Lecture 09 Chapter 04 Completing the Accounting Cycle Task Force Image Gallery clip art included in this electronic presentation is used with the permission

Lecture 09Lecture 09

Chapter 04Chapter 04

Completing the Accounting CycleCompleting the Accounting Cycle

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

Review of Lecture• The Matching Concept and the Adjusting Process• Reporting Revenues and Expenses• Deferred Expenses (Prepaid Expenses)• Deferred Revenue (Unearned Revenue)• Accrued Expenses (Accrued Liabilities)• Accrued Revenues (Accrued Assets)• Fixed Assets• Effect of Omitting Adjustment• Summary of Basic Adjustments• Adjusted Trial Balance• Vertical Analysis and Interpretation

1. Transactions are analyzed and recorded in the journal.

2. Transactions are posted to the ledger.3. A trial balance is prepared, adjustment data are

assembled, and an optional work sheet is completed.4. Financial statements are prepared.5. Adjusting entries are journalized and posted.6. Closing entries are journalized and posted.7. A post-closing trial balance is prepared.

Opportunities Inc.’ Adjusted Trial Balance for December 31, 2010

OpportunitiesAdjusted Trial Balance

December 31, 2010

Cash 2 065Accounts Receivable 2 720Supplies 760Prepaid Insurance 2 300Land 20 000Office Equipment 1 800Accumulated Depreciation 50Accounts Payable 900Wages Payable 250Unearned Rent 240Javid Iqbal, Capital 25 000Javid Iqbal, Drawing 4 000Fees Earned 16 840Rent Revenue 120Wages Expense 4 525Rent Expense 1 600Utilities Expense 985Supplies Expense 2 040Insurance Expense 100Miscellaneous Expense 455

43 400 43 400

OpportunitiesAdjusted Trial Balance

December 31, 2010

Cash 2 065Accounts Receivable 2 720Supplies 760Prepaid Insurance 2 300Land 20 000Office Equipment 1 800Accumulated Depreciation 50Accounts Payable 900Wages Payable 250Unearned Rent 240Javid Iqbal, Capital 25 000Javid Iqbal, Drawing 4 000Fees Earned 16 840Rent Revenue 120Wages Expense 4 525Rent Expense 1 600Utilities Expense 985Supplies Expense 2 040Insurance Expense 100Miscellaneous Expense 455

43 400 43 400

That’s correct. Cash and other assets that are expected to be converted into cash, sold, or

used up usually in less than a year are current assets.

Accounts payable Wages payable Interest payable Unearned fees

Mortgage note payableMortgage payableBond payable

Trial Balance

Accounts Dr Cr Dr Cr Dr Cr

Adjustments Adjusted TB

Prepared from the general ledger. Accounts are listed in the following order: assets, liabilities, stockholders’ equity, revenues, and expenses.

Trial Balance



Adjustments are combined with the trial balance. Account balances are now adjusted.

Trial Balance



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

Review of Lecture

• End of Lecture 09

Lecture 10Lecture 10

Chapter 04Chapter 04

Completing the Accounting CycleCompleting the Accounting Cycle

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

Review of Previous Lecture


42,600 42,600






42,600 42,600





(a) 1,240

(a) 1,240

Cash 2,065Accounts Receivable 2,220Supplies 2,000 (a) 1,240Prepaid 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 800 (a) 1,240Miscellaneous Expense 455

42,600 42,600





Insurance Expense (b) 100

Accounts are added as needed.

(b) 100

Cash 2,065Accounts Receivable 2,220Supplies 2,000 (a) 1,240Prepaid Insurance 2,400 (b) 100Land 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 800 (a) 1,240Miscellaneous Expense 455

42,600 42,600





Insurance Expense (b) 100

(c) 120

Rent Revenue (c) 120

Cash 2,065Accounts Receivable 2,220Supplies 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 16,340Wages Expense 4,275Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455

42,600 42,600





Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250

(d) 250

Cash 2,065Accounts Receivable 2,220Supplies 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 16,340Wages Expense 4,275 (d) 250Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455

42,600 42,600





Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250

(e) 500

(e) 500

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





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


42,600 42,600





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


42,600 42,600




2,260 2,260Summed Summed

and and ruledruled


42,600 42,600




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



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.

Adjusted TB


Income State. Balance Sheet

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

Adjusted TB


Income State. Balance Sheet

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


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

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



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



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

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

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

Income Statement Balance Sheet

Net IncomeNet Income Net IncomeNet Income



Fees earned 16,840Rent revenue 120

Total revenues 16,960Expenses:

Wages expense 4,525Supplies expense 2,040Rent 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 Every amount on this income statement was taken from the Income Statement column of the work sheet.Income Statement column of the work sheet.



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



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

Opportunities Inc.Balance Sheet


Stockholders’ Equity

RETAINED EARNINGSRETAINED EARNINGS

Income Summary

11Revenues are transferred to Income Summary22

Expenses are transferred to Income Summary

33 Net Income or Net Loss is transferred to Retained Earnings

44 Dividends are transferred to Retained Earnings

Closing Process

RETAINED EARNINGSRETAINED EARNINGS

Income Summary

11Revenues are transferred to Income Summary22

Expenses are transferred to Income Summary

33 Net Income or Net Loss is transferred to Retained Earnings

44 Dividends are transferred to Retained Earnings

Wages Expense

Bal. 4,525

Rent Expense

Bal. 1,600

Depreciation ExpenseBal. 50

Utilities ExpenseBal. 985

Supplies ExpenseBal. 2,040

Insurance ExpenseBal. 100

Miscellaneous ExpenseBal. 455

Fees Earned

Bal. 16,840

Rent Revenue

Bal. 120

Retained Earnings

Bal. 25,000

Dividends

Bal. 4,000

Income Summary

Wages Expense

Bal. 4,525

Rent Expense

Bal. 1,600






Fees Earned

Bal. 16,840

Rent Revenue

Bal. 120

Retained Earnings

Dividends

Bal. 4,000

Income Summary

Debit each revenue account for the amount of its

balance, and credit Income Summary

for the total revenue.

16,840

120

16,960

Wages Expense

Bal. 4,525

Rent Expense

Bal. 1,600






Retained Earnings

Dividends

Bal. 4,000

Income Summary

Debit Income Summary for the total expenses and credit each expense

account for its balance.

Fees Earned

Bal. 16,840

Rent Revenue

Bal. 120

16,840

120

16,9609,775

455

100

2,040

985

50

1,600

4,525

Wages Expense

Bal. 4,525

Rent Expense

Bal. 1,600






Retained Earnings

Dividends

Bal. 4,000

Income Summary

Debit Income Summary for the

amount of its balance (in this

case, the net income) and credit

Retained Earnings.

Fees Earned

Bal. 16,840

Rent Revenue

Bal. 120

16,840

120

16,9609,775

455

100

2,040

985

50

1,600

4,525

7,205

7,205

Wages Expense

Bal. 4,525

Rent Expense

Bal. 1,600






Retained Earnings

Dividends

Bal. 4,000

Income Summary

Debit Retained Earnings for the

balance of Dividends and

credit Dividend for the same amount.

Fees Earned

Bal. 16,840

Rent Revenue

Bal. 120

16,840

120

16,9609,775

455

100

2,040

985

50

1,600

4,525

7,205

4,000

4,000 7,205

Wages Expense

Bal. 4,525

Rent Expense

Bal. 1,600






Retained Earnings

Dividends

Bal. 4,000

Income Summary

Fees Earned

Bal. 16,840

Rent Revenue

Bal. 120

16,480

120

16,9609,775

445

100

2,040

985

50

1,600

4,525

7,205

7,205

4,000

4,000

Close RevenuesClose Revenues

Close ExpensesClose Expenses

Close Income SummaryClose Income Summary

Close DividendsClose Dividends

16,84016,840

120120

16,96016,960

4,5254,525

1,6001,600

5050

985985

2,0402,040

100100

455455

9,7759,775

7,2057,205

7,2057,205

4,0004,000

4,0004,000

Opportunities Inc.Post-Closing Trial Balance

December 31, 2010Cash 2 065 00Accounts Receivable 2 720 00Supplies 760 00Prepaid Insurance 2 300 00Land 20 000 00Office Equipment 1 800 00Accumulated Depreciation 50 00Accounts Payable 900 00Wages Payable 250 00Unearned Rent 240 00Capital Stock 25 000 00Retained Earnings 3 205 00

29 645 00 29 645 00

Post Closing Trial Balance

Working Capital = 7,845 – 1,390

Working Capital =

Current Assets – Current

Liabilities

Working Capital = 6,455

Current Ratio =

Current Assets ÷ Current

Liabilities

Current Ratio = 7,845 ÷ 1,390

Current Ratio = 5.6

Current ratio = 7,845 ÷ 1,390

Current ratio =

Current Assets ÷ Current

Liabilities

Current ratio = 5.6

The End

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Lecture 09 Chapter 04 Completing the Accounting Cycle Task Force Image Gallery clip art included in this electronic presentation is used with the permission