Slater11e Ch05 Stud

Chapter 5
The Accounting Cycle Completed
2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
Learning Objective 1
Journalizing and posting adjusting entries
LO-1
Steps in Accounting Cycle

Transactions Journalize Post
Journalize & Post Adjusting Entries
Financial Statements
Worksheet
Journalize & Post Closing Entries

Post-Closing Trial Balance LO-1
Summary of Adjustments

Adjustments update certain accounts so they will be at current balance before financial statements are prepared Accounts listed below account titles on trial balance of worksheet are increasing (Supplies, rent and depreciation expense, accumulated depreciation & salaries payable) Original cost of a piece of equipment is not adjusted; historical cost is not lost Depreciation spreads original cost of an asset over useful life Accumulated depreciation is a contra-asset amount of depreciation asset has accumulated
LO-1
Adjusting Entries
Refer back to Kevins Moving Company in Chapter 4
LO-1
Account Titles Cash Prepaid Ins Moving Supplies Moving Truck Accum Depr, Trk Accounts Payable K. Hoff, Capital K. Hoff, Withdraw Revenue-Moving Wages Exp Rent Exp Advertising Exp Totals Insurance Exp Mov. Supp. Exp Depr Exp, Truck Wages Payable Totals
These need to be journalized and posted
Trial Balance Dr. Cr. 3,920 3,288 1,400 10,658 3,660 1,312 17,482 4,240 8,162 5,712 1,080 318 30,616 30,616
Worksheet October 31, 200X Adjustments Adjusted T/B Dr. Cr. Dr. Cr. 3,920 a. 600 2,688 b. 1,090 310 10,658 c. 580 4,240 1,312 17,482 4,240 8,162 d. 410 6,122 1,080 318 a. b. c. 600 1,090 580 d. 2,680 410 2,680 600 1,090 580 31,606 410 31,606
In
LO-1
Journalizing Adjusting Entries

General Journal
Page 8 Date Oct 31
Account Titles and Description Adjusting Entries
PR
Dr. 600
Cr.
Insurance Expense Prepaid Insurance
600
31 Moving Supplies Expense Moving Supplies

1,090 1,090
LO-1
Journalizing Adjusting Entries

General Journal Page 8
Date Account Titles and Description PR Dr. 580 580 Cr.
Oct 31 Depreciation Expense, Truck

Accumulated Depreciation, Truck
31 Wages Expense
410
Wages Payable
410
LO-1
Journalizing and posting closing entries
LO-2
Permanent (Real) Accounts
Account balances carry forward to next accounting period

Assets (Cash, Supplies, Accounts Receivable) Liabilities (Accounts Payable, Wages Payable) Capital (Jones Capital)
WHY? It would not make sense to zero out the cash balance. Cash in the company at the end of an accounting period stays there. Amounts owed to the company and to creditors carry over to the next accounting period as well.
LO-2
Temporary (Nominal) Accounts
Account balances are set to zero at the beginning of the accounting period
Withdrawals Revenues Expenses
WHY? Stockholders are interested in the performance of a company on a monthly basis. A company can have very high revenue for a year, but still incur a net loss. LO-2
Closing Entries
Sets temporary accounts to zero at the beginning of the next accounting period by closing at end of prior period
WHY?
Can accumulate new data about revenue, expenses, and withdrawals Updates Capital account
LO-2
Closing Entries 4 Steps

1. Clear revenue balance & transfer to Income Summary Debit revenue accounts/Credit Income Summary 2. Clear individual expense balances and transfer the total to Income Summary Debit Income Summary/Credit expense accounts
LO-2
Closing Entries (Cont)

3. Clear balance in Income Summary (Net Income) and transfer it to Capital Debit Income Summary/Credit Capital (if net income) 4. Clear the Withdrawals balance and transfer it to Capital Debit Capital/Credit Withdrawals
LO-2
Exercise 5-3
J. King, Capital 14,000
Rent Expense
5,000
J. King, Withdrawals 4,000 Income Summary
Wage Expense
7,000 Insurance Expense
1,200
Fees Earned 33,000
Depr. Expense, Office Equipment 900 LO-2
Exercise 5-3 Journalizing Closing Entries

Step 1: Debit revenue accounts/Credit Income Summary
General Journal
Page 8 Date Account Titles and Description Closing Entries PR Dr. Cr.
Dec 31 Fees Earned Income Summary 33,000
33,000
LO-2

Step 2: Debit Income Summary/Credit expense accounts
General Journal
Page 8
Date
Dec
Account Titles and Description PR

31 Income Summary
Dr.
14,100
Cr.
Rent Expense Wage Expense
5,000 7,000
Insurance Expense
Depr. Expense, Office Equip
1,200 900
LO-2
Fees Earned
33,000 33,000
NET INCOME
Income Summary
Rent Expense
14,100
33,000
5,000
5,000
18,900
J. King, Capital
Wage Expense 7,000 7,000
14,000
14,100 J. King, Withdrawals 4,000
Insurance Expense
1,200 1,200 Depr. Expense, Office Equipment
900
900
LO-2

Step 3: Debit Income Summary/Credit Capital
General Journal
Page 8 Date Dec Account Titles and Description PR Dr. 18,900 Cr.
31 Income Summary
J. King, Capital
18,900
Journalizing Closing Entries

Step 4: Debit Capital/Credit Withdrawals
General Journal
Page 8 Date Account Titles and Description PR Dr. 4,000 Cr.
Dec 31 J. King, Capital
J. King, Withdrawals
4,000
LO-2
Fees Earned 33,000 33,000
Income Summary
14,100
18,900
33,000
Rent Expense 5,000 5,000
18,900
Wage Expense
7,000 7,000 Insurance Expense 1,200 1,200 Depr. Expense, Office Equipment 900 900
J. King, Capital 4,000 14,000 18,900 28,900
J. King, Withdrawals 4,000 4,000 LO-2
Prepare a post-closing trial balance
LO-3
Post-Closing Trial Balance

Lists only permanent accounts Aids in checking whether ledger is in balance Contains true ending figure for Capital
LO-3
Post-Closing Trial Balance

ROLO CO. POST-CLOSING TRIAL BALANCE JANUARY 31, 200X Dr. Cash Accounts Receivable Prepaid Rent Office Supplies Office Equipment Accum. Dep. Office Equipment Accounts Payable Salaries Payable 1,180 100 200 6 150 20 120 50 Cr.
R. Kern, Capital
TOTAL
1446
1636 1636 LO-3
Steps in Accounting Cycle

Transaction Journalize Post
Journalize & Post Adjusting Entries
Financial Statements
Worksheet
Journalize & Post Closing Entries

Post-Closing Trial Balance LO-3
End of Chapter 5

Slater11e Ch05 Stud

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Chapter 5

The Accounting Cycle Completed

Steps in Accounting Cycle

Journalize & Post Adjusting Entries

Journalize & Post Closing Entries

Post-Closing Trial Balance LO-1

Refer back to Kevins Moving Company in Chapter 4

These need to be journalized and posted

Journalizing Adjusting Entries

Insurance Expense Prepaid Insurance

31 Moving Supplies Expense Moving Supplies

Journalizing Adjusting Entries

Oct 31 Depreciation Expense, Truck

Permanent (Real) Accounts

Account balances carry forward to next accounting period

Temporary (Nominal) Accounts

Closing Entries 4 Steps

Closing Entries (Cont)

J. King, Withdrawals 4,000 Income Summary

Fees Earned 33,000

Depr. Expense, Office Equipment 900 LO-2

Exercise 5-3 Journalizing Closing Entries

Dec 31 Fees Earned Income Summary 33,000

Exercise 5-3 Journalizing Closing Entries

Account Titles and Description PR

Rent Expense Wage Expense

Wage Expense 7,000 7,000

Exercise 5-3 Journalizing Closing Entries

Journalizing Closing Entries

Dec 31 J. King, Capital

Fees Earned 33,000 33,000

Rent Expense 5,000 5,000

J. King, Capital 4,000 14,000 18,900 28,900

J. King, Withdrawals 4,000 4,000 LO-2

Post-Closing Trial Balance

Post-Closing Trial Balance

Steps in Accounting Cycle

Journalize & Post Adjusting Entries

Journalize & Post Closing Entries

Post-Closing Trial Balance LO-3

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