Statement of Changes in Equity December 31, 2011
For Month Ended December 31, 2011
Share Capital Retained EarningsTotal Equity Assets
Balance at December 1 0 0 0 Current assets
Plus: Issuance of shares $ 30,000 $ $ 30,000
Cash $ 4,350
Net income $ 3,785 3,785
Less: Dividends 200 200 Accounts receivable 1,800
Balance at December 31 $ 30,000 $ 3,585 $ 33,585 Supplies 8,670
Prepaid insurance 2,300
Adjusted Total current assets $ 17,120
Trial Balance
Equipment $ 26,000
December 31, 2011
Dr. Cr. Accu depreciation (375) 25,625
Cash 4,350 Total noncurrent assets 25,625
Accounts receivable 1,800 Total assets $ 42,745
Supplies 8,670
Prepaid insurance 2,300 Liabilities and Equity
Equipment 26,000
Current liabilities
Accum. depr. - Equip. 375
Accounts payable 6,200 Accounts payable 6,200
Salaries payable 210 Salaries payable 210
Unearned consulting revenue 2,750 Unearned consulting revenue 2,750
Share capital 30,000
Total current liabilities 9,160
Retained earnings 0
Dividends 200 Total liabilities 9,160
Consulting revenue 7,850 Share capital 30,000
Rental revenue 300
Retained earnings 3,585
Depr. expense 375
Salaries expense 1,610 Total equity 33,585
Insurance expense 100 Total liabilities and equity $ 42,745
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $ 47,685 $ 47,685
 COMPREHENSIVE EXAMPLE
Adapted from Problem 3-3B Page 129 of Textbook.
 COMPREHENSIVE EXAMPLE
Adapted from Problem 3-3B Page 129 of Textbook.
 TYPES OF JOURNAL ENTRIES
Different purposes
Transaction/Original/Originating
Adjusting
Reversal/Reversing
Closing

Not mutually exclusive or comprehensive list but

helps thinking about the purposes that journal
entries achieve.
Describe and prepare closing entries
 CLOSING PROCESS

Done after financial statements have been

completed to prepare accounts for next period.

Temporary or nominal accounts are

closed at the end of the accounting period.
 TEMPORARY AND PERMANENT
ACCOUNTS
Temporary (nominal) accounts accumulate data related to
one accounting period. These accounts are closed at the
end of the period to get ready for the next period.

Permanent (real) accounts report activities related to one or

more future accounting periods. They carry ending balances
to the next accounting period and are not closed.
 TEMPORARY AND
PERMANENT ACCOUNTS
Revenues Assets

Liabilities
Dividends
Expenses

Equity
Temporary Permanent
Accounts Accounts

Income
Summary The closing process
applies only to
temporary accounts.
 Using the
adjusted trial
balance, lets
prepare the
closing
entries for
FastForward.
 FastForward
Adjusted Trial Balance
December 31, 2011
Debit Credit
Cash $ 4,350
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation-Equip. $ 375 1. Close Credit
Accounts payable
Salaries payable
6,200
210
Balances in
Unearned consulting revenue 2,750 Revenue
Share capital 30,000
Retained earnings 0
Accounts to
Dividends 200 Income
Consulting revenue 7,850
Rental revenue 300 Summary.
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $ 47,685 $ 47,685
 CLOSE CREDIT BALANCES IN
REVENUE ACCOUNTS TO INCOME SUMMARY
Dr. Cr.
Dec. 31 Consulting revenue 7,850
Rental revenue 300
Income summary 8,150

Now, lets look at the ledger accounts after

posting this closing entry.
 CLOSE CREDIT BALANCES IN
REVENUE ACCOUNTS TO INCOME SUMMARY
Consulting Revenue
7,850 7,850

Income Summary
8,150
Rental Revenue
300 300

-
 FastForward
Adjusted Trial Balance
December 31, 2011
Debit Credit
Cash $ 4,350
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation-Equip.
Accounts payable
$ 375
6,200
2. Close Debit
Salaries payable 210 Balances in
Unearned consulting revenue 2,750
Share capital 30,000
Expense Accounts
Retained earnings 0 to Income
Dividends 200
Consulting revenue 7,850 Summary.
Rental revenue 300
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $ 47,685 $ 47,685
 CLOSE DEBIT BALANCES IN EXPENSE
ACCOUNTS TO INCOME SUMMARY
Dr. Cr.
Dec. 31 Income summary 4,365
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230

Now, lets look at the ledger accounts

after posting this closing entry.
 CLOSE DEBIT BALANCES IN EXPENSE
ACCOUNTS TO INCOME SUMMARY
Depreciation
Rent Expense
Expense- Eq.
1,000 1,000
375 375
-
-

Income Summary
Salaries Expense Supplies Expense
4,365 8,150
1,610 1,610 1,050 1,050
- - 3,785

Insurance Expense Utilities Expense Net Income

100 100 230 230
- -
 FastForward
Adjusted Trial Balance
December 31, 2011
Debit Credit
Cash $ 4,350
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation-Equip.
Accounts payable
$ 375
6,200
3. Close Income
Salaries payable 210 Summary to
Unearned consulting revenue 2,750
Share capital 30,000
Retained Earnings.
Retained earnings 0
Dividends 200
Consulting revenue 7,850
Rental revenue 300
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $ 47,685 $ 47,685
 CLOSE INCOME SUMMARY
TO RETAINED EARNINGS

Dr. Cr.
Dec. 31 Income summary 3,785
Retained earnings 3,785

Now, lets look at the ledger accounts

after posting this closing entry.
 CLOSE INCOME SUMMARY
TO RETAINED EARNINGS

Retained Earnings Income Summary

- 4,365 8,150
3,785 3,785
-
3,785
 FastForward
Adjusted Trial Balance
December 31, 2011
Debit Credit
Cash $ 4,350
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation-Equip.
Accounts payable
$ 375
6,200
4. Close
Salaries payable 210 Dividends
Unearned consulting revenue 2,750
Share capital 30,000 Account to
Retained earnings 0
Dividends 200 Retained
Consulting revenue
Rental revenue
7,850
300 Earnings.
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $ 47,685 $ 47,685
 CLOSE DIVIDENDS ACCOUNT
TO RETAINED EARNINGS

Dr. Cr.
Dec. 31 Retained earnings 200
Dividends 200

Now, lets look at the ledger accounts

after posting this closing entry.
 CLOSE DIVIDENDS ACCOUNT
TO RETAINED EARNINGS

Dividends Retained Earnings

200 200 200 0
3,785

- 3,585
SUMMARY OF THE CLOSING PROCESS
1. Close Credit Balances in Revenue Accounts
to Income Summary.
2. Close Debit Balances in Expense Accounts to
Income Summary.
3. Close Income Summary to Retained Earnings.
4. Close Dividends Account to Retained
Earnings.

Replace textbook page 144 Exhibit 4.3 with this diagram.

 ACCOUNTING PROCESS OR
ACCOUNTING CYCLE

Steps 9 and 10 not examinable for ACC1002.