Completing the

Accounting Cycle

Slide
4-1
 Summary
Summary of
of the
the Accounting
Accounting Cycle
Cycle

1. Analyze business transactions

9. Prepare a post-closing trial

2. Journalize the transactions
balance

8. Journalize and post closing

3. Post to ledger accounts
entries

7. Prepare financial
4. Prepare a trial balance
statements

6. Prepare an adjusted trial 5. Journalize and post

balance adjusting entries

Slide
4-2
 Accounting Cycle

Do not use worksheet Use worksheet

 Step 1: Analyze business transaction  Step 1: Analyze business transaction
 Step 2: Journalize transaction  Step 2: Journalize transaction
 Step 3: Post to ledger accounts  Step 3: Post to ledger accounts
 Step 4: Prepare a Trial balance  Steps 4: Prepare a Worksheet
 Prepare a Trial balance
 Step 5: Journalize and post adjustment
 Enter adjustment data in Adjustment columns
entries  Prepare a Adjusted Trial balance
 Step 6: Prepare a Adjusted Trial balance  Extend adjusted balances to appropriate statement
columns
 Step 7: Prepare Financial Statements  Total the statement columns, compute net income
 Step 8: Journalize and Post Closing and net loss
entries  Step 5: Prepare Financial Statements
 Step 9: Prepare a Post Closing Trial  Step 6: Journalize and Post adjusting
balance entries
 Step 7: Journalize and Post Closing
entries
 Step 8: Prepare a Post Closing Trial
balance

Slide
4-3
 Using
Using A
A Worksheet
Worksheet
Worksheet
A multiple-column form used in preparing financial
statements.

Not a permanent accounting record.

Five step process.

Use of worksheet is optional.

Slide
4-4
 Steps
Steps in
in Preparing
Preparing aa Worksheet
Worksheet

Slide
4-5
 Steps in Preparing a Worksheet
1. Prepare a Trial Balance on the Worksheet
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200
Supplies 2,500
Prepaid Insurance 600
Office Equipment 5,000
Notes Payable 5,000
Accounts Payable 2,500
Unearned Revenue 1,200
Owner's Capital 10,000
Owner's Drawing 500
Service Revenue 10,000

Salaries Expense 4,000

Rent Expense 900
Totals 28,700 28,700

Trial balance amounts come

directly from ledger accounts.
Include all accounts
with balances.

Slide
4-6
 Steps in Preparing a Worksheet
2. Enter the Adjustments in the Adjustments Columns
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200
Supplies 2,500 (a) 1,500
Prepaid Insurance 600 (b) 50
Office Equipment 5,000 Adjustments Key:
Notes Payable 5,000
Accounts Payable 2,500
(a) Supplies Used.
Unearned Revenue 1,200 (d) 400 (b) Insurance Expired.
Owner's Capital 10,000
Owner's Drawing 500 (c) Depreciation Expensed.
Service Revenue 10,000 (d) 400 (d) Service Revenue Earned.
(e) 200
Salaries Expense 4,000 (g) 1,200 (e) Service Revenue Accrued.
Rent Expense 900 (f) Interest Accrued.
Totals 28,700 28,700
Supplies Expense (a) 1,500 (g) Salaries Accrued.
Insurance Expense (b) 50
Accumulated Depreciation (c) 40
Depreciation Expense (c) 40
Accounts Receivable (e) 200
Interest Expense (f) 50
Enter adjustment amounts, total
Interest Payable (f) 50 adjustments columns,
(g) 1,200
Salaries Payable and check for equality.
Totals 3,440 3,440

Add additional accounts as needed.

Slide
4-7
 Steps in Preparing a Worksheet
3. Complete the Adjusted Trial Balance Columns
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200 15,200
Supplies 2,500 (a) 1,500 1,000
Prepaid Insurance 600 (b) 50 550
Office Equipment 5,000 5,000
Notes Payable 5,000 5,000
Accounts Payable 2,500 2,500
Unearned Revenue 1,200 (d) 400 800
Owner's Capital 10,000 10,000
Owner's Drawing 500 500
Service Revenue 10,000 (d) 400 10,600
(e) 200
Salaries Expense 4,000 (g) 1,200 5,200
Rent Expense 900 900
Totals 28,700 28,700
Supplies Expense (a) 1,500 1,500
Insurance Expense (b) 50 50
Accumulated Depreciation (c) 40 40
Depreciation Expense (c) 40 40
Accounts Receivable (e) 200 200
Interest Expense (f) 50 50
Interest Payable (f) 50 50
Salaries Payable (g) 1,200 1,200
Totals 3,440 3,440 30,190 30,190

Total the adjusted trial balance

Slide columns and check for equality.
4-8
 Steps in Preparing a Worksheet
4. Extend Amounts to Financial Statement Columns
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200 15,200
Supplies 2,500 (a) 1,500 1,000
Prepaid Insurance 600 (b) 50 550
Office Equipment 5,000 5,000
Notes Payable 5,000 5,000
Accounts Payable 2,500 2,500
Unearned Revenue 1,200 (d) 400 800
Owner's Capital 10,000 10,000
Owner's Drawing 500 500
Service Revenue 10,000 (d) 400 10,600 10,600
(e) 200
Salaries Expense 4,000 (g) 1,200 5,200 5,200
Rent Expense 900 900 900
Totals 28,700 28,700
Supplies Expense (a) 1,500 1,500 1,500
Insurance Expense (b) 50 50 50
Accumulated Depreciation (c) 40 40
Depreciation Expense (c) 40 40 40
Accounts Receivable (e) 200 200
Interest Expense (f) 50 50 50
Interest Payable (f) 50 50
Salaries Payable (g) 1,200 1,200
Totals 3,440 3,440 30,190 30,190 7,740 10,600

Extend all revenue and expense account

Slide balances to the income statement columns.
4-9
 Steps in Preparing a Worksheet
5. Total Columns, Compute Net Income (Loss)
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200 15,200 15,200
Supplies 2,500 (a) 1,500 1,000 1,000
Prepaid Insurance 600 (b) 50 550 550
Office Equipment 5,000 5,000 5,000
Notes Payable 5,000 5,000 5,000
Accounts Payable 2,500 2,500 2,500
Unearned Revenue 1,200 (d) 400 800 800
Owner's Capital 10,000 10,000 10,000
Owner's Drawing 500 500 500
Service Revenue 10,000 (d) 400 10,600 10,600
(e) 200
Salaries Expense 4,000 (g) 1,200 5,200 5,200
Rent Expense 900 900 900
Totals 28,700 28,700
Supplies Expense (a) 1,500 1,500 1,500
Insurance Expense (b) 50 50 50
Accumulated Depreciation (c) 40 40 40
Depreciation Expense (c) 40 40 40
Accounts Receivable (e) 200 200 200
Interest Expense (f) 50 50 50
Interest Payable (f) 50 50 50
Salaries Payable (g) 1,200 1,200 1,200
Totals 3,440 3,440 30,190 30,190 7,740 10,600 22,450 19,590
Net Income 2,860 2,860
Totals 10,600 10,600 22,450 22,450

Slide Compute Net Income or Net Loss.

4-10
 Using a Worksheet

Preparing Statements from a Worksheet

 Income statement is prepared from the income
statement columns.
 Balance sheet and owner’s equity statement are
prepared from the balance sheet columns.
 Companies journalize and post adjusting entries.

Slide
4-11
 Preparing Statements from a Worksheet
Illustration 4-4

Slide
4-12
 Preparing Statements from a Worksheet

Slide
4-13
 Preparing Statements from a Worksheet

Slide
4-14
SO 1
 Using a Worksheet

Preparing Adjusting Entries from a Worksheet

 Adjusting entries are prepared from the adjustments
columns of the worksheet.
 Journalizing and posting of adjusting entries follows
the preparation of financial statements when a
worksheet is used.

Slide
4-15
 Steps in Preparing a Worksheet

Adjusting
Journal
Entries

Slide
4-16
 Closing the Books

At the end of the accounting period, the company makes

the accounts ready for the next period.

Slide
4-17
 Closing the Books

Preparing Closing Entries

Closing entries formally recognize, in the general ledger,
the transfer of
 net income (or net loss) and
 owner’s drawing

to owner’s capital.

Closing entries are only made at the end of the annual

accounting period.

Slide
4-18
 Closing the Books

Note:
Owner’s Drawing is closed
directly to Capital and not to
Income Summary because
Owner’s Capital is a
Owner’s Drawing is not an permanent account; all
other accounts are
expense. temporary accounts.

Slide
4-19
 Closing the Books

Closing
Entries
Illustrated

Slide
4-20
 Closing the Books

Posting
Closing
Entries

Slide
4-21
 Preparing a Post-Closing Trial Balance

Purpose is to prove the equality of the permanent account

balances after journalizing and posting of closing entries.

Slide
4-22