4 - 1 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
The Accounting Cycle
Continued: Preparing Worksheets and Financial Statements Chapter 4 4 - 2 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater The Accounting Cycle Business transactions 1 Book of original entry 2 Journal Book of final entry 3 Ledger Trial balance 4 Worksheet 5 4 - 3 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater The Accounting Cycle Trial balance Adjustments Adjusted trial balance Income statement Balance sheet Balance sheet Statement of owners equity 6 Financial Statements Income statement 4 - 4 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Objective 1 Adjustments: prepaid rent, office supplies, depreciation on equipment, and accrued salaries. 4 - 5 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 4-1 (Preparing the Worksheet) The worksheet is not a formal report. Correct heading information is used. It is used to facilitate the preparation of adjusting entries and financial statements. 4 - 6 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 4-1 (Preparing the Worksheet) The trial balance The adjustments The adjusted trial balance Income statement Balance sheet 4 - 7 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 4-1 (Preparing the Worksheet) Cash, Accts. Rec. Office Supplies Prepaid Rent Equipment Accounts Payable B. Clark, Capital B. Clark, Withdrawals Fees Salaries Expense Other Expenses
Office Supplies Expense Rent Expense Depreciation Expense Accum. Depreciation Salaries Payable Totals Net income
Trial Balance Dr. Cr. Account Titles Adjustments Dr. Cr. Adj. Trial Bal. Dr. Cr. 4 - 8 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 4-1 (Preparing the Worksheet) Assets must be adjusted to show amounts used or allocated to periods. Supplies used Prepaid rent expired Depreciation Salaries incurred 4 - 9 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 4-1 (Preparing the Worksheet) Expenses incurred must be recorded in the correct period before the period closes. What are examples? Supplies used Prepaid rent expired 4 - 10 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 4-1 (Preparing the Worksheet) Accounting period Depreciation is a unique adjustment. 4 - 11 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 4-1 (Preparing the Worksheet) Historical cost of the asset remains in the financial statements. This cost remains in the records as a balance in the asset account. This cost is allocated to expense over the life of the asset. What is the accompanying account? 4 - 12 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 4-1 (Preparing the Worksheet) The accompanying (contra-asset) account is called Accumulated Depreciation. This account is used for the yearly credited amounts. The normal balance is a credit balance. 4 - 13 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 4-1 (Preparing the Worksheet) Cost of equipment $6,000 Less: Estimated residual value 1,200 Depreciable base $4,800 Estimated useful life 5 years (Cost Residual value) Estimated useful life ($6,000 $1,200) 5 = $960 $960 12 = $80 per month 4 - 14 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 4-1 (Preparing the Worksheet) Clarks Word Processing Services Balance Sheet May 31, 200x Word processing equipment $6,000 Less: Accumulated depreciation 80 $5,920 Book value 4 - 15 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 4-1 (Preparing the Worksheet) Clarks Word Processing Services paid $1,300 in office salaries. The last salary checks for the month were paid on May 27. John Murray worked for Clark on May 28, 29, 30, and 31, but his next pay check is not due until June 3. 4 - 16 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 4-1 (Preparing the Worksheet) Is John Murrays earnings of $350 an expense for May? Office Salary Expense 1,300 350 4 - 17 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 4-1 (Preparing the Worksheet) Cash, Accts. Rec. Office Supplies Prepaid Rent Equipment Accounts Payable B. Clark, Capital B. Clark, Withdrawals Fees Salaries Expense Other Expenses
Office Supplies Expense Rent Expense Depreciation Expense Accum. Depreciation Salaries Payable Totals Net income
(a) 500 (b) 400 (c) 80 (c) 80 (d) 350 Trial Balance Dr. Cr. Account Titles Adjustments Dr. Cr. Adj. Trial Bal. Dr. Cr. 4 - 18 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Objective 2 Preparation of adjusted trial balance on the worksheet. 4 - 19 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Adjustments Example What are the adjusting entries for supplies? Journal: Debit Credit Supplies Expense xxx Supplies (record correct amounts) xxx The balance in the supplies account after adjusting entries will be equal to the dollar amount of the supplies on hand at the end of the accounting period. 4 - 20 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Adjustments Example Adjusting entries for depreciation. Journal: Debit Credit Depreciation Expense xxx Accum. Depr. Equipment xxx To record the proper amounts for all relevant asset accounts 4 - 21 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Adjustments Example What are the adjusting entries for accrued service revenue? Journal: Debit Credit Accounts Receivable xxx Revenue xxx To record the proper amounts for relevant asset and revenue accounts 4 - 22 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Adjustments Example Cash, Accts. Rec. Office Supplies Prepaid Rent Equipment Accounts Payable B. Clark, Capital B. Clark, Withdrawals Fees Salaries Expense Other Expenses
Office Supplies Expense Rent Expense Depreciation Expense Accum. Depreciation Salaries Payable Totals Net income
500 400 80 80 350 21,780 21,780 Trial Balance Dr. Cr. Account Titles Adjustments Dr. Cr. Adj. Trial Bal. Dr. Cr. 4 - 23 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Objective 3 The income statement and balance sheet sections of the worksheet. 4 - 24 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater The Income Statement and Balance Sheet Section 11,155 100 800 6,000 3,350 10,000 625 8,000 1,650 470
3,100 8,000 4,900 Inc. Statement Dr. Cr. 11,155 100 800 6,000 3,350 10,000 625
80 350 18,680 13,780 4,900 Balance Sheet Dr. Cr. Cash, Accts. Rec. Office Supplies Prepaid Rent Equipment Accounts Payable B. Clark, Capital B. Clark, Withdrawals Fees Salaries Expense Other Expenses
Office Supplies Expense Rent Expense Depreciation Expense Accum. Depreciation Salaries Payable Totals Net income
Account Titles 4 - 25 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Objective 4 Preparing financial statements from the worksheet. 4 - 26 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 4-2 (Preparing the Financial Statements) It reports revenues and expenses. Beginning capital balance from the balance sheet columns Withdrawals Loss, or + Net income = Ending capital balance 4 - 27 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 4-2 (Preparing the Financial Statements) Use the asset and liability balances from the balance sheet columns. Use the corrected owners equity amounts from the statement of owners equity. 4 - 28 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater End of Chapter 4