Chapter Two

The Accounting Cycle

INTRODUCTION
Accounting cycle is a principal accounting procedure that should be adopted during a fiscal year. A
fiscal year is an accounting period adopted by an enterprise. The maximum length of an accounting
period is usually one year (12 months), in fact, it can also be single month, quarter year (3 months), or
semi-annual (6 months). The most significant output of the accounting cycle is the financial
statements.
The followings are the accounting cycle procedure:
1. Transactions are analyzed and recorded in a journal.
2. Journal entries are posted to the ledger.
3. Trial balance is prepared, adjustments are made and work sheet is completed.
4. Financial statements are prepared.
5. Adjusting and closing entries are journalized.
6. Adjusting and closing entries are posted to the ledger.
7. Post-closing trial balance is prepared.

The transaction completed by an enterprise during a specific period may cause increase or decrease
in many different asset, liability or owner’s equity items. The form used to record individual
transactions is called an account. A group of related accounts that comprise a complete unit is called
a ledger.

CLASSIFICATION OF ACCOUNTS
Balance sheet accounts are classified as assets, liabilities, and owner’s equity. Income statement
accounts are classified as revenues and expenses.

1. Assets

Assets are any physical thing (tangible) or intangible that has a monetary value. They are economic
resources that are expected to provide future benefits to the organization. They can be categorized as
current assets and plant assets.
a. Current Assets are assets that might be expected to be realized in cash or sold or used up within
one year or less in business operation. It includes cash, accounts receivable, notes receivable,
prepaid expenses, etc.
Cash is any medium of exchange that a bank will accept at face value, such as: bank deposit,
currency, checks, etc.
Notes Receivables are claims against debtors evidenced by written promise.
Account Receivables are claims against debtors, but less formal than notes receivable.
Prepaid Expenses include supplies on hand and advance payments of expenses such as prepaid
insurance and prepaid rent.
b. Plant Assets are assets used in the business that are of a permanent or relatively fixed nature.
Sometimes called as fixed assets. It includes equipment, machinery, buildings, land, etc. Except
 land, plant assets gradually wear out or lose their useful life (capacity to give service). And said
to be depreciated.

2. Liabilities are debts owed to outsiders or creditors. There are two categories of liabilities, i.e.,
current liabilities and long term liabilities.
Current Liabilities are those liabilities that will be due within one year or less. It includes accounts
payable, notes payable, salary payable, etc.
Long Term Liabilities are those liabilities that will be due after long time (a year or more). When a
note is accompanied by security in the form of mortgage, the obligation referred as mortgage note
payable.

3. Owner’s Equity is the residual claim against the assets of the business after the total liabilities
are deducted. For corporations, it is termed as stockholder’s equity. Stockholder equity in
corporation might have more than two components, i.e., capital stock and retained earnings.
Capital stock represents the investment of stockholders in corporate type of business, and
retained earnings are the portion of net income retained in the business.
Drawing represents the amount of withdrawal made by the owner of sole proprietorship and/or
partnership. For corporation, dividend represents the distribution made for its stockholders.
3. Revenues are the gross increases in owner’s equity as a result of selling of goods, rendering of
service, etc. for customers.
4. Expenses are costs incurred in an attempt to generate revenues.

CHART OF ACCOUNTS

A listing of accounts in the ledger is called chart of account. There are five types of balance sheet and
income statement accounts, i.e., assets accounts, liability accounts, owner’s equity accounts,
revenue accounts, and expense accounts. Accounts in the ledger may be numbered consecutively
such as: asset accounts represented by 1, liability accounts represented by 2, owner’s equity accounts
represented by 3, revenue accounts represented by 4, and expense accounts represented by 5.

Chart of accounts for balance sheet accounts and income statement accounts can be as follows: 11 cash, 12 AR,
13 Supplies, 14 Prepaid Rent, 21 AP, 22 Salary Payable, 31 Capital, 32 Drawing, 33 Income Summary, 41
Sales, 51 Supplies Expense, 52 Salary Expense, 53 Rent expense, 54, Depreciation Expense etc. The first digits
indicate the division in which the accounts are placed, while the second digits indicate the position of the
accounts in their respective divisions.

NATURE OF AN ACCOUNT

The simplest form of an account has three parts: (1) a title, which is the name of the item recorded in
the account; (2) a space for recording increases in the amount of the item; and (3) a space for
recording decreases in the amount of the item. This form of an account is known as a T account,
because of its similarity to the letter T.
 Title

Debit Credit

Amounts entered on the left side of an account are called debits, whereas amounts entered on the
right side of an account are called credits.

GENERAL RULES OF DEBIT AND CREDIT

Debit Credit
- Increase in asset accounts - Decrease in asset accounts
- Decrease in liability accounts - Increase in liability accounts
- Decrease in owner’s equity accounts - Increase in owner’s equity accounts

EXPANDED RULES OF DEBIT AND CREDIT FOR BALANCE SHEET ACCOUNTS

Balance Sheet Accounts

Asset Accounts Liability Accounts

Debit Credit Debit Credit

for increases for decrease for decreases for increases

Owner’s Equity Accounts

Debit Credit

for decreases for increases

Every business transaction affects a minimum of two accounts. The transaction is initially entered in a
record called journal. The process of recording a transaction in the journal is called journalizing. The
form of presentation is called a journal entry.

Illustration:
1) Davis Carl establishes a business, to be known as Carl Repair, by initially depositing $ 3,500 cash
in bank. The journal entry for the above transaction could be as follows:
Cash…………………..…………………………. 3,500
Carl, Capital………………………………………………… 3,500
The data in the journal entry are transferred to the appropriate accounts in the ledger by a process
known as posting. The accounts after posting the above journal entry appear in the ledger as follow:
Cash Carl, Capital
$3,500 $3,500

2) Carl purchased equipment at a cost of $ 2,800; Carl paid $ 1,800 in cash by writing a check and
agreed to pay the remaining $ 1,000 within one week.
Equipment ………………………………………….2, 800
Cash ………………………….……………………………1,800
Account Payable .………..……………………………...1, 000

Cash Accounts Payable

3,500 1,800 1,000

Equipment Carl, Capital

2,800 3,500

This equality of debit and credit for each transaction is inherent in the equation A= L + OE. It is
because of this duality that the system is known as Double – Entry Accounting.

INCOME STATEMENT ACCOUNTS

Revenue increases owner’s equity. Just as increases in owner’s equity are recorded as credits,
increases in revenues during an accounting period are recorded as credits.
Expenses have the effect of decreasing owner’s equity, and just as decreases in owner’s equity are
recorded as debits, increase in expenses accounts are recorded as debits.

Income Statement Accounts

Debit for decreases in Credit for increase in

Owner’s Equity Owner’s Equity

Expense Accounts Revenue Accounts

Debit Credit Debit Credit

for increases for decrease for decreases for increases

At the end of the accounting period, all revenue and expense account balances are transferred to a
summarizing account and the account then said to be closed. Because revenue and expense accounts
are periodically closed, they are called temporary accounts or nominal accounts.

JOURNALS AND ACCOUNTS

The initial record of each transaction is evidenced by a business document, such as checks, sales
tickets, or bills. On the basis of evidence provided by the business documents, the transactions are
entered in chronological order in a journal. The amounts of debits and credits in the journal are then
transferred or posted to the accounts in the ledger.

THE STANDARD FORM OF TWO COLUMN JOURNAL

Journal Page No. ___
Date Description Post Ref. Debit Credit
1 March 2007 1 1
2 2

THE STANDARD FORM OF FOUR COLUMN LEDGER

Account: _________ Account No. ___

Post Balance
Date Item Ref. Debit Credit Debit Credit
1 1
2 2

ILLUSTRATION OF JOURNALIZING AND POSTING

ANN Hill established a photographic business known as Hill Photographic Studio:

March 1. The following assets were invested in the enterprise: cash $ 3,500; accounts receivable $950;
supplies $ 1200 and photographic equipment $ 15,000.
Cash ……………………………………………….………..3,500
Accounts Receivable.…………………………..………..….950
Supplies…………. …………………………………….......1,200
Photographic Equipment……………………………….15,000
Ann Hill, Capital………………………………………...20,650
March 1. Ann Hill paid $ 2,400 for rental contract; the payment is for 3 month rent.
Prepaid Rent……………………………………………..…2,400
Cash…………………………………………….…………..2,400
March 4. Purchased photographic equipment on account from Palmer photographic Equipment Inc.
for$ 2,500:
Photographic Equipment…………………….…………..2,500
Accounts Payable…..………………………….………2,500
March 5. Received $ 850 from customers in payment of their accounts:
Cash……………………………………………………………850
Accounts Receivable…………..…………………….….850
March 6. Paid $ 125 for newspaper advertisement:
Miscellaneous Expense…………………………….……….125
Cash…………….……………….……………………...….125
March 10. Paid $ 500 to Palmer Photographic Equipment Inc. to apply on the $ 2,500 debt owed them
Accounts Payable…………………………….……………..500
Cash………………………….………………………..……500
March 13. Paid receptionist $ 575 for two week’s salary:
Salary Expense……………………………………….……..575
Cash……………………………………………….………..575
March 16. Received $ 1,980 from sales for the first half of March:
Cash………………………………………………….….…..1,980
Sales……………….………..……………………………1,980
March 20. Purchased and paid $650 for supplies:
Supplies……………………………..…………………….…650
Cash……………………………………….…………….....650
March 27. Paid receptionist $ 575 for two week’s salary:
Salary Expense…………………………………………....575
Cash……………………………………………….……….575
March 31. Paid $69 for telephone bill for the month:
Miscellaneous Exp…………………………………………69
Cash………………………………………………………....69
March 31. Paid $ 175 for electricity bill for the month:
Miscellaneous Exp………………………………………..175
Cash………………………………………………….….…175
March 31. Received $ 1,870 from sales for the second half:
Cash………………………………………………………1,870
Sales…………………………...…..…………………...1,870
March 31. Sales on account totaled $1,675 for the month:
Accounts Receivable…………………………………...1,675
Sales……………………………………….…..………..1,675
March 31. Hill withdrew $1,500 for her personal use:
Ann Hill, Drawing………………………………..…….1,500
Cash……………………………………..………….…..1,500
Posting of the Above Illustrations to the Appropriate Account in the Ledger
Account: Cash Account No. 11
Post Balance
Date Item Ref. Debit Credit Debit Credit
Mar 1 3500 3500
1 2400 1100
5 850 1950
6 125 1825
10 500 1325
13 575 750
16 1980 2730
20 650 2080
27 575 1505
31 69 1436
31 175 1261
31 1870 3131
31 1500 1631

Account: Accounts Receivable Account No. 12

Post Balance
Date Item Ref. Debit Credit Debit Credit
Mar 1 950 950
5 850 100
31 1675 1775

Account: Supplies Account No. 14

Post Balance
Date Item Ref. Debit Credit Debit Credit
Mar 1 1200 1200
20 650 1850

Account: Prepaid Rent Account No. 15

Post Balance
Date Item Ref. Debit Credit Debit Credit
Mar 1 2400 2400
Account: Photographic Equipment Account No. 18
Post Balance
Date Item Ref. Debit Credit Debit Credit
Mar 1 15000 15000
4 2500 17500

Account: Accounts Payable Account No. 21

Post Balance
Date Item Ref. Debit Credit Debit Credit
Mar 1 2500 2500
500 2000

Account: Ann Hill, Capital Account No. 31

Post Balance
Date Item Ref. Debit Credit Debit Credit
Mar 1 20650 20650

Account: Ann Hill, Drawing Account No. 32

Post Balance
Date Item Ref. Debit Credit Debit Credit
Mar 31 1500 1500

Account: Sales Account No. 41

Post Balance
Date Item Ref. Debit Credit Debit Credit
Mar 16 1980 1980
31 1670 3650
31 1675 5525

Account: Salary Expense Account No. 52

Post Balance
Date Item Ref. Debit Credit Debit Credit
Mar 13 575 575
27 575 1150
Account: Miscellaneous Expense Account No. 59
Post Balance
Date Item Ref. Debit Credit Debit Credit
Mar 6 125 125
31 69 194
31 175 369

TRIAL BALANCE
The equality of debits and credits in the ledger should be verified at the end of each accounting
period. Such verification is called a Trial Balance. Example for Ann Hill photographic studio is as
follows:
Hill Photographic Studio
Trial Balance
March 31, 1990
Cash
Accounts Receivable
Supplies
Prepaid Rent
Photographic Equipment
Accounts Payable 2,000
Ann Hill, Capital 20,650
Ann Hill Drawing
Sales 5,525
Salary Expense
Miscellaneous Expense
28,175 28,175
Proof Provided By the Trial Balance
The trial balance does not provide complete proof of accuracy of the ledger. It indicates only that the
debits and credits are equal. If the two totals of trial balance are not equal, it is probably due to one or
more of the following types of errors:
1. Error in preparing trial balance:
a. One of the columns of the trial balance was incorrectly added.
b. The amount of an account balance was incorrectly recorded on the trial balance.
c. A debit balance was recorded as credit, or vice versa, or a balance was omitted
entirely.
2. Error in determining the account balance:
a. A balance was incorrectly computed.
b. A balance was entered in the wrong balance column.
3. Error in recording a transaction in the ledger
a. An erroneous amount was posted to the account.
b. A debit entry was posted as a credit, or vice versa.
c. A debit or credit posting was omitted.
Among the types of errors that will not cause an inequality in the trial balance totals are the
following:
1. Failure to record a transaction or to post a transaction.
2. Recording the same erroneous amount for both the debit and credit parts of a transaction.
3. Recording the same transaction more than once.
4. Posting a part of a transaction correctly as a debit or credit but to the wrong account.
DISCOVERY OF ERRORS
The existence of an error can be determined in various ways:
1. By audit procedures
2. By chance discovery, or
3. Through the medium of the trial balance.

Types of Errors that can be discovered through the medium of the trial balance:
1. Addition: For example, a difference of $10, $100, or $1,000 between totals is frequently the
result of error in addition.
2. Omission: A difference between debit and credit totals can happen (1) due to the omission
of a debit or a credit posting or, (2) if the difference is divisible evenly by 2, due to the
posting of a debit as a credit, or vice versa. For example, if the debit and credit totals of a
trial balance are $ 20,640 and $20,236 respectively, the difference of $404 may indicate that
a credit posting of that amount was omitted or that a credit of $202 was erroneously
posted as a debit.
3. Transpositions: It is the erroneous rearrangement of digit, such as writing $ 542 as $ 524
or $452.
4. Slide: It is the entire number is erroneously moved one or more spaces to the right or the
left, such as writing $542.00 as $54200 or $54.20. If the error that caused the trial balance
imbalance is sliding, dividing the difference between the two totals by 9 gives a clue as
where an error is committed.

MATCHING PRINCIPLE
Revenues and expenses may be reported on the income statement by:
1. The cash basis of accounting, or
2. The accrual basis of accounting.
When the cash basis is used, revenues are reported in the period, in which cash is received, and
expenses are reported in the period in which cash is paid. That’s, net income or net loss is the
difference between cash received from revenues and cash disbursements for expenses.
When the accrual basis of accounting is used, revenues are reported in the period in which they are
earned, and expenses are reported in the period in which they are incurred in an attempt to produce
revenues.
Most enterprises use the accrual basis of accounting. Generally Accepted Accounting Principles (GAAP)
requires the use of the accrual basis, so that revenues recognized are matched against the expenses incurred in
generating the revenues.
ADJUSTMENTS
Some of the trial balance amounts are not correct. The amounts listed for prepaid expenses are
normally overstated. This is because of the day to day consumption or expiration of these assets has
not been recorded. There are two effects on the ledger when the daily reduction in prepaid expenses
is not recorded:
1. Asset accounts are overstated, and
2. Expense accounts are understated, then the net income will be overstated or the net loss
understated.
For example, salary expense incurred between the last payday and the end of the accounting period
would not be recorded in the account.
The entries required to record at the end of an accounting period to bring the accounts up to date and
to assure the proper matching of revenues and expenses are called adjusting entries.

Adjusting Entries
Adjusting entries are journal entries that are required at the end of an accounting period to bring the
ledger up to date. Adjusting entries can be classified as either deferrals or accruals.

- Deferrals - 1. Prepaid Expenses: Expenses that are paid in cash before they are used or
consumed.
2. Unearned Revenues: Revenues received in cash before delivering goods or
services.
- Accruals - 1. Accrued Expenses: Expenses incurred but not yet paid in cash or recorded.
2. Accrued Revenues: Revenues earned but not yet received in cash or recorded.

Prepaid Expense (Deferred Expense)

It is already paid before using the service or property. Such as: prepaid rent, & prepaid insurance.
Illustration: The inventory of supplies on March 31 is determined that $890 is on hand, the amount to
be moved from asset account to expense account is $960, i.e., ($1,850-890=$960).
Supplies Exp. ………………………………………….960
Supplies……………………………………………………960
Prepaid rent was used for one month (March 1 up to March 31), i.e., (1/3 of $2,400)
Rent Exp. ………………………………………………..800
Prepaid Rent………………………………………….…….800

Plant Assets
As time passes, equipment loses its capacity to provide useful service. This decrease in usefulness is a
business expense, which is called depreciation. This expired portion of the cost of plant asset is both
an expense and a reduction in the asset. The adjusting entry to record is debiting depreciation
expense and crediting accumulated depreciation.
Illustration: The estimated amount of depreciation of the photographic equipment for the month is
assumed to be $175:
Depreciation Expense …………………………………………175
Accumulated Depreciation - Ph. Equip. …………………..……175

Accrued Expenses (Liabilities)

Accrued expense is an accumulated expense that is unpaid and unrecorded, such as: unpaid and
unrecorded amount of salary for employees. The accrued expense and the related liabilities must be
recorded in the account by the adjusting entry.

Illustration: The debit of $575 on March 13 and 27 in the salary expense account were biweekly
payments on Fridays for the payroll periods ended on those days. The salaries expense on Monday
and Tuesday, March 30 and 31 total $115, i.e., (2/10*$575).
Salary Expense………………………………………….115
Salary Payable……………………………….………………..115

WORK SHEET

A type of working paper frequently used by accountants prior to preparation of financial statements
is called work sheet.

Benefits of Work Sheet

Work sheet is not a required report (it is not available to external decision makers), yet using of work
sheet has several benefits, such as:

- Aids the preparation of financial statements.

- Reduce the possibilities of errors.
- Links accounts and adjustments to their impacts in the financial statements.

Work sheet has an account title column and ten money columns, ranged in five parts of debit and
credit columns. The main headings are: adjustments, adjusted trial balance, income statement and
balance sheet.

Trial Balance Column

The trial balance data can be assembled directly on the work sheet form or can be prepared on
another sheet and then copied on to the work sheet form.

Adjustments Column

Both the debit and credit parts of an adjustment should be inserted on the appropriate lines before
going on to another adjustment.

a. Supplies: Supplies account………………………………………………………….$1,850

Less: Supplies on hand……………………………………………………..890
Supplies Expense………………………………………………………..…$960
 b. Rent: Prepaid rent (for 3 month)……………………..…………………......….…$2,400
Less: Remaining prepaid rent (2 month)…………………….……………..1,600
Rent Expense for March…………………………………………………….…$800
c. Depreciation: Depreciation of photographic equipment is estimated to be $175 for the month:
Depreciation expense…………….175
Accumulated depreciation …………..…175
d. Salaries: Salaries accrued but not yet paid at the end of the month of March is $115. This is an
increase in expense and an increase in liability.

Adjusted Trial Balance

The data in the trial balance columns are combined with the adjustments data and extend to the
adjusted trial balance columns.

Income Statement and Balance Sheet

The data in the adjusted trial balance columns are extended to one of remaining four columns. The
amounts of assets, liabilities, owner’s equity and drawing (or dividends) are extended to the balance
sheet columns; and the revenues and expenses are extended to income statement columns.

The net income or net loss for the period is the amount of the difference between the totals of the two
income statement columns. If the credit column total is greater than the total of debit column, the
excess is the net income and vice versa. The net balance will be transferred to the capital account (or
retained earnings account) in the ledger. This transfer is accomplished on the work sheet by entries in
the income statement and balance sheet.
Illustration: Hill Photographic Studio’s work Sheet, net income is transferred as debit in income statement column and credit in balance
sheet column.
Hill Photographic Studio

Work Sheet

For the Month Ended March 31, 1990

Adjusted Trial Income

Account Title Trial Balance Adjustments balance Statement Balance Sheet
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash 1631 1631 1631
Accounts Receivable 1775 1775 1775
Supplies 1850 (a) 960 890 890
Prepaid Rent 2400 (b) 800 1600 1600
Ph. Equip. 17500 17500 17500
Accounts Payable 2000 2000 2000
Ann Hill, Capital 20650 20650 20650
Ann Hill, Drawing 1500 1500 1500
Sales 5525 5525 5525
Salary Expense 1150 (d)115 1265 1265
Misc. Expense 369 369 369
28175 28175
Supplies Expense (a)960 960 960
Rent Expense (b)800 800 800
Depreciation Exp. (c)175 175 175
Accumulated Depn. (c )175 175 175
Salaries Payable (d) 115 115 115
2050 2050 28465 28465 3569 5525 24896 22940
Net income 1956 1956
5525 5525 24896 24896
FINANCIAL STATEMENTS

Work sheet is an aid in preparing financial statement. The income statement, statement of owner’s
equity, and balance sheet are prepared from the work sheet. For Hill Photographic Studio, the
financial statements are presented as follows:

Hill Photographic Studio

Income Statement

For Month Ended March 31, 1990

Sales 5,525

Operating Expenses:
Salary Expense 1,265
Supplies Expense 960

Rent Expense 800

Depreciation expense 175

Miscellaneous Expense 369

Total Operating Expenses 3,569

Net Income 1,956

Hill Photographic Studio

Statement of Owner’s Equity
For Month Ended March 31, 1990

Ann Hill, Capital, March 1, 1990 20,650

Net Income for the Month 1956
Less: Withdrawals 1500
Increase in Owner’s Equity 456
Ann Hill, Capital, March 31, 1990 21,106
 Hill Photographic Studio
Balance Sheet
March 31, 1990
Assets
Current Assets:
Cash 1,631
Account Receivable 1,775
Supplies 890
Prepaid Rent 1,600
Total Current Assets 5,896
Plant Assets:
Photographic Equipment 17,500
Less: Accumulated Depreciation 175 17,325
Total Assets 23,221
Liabilities
Current Liabilities:
Account Payable 2,000
Salaries Payable 115
Total Liabilities 2,115
Owner’s Equity
Ann Hill, Capital 21,106
Total Liabilities and owner’s Equity 23,221

JOURNALIZING AND POSTING ADJUSTING ENTRIES

At the end of the accounting period, the adjusting entries appearing in the work sheet are recorded in
the journal and posted to the ledger. The adjusting entries are dated as of the last day of period.
The adjusting entries for Hill Photographic Studio as of March 31 are as follows:
Supplies Expense…………………………………………..960
Supplies…………………………………………...………….960

Rent Expense………………………………………………….800
Prepaid rent…………………………………………….……800

Depreciation Expense……………………………………...175
Accumulated depreciation………………………….…….175

Salary Expense………………………………………………..115
Salary Expense…………………………………….………..115
CLOSING ENTRIES
The revenue, expense, and drawing (or dividends) accounts are temporary accounts used in
classifying and summarizing changes in the owner’s equity during the accounting period. At the end
of the period, the net effect of the balances in these accounts must be recorded in the permanent
capital (or retained earnings) account. The balance must also be removed from temporary accounts,
these processes done by closing entries.

JOURNALIZING AND POSTING CLOSING ENTRIES

An account title income summary is used for summarizing the data in the revenue and expense
accounts (used only at the end of accounting period). And opened and closed during the closing
process.

Four entries are required to close temporary account. They are as follows:

1. Each revenue is debited and income summary is credited for the total revenues.
2. Each expense is credited and income summary is debited for the total of expenses.
3. Income summary is debited for the amount of its balance if income is generated and capital
account is credited. If it is net loss, capital account is debited and income summary is
credited for the amount of its balance.
4. The drawing account is credited for the amount of its balance, and capital account debited.

For corporation type of business, entry 3 is closed to retained earnings account and entry 4, the
dividend is closed to retained earnings account.

Closing entry for Hill Photographic Studio is as follows:

Sales…………………………………………………….5525
Income Summary…………………………………….5525

Income Summary…………………………………3569
Salary Expenses……………………………………....1265
Miscellaneous Expenses……………….……….….…369
Supplies Expenses…………………………..….……..960
Rent Expenses…………………………………………..600
Depreciation Expenses………………………...………175

Income Summary…………………………………1956
Ann Hill, Capital………………………………………..1956

Ann Hill, Capital………………………………….1500

Ann Hill drawing……………………………………….1500

After journalizing, the journal entries should be posted to the ledger. The sales, expenses, income
summary, and drawing accounts then get zero balance.
POST-CLOSING TRIAL BALANCE

The last procedure of the accounting cycle is the preparation of post-closing trial balance after all of
the temporary accounts has been closed. The purpose of the post-closing trial balance is to make sure
that the ledger is balance at the beginning of the new accounting period. The following is Hill
Photographic Studio post-closing trial balance as of March 31, 1990:

Hill Photographic Studio

Post-Closing Trial Balance

March 31, 1990

Cash 1,631
Accounts receivable 1,775
Supplies 890
Prepaid Rent 1,600
Photographic Equipment 17,500
Accumulated Depreciation 175
Accounts Payable 2,000
Salary Payable 115
Ann Hill, Capital 21,106
23,396 23,396