The Matching Concept and the Adjusting Process

  The Matching Concept and the Adjusting Process

  6542– SRI HANDAYANI, SE, MM, MAk, CPMA PROGRAM STUDI MANAJEMEN & AKUNTANSI FAKULTAS EKONOMI DAN BISNIS FEB103 PENGANTAR AKUNTANSI I + PERTEMUAN #6

KEMAMPUAN AKHIR YANG DIHARAPKAN

  

Mahasiswa mampu melakukan

pencatatan berdasarkan konsep

penandingan (Matching concept) dan

proses penyesuaian dalam akuntansi

Chapter 3 The Matching Concept

  

and the Adjusting

st

  21 Edition Accounting,

  Process Warren Reeve Fess

  © Copyright 2004 South-Western, a division of Thomson Learning. All rights reserved. Pepperdine University Professor Emeritus of Accounting PowerPoint Presentation by Douglas Cloud Task Force Image Gallery clip art included in this electronic

Chapter 4 Completing the Accounting Cycle Financial and Managerial Accounting

  8th Edition Warren Reeve Fess PowerPoint Presentation by Douglas Cloud Professor Emeritus of Accounting Pepperdine University © Copyright 2004 South-Western, a division of Thomson Learning. All rights reserved.

  Task Force Image Gallery clip art included in this

  

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Objectives

Objectives

  1. Review the seven basic steps of the accounting cycle.

  After studying this After studying this 2. Prepare a work sheet. chapter, you should chapter, you should

  3. Prepare fnancial statements from a be able to: be able to: work sheet.

  4. Prepare adjusting and closing entries from a work sheet.

  

5. Explain what is meant by the fscal year

and the natural business year.

  6. Analyze and interpret the fnancial

solvency of a business by computing

working capital and the current ratio.

  Seven Basic Steps of the Seven Basic Steps of the Accounting Cycle Accounting Cycle

  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.

  

Assets are commonly divided into classes

and that two of these classes are current

assets and property, plant, and equipment.

Assets are commonly divided into classes

and that two of these classes are current

assets and property, plant, and equipment.

  

That’s correct. Cash and other

That’s correct. Cash and other

assets that are expected to be

assets that are expected to be

converted into cash, sold, or used

converted into cash, sold, or used

up usually in less than a year are

up usually in less than a year are

current assets.

current assets.

  Well… besides cash, there’s Well… besides cash, there’s notes receivable, accounts notes receivable, accounts

  For example? receivable, supplies, and other For example? receivable, supplies, and other prepaid items. prepaid items.

  So, assets that have a life over a year are listed under property, plant, and equipment. So, assets that have a life over a year are listed under property, plant, and equipment. There are some exceptions, but that’s basically correct. Assets such as office equipment, machinery, buildings, and land would appear under that heading. There are some exceptions, but that’s basically correct. Assets such as office equipment, machinery, buildings, and land would appear under that heading.

  

Liabilities due usually within one

year or less and that are to be paid

out of current assets are called

current liabilities.

Liabilities due usually within one

year or less and that are to be paid

out of current assets are called

current liabilities.

  Ö Accounts payable

  Ö Wages payable

  Ö Interest payable

  Ö Unearned fees Liabilities not due for Liabilities not due for more than a year usually more than a year usually are long-term liabilities. are long-term liabilities.

   Mortgage note payable

   Mortgage payable

   Bond payable

  

The work sheet is a useful device

for understanding the flow of

accounting data from the

unadjusted trial balance to the

financial statements.

The work sheet is a useful device

for understanding the flow of

accounting data from the

unadjusted trial balance to the

financial statements.

  

The Work Sheet

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

  Adjustments are entered here. Two possibilities:

  1. Deferrals – Existing balances are changed.

  2. Accruals – New information is entered. Adjustments are entered here. Two possibilities:

  1. Deferrals – Existing balances are changed.

  2. Accruals – New information is entered. Trial Balance Accounts Dr Cr Dr Cr Dr Cr Adjustments Adjusted TB The Work Sheet

  The Work Sheet Adjustments are combined with the trial balance. Account balances are now adjusted. Adjustments are combined with the trial balance. Account balances are now adjusted. Trial Balance

Accounts Dr Cr Dr Cr Dr Cr

  Adjustments Adjusted TB

  Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 Capital Stock 25,000 Dividends 4,000 Fees Earned 16,340 Wages Expense 4,275 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 Miscellaneous Expense 455 42,600 42,600

  10

  20

  19

  18

  17

  16

  15

  14

  13

  12

  11

  9

  Account Title Debit Credit Debit Credit Debit Credit Adjusted

Trial Balance Adjustments Trial Balance

  8

  7

  6

  5

  4

  3

  2

  1

  The Unadjusted Trial Balance

  For the Two Months Ended December 31, 2005 The Unadjusted Trial Balance

  NetSolutions Work Sheet

  21

  (a) The Supplies account has a debit of $2,000. A count of supplies at the end of the period reveals that $760 is on hand. Therefore, $1,240 in supplies was used during the two-month period.

  (a) The Supplies account has a debit of $2,000. A count of supplies at the end of the period reveals that $760 is on hand.

Therefore, $1,240 in supplies was used

during the two-month period.

  Cash 2,065 Accounts Receivable 2,220

  9

  21

  20

  19

  18

  17

  16

  15

  14

  13

  12

  11

  10

  8

  Supplies 2,000

  7

  6

  5

  4

  3

  2

  1

  For the Two Months Ended December 31, 2005

  NetSolutions Work Sheet

  Account Title Debit Credit Debit Credit Debit Credit Adjusted

Trial Balance Adjustments Trial Balance

  Miscellaneous Expense 455 42,600 42,600

  Supplies Expense 800

  Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 Capital Stock 25,000 Dividends 4,000 Fees Earned 16,340 Wages Expense 4,275 Rent Expense 1,600 Utilities Expense 985

  (a) 1,240 (a) 1,240

  

(b)The Prepaid Insurance account has a

debit balance of $2,400, which represents prepayment of insurance for

24 months beginning December 1.

  

Thus, the insurance expense for this

month is $100 ($2,400 ÷ 24).

  (b)The Prepaid Insurance account has a debit balance of $2,400, which represents prepayment of insurance for 24 months beginning December 1.

  

Thus, the insurance expense for this

month is $100 ($2,400 ÷ 24).

  Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 (a) 1,240

  10

  21 Insurance Expense

  20

  19

  18

  17

  16

  15

  14

  13

  12

  11

  9

  Prepaid Insurance 2,400

  8

  7

  6

  5

  4

  3

  2

  1

  For the Two Months Ended December 31, 2005

  NetSolutions Work Sheet

  Account Title Debit Credit Debit Credit Debit Credit Adjusted

Trial Balance Adjustments Trial Balance

  Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 Capital Stock 25,000 Dividends 4,000 Fees Earned 16,340 Wages Expense 4,275 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 (a) 1,240 Miscellaneous Expense 455 42,600 42,600

  (b) 100 (b) 100

  

(c) The Unearned Rent account has a credit

balance of $360, which represents the

receipt of three-months’ rent beginning with December 1. Thus, the rent revenue for December is $120.

  (c) The Unearned Rent account has a credit balance of $360, which represents the

receipt of three-months’ rent beginning

with December 1. Thus, the rent revenue for December is $120.

  

FOR

RENT

  Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 (a) 1,240 Prepaid Insurance 2,400 (b) 100 Land 20,000 Office Equipment 1,800 Accounts Payable 900

  10

  21 Insurance Expense (b) 100

  20

  19

  18

  17

  16

  15

  14

  13

  12

  11

  9

  Unearned Rent 360

  8

  7

  6

  5

  4

  3

  2

  1

  For the Two Months Ended December 31, 2005

  NetSolutions Work Sheet

  Account Title Debit Credit Debit Credit Debit Credit Adjusted

Trial Balance Adjustments Trial Balance

  Capital Stock 25,000 Dividends 4,000 Fees Earned 16,340 Wages Expense 4,275 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 (a) 1,240 Miscellaneous Expense 455 42,600 42,600

  (c) 120 Rent Revenue (c) 120

  

(d) Wages accrued but not paid at

the end of December total $250.

  (d) Wages accrued but not paid at the end of December total $250.

  Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 (a) 1,240 Prepaid Insurance 2,400 (b) 100 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 (c) 120 Capital Stock 25,000 Dividends 4,000 Fees Earned 16,340

  10

  (c) 120

  21 Insurance Expense (b) 100 Rent Revenue

  20

  19

  18

  17

  16

  15

  14

  13

  12

  11

  9

  Wages Expense 4,275

  8

  7

  6

  5

  4

  3

  2

  1

  For the Two Months Ended December 31, 2005

  NetSolutions Work Sheet

  Account Title Debit Credit Debit Credit Debit Credit Adjusted

Trial Balance Adjustments Trial Balance

  Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 (a) 1,240 Miscellaneous Expense 455 42,600 42,600

  Wages Payable (d) 250 (d) 250

  (e) Fees accrued at the end of December, but not recorded, total $500.

  (e) Fees accrued at the end of December, but not recorded, total $500.

  Cash 2,065

  9

  (c) 120 Wages Payable (d) 250

  21 Insurance Expense (b) 100 Rent Revenue

  20

  19

  18

  17

  16

  15

  14

  13

  12

  11

  10

  8

  Accounts Receivable 2,220

  7

  6

  5

  4

  3

  2

  1

  For the Two Months Ended December 31, 2005

  NetSolutions Work Sheet

  Account Title Debit Credit Debit Credit Debit Credit Adjusted

Trial Balance Adjustments Trial Balance

  Wages Expense 4,275 (d) 250 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 (a) 1,240 Miscellaneous Expense 455 42,600 42,600

  Fees Earned 16,340

  Supplies 2,000 (a) 1,240 Prepaid Insurance 2,400 (b) 100 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 (c) 120 Capital Stock 25,000 Dividends 4,000

   (e) 500 (e) 500

  (f) Depreciation of the office equipment is $50 for December.

  (f) Depreciation of the office equipment is $50 for December.

  Cash 2,065 Accounts Receivable 2,220 (e) 500 Supplies 2,000 (a) 1,240 Prepaid Insurance 2,400 (b) 100 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 (c) 120 Capital Stock 25,000 Dividends 4,000 Fees Earned 16,340 (e) 500 Wages Expense 4,275 (d) 250 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 (a) 1,240 Miscellaneous Expense 455 42,600 42,600

  11

  21 Insurance Expense (b) 100 Rent Revenue

  20

  19

  18

  17

  16

  15

  14

  13

  12

  10

  Account Title Debit Credit Debit Credit Debit Credit Adjusted

Trial Balance Adjustments Trial Balance

  9

  8

  7

  6

  5

  4

  3

  2

  1

  For the Two Months Ended December 31, 2005

  NetSolutions Work Sheet

  (c) 120 Wages Payable (d) 250

  Cash 2,065 Accounts Receivable 2,220 (e) 500 Supplies 2,000 (a) 1,240 Prepaid Insurance 2,400 (b) 100 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 (c) 120 Capital Stock 25,000 Dividends 4,000 Fees Earned 16,340 (e) 500 Wages Expense 4,275 (d) 250 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 (a) 1,240 Miscellaneous Expense 455 42,600 42,600

  12

  To make more space, let’s remove the heading.

  (c) 120 Wages Payable (d) 250

  21 Insurance Expense (b) 100 Rent Revenue

  20

  19

  18

  17

  16

  15

  14

  13

  11

  Account Title Debit Credit Debit Credit Debit Credit Adjusted

Trial Balance Adjustments Trial Balance

  10

  9

  8

  7

  6

  5

  4

  3

  2

  1

  For the Two Months Ended December 31, 2005

  NetSolutions Work Sheet

  To make more space, let’s remove the heading.

  Cash 2,065 Accounts Receivable 2,220 (e) 500 Supplies 2,000 (a) 1,240 Prepaid Insurance 2,400 (b) 100 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 (c) 120 Capital Stock 25,000 Dividends 4,000 Fees Earned 16,340 (e) 500 Wages Expense 4,275 (d) 250 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 (a) 1,240 Miscellaneous Expense 455 42,600 42,600

  14

  (f) 50

  (c) 120 Wages Payable (d) 250 Depreciation Expense (f) 50 Accum. Depreciation

  24 Insurance Expense (b) 100 Rent Revenue

  23

  22

  21

  20

  19

  18

  17

  16

  15

  13

  Account Title Debit Credit Debit Credit Debit Credit Adjusted

Trial Balance Adjustments Trial Balance

  12

  11

  10

  9

  8

  7

  6

  5

  4

  3

  2

  1

  2,260 2,260 Summed and Summed and

  

Next, the unadjusted Trial

Next, the unadjusted Trial

Balance columns and the

Balance columns and the

  

Adjustments columns are

Adjustments columns are

combined to determine the

combined to determine the

amounts displayed in the

amounts displayed in the

  Adjusted Trial Balance.

  

Adjusted Trial Balance.

  Cash 2,065 Accounts Receivable 2,220 (e) 500 Supplies 2,000 (a) 1,240 Prepaid Insurance 2,400 (b) 100 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 360 (c) 120 Capital Stock 25,000 Dividends 4,000 Fees Earned 16,340 (e) 500 Wages Expense 4,275 (d) 250 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 800 (a) 1,240 Miscellaneous Expense 455 42,600 42,600

  14

  (c) 120 Wages Payable (d) 250 Depreciation Expense (f) 50 Accum. Depreciation

  24 Insurance Expense (b) 100 Rent Revenue

  23

  22

  21

  20

  19

  18

  17

  16

  15

  13

  Account Title Debit Credit Debit Credit Debit Credit Adjusted

Trial Balance Adjustments Trial Balance

  12

  11

  10

  9

  8

  7

  6

  5

  4

  3

  2

  1

  (f) 50 2,260 2,260

  Cash 2,065

  17

  7

  8

  9

  10

  11

  12

  13

  14

  15

  16

  18

  5

  19

  20

  21

  22

  23

  24 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

  6

  4

  2,065

  Dividends 4,000

  Accounts Receivable 2,220 (e) 500 2,720 Supplies 2,000 (a) 1,240 760 Prepaid Insurance 2,400 (b) 100 2,300 Land 20,000

  20,000

  Office Equipment 1,800

  1,800

  Accounts Payable 900

  900

  Unearned Rent 360 (c) 120

  240

  Capital Stock 25,000

  25,000

  4,000

  3

  Fees Earned 16,340 (e) 500 16,840 Wages Expense 4,275 (d) 250 4,525 Rent Expense 1,600

  1,600

  Utilities Expense 985

  985

  Supplies Expense 800 (a) 1,240 2,040 Miscellaneous Expense 455

  455

  42,600 42,600

  Account Title Debit Credit Debit Credit Debit Credit Adjusted

Trial Balance Adjustments Trial Balance

  1

  2

  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. Revenue and expense balances in the Adjusted Trial Balance column

are extended to the Income

Statement column.

  Adjusted TB Accounts Dr Cr Dr Cr Dr Cr Income State. Balance Sheet The Work Sheet

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

to the Balance Sheet column.

Adjusted TB

Accounts Dr Cr Dr Cr Dr Cr

  Income State. Balance Sheet The Work Sheet

  

To make room on the slides for

the Income statement and

Balance Sheet columns, the Trial

Balance and Adjustments

columns have been removed.

To make room on the slides for

the Income statement and

  

Balance Sheet columns, the Trial

Balance and Adjustments

columns have been removed.

  Cash 2,065 Accounts Receivable 2,720 Supplies 760 Prepaid Insurance 2,300 Land 20,000 Office Equipment 1,800 Accounts Payable 900 Unearned Rent 240 Capital Stock 25,000 Dividends 4,000 Fees Earned 16,840 Wages Expense 4,525 Rent Expense 1,600 Utilities Expense 985 Supplies Expense 2,040 Miscellaneous Expense 455

  15

  50 Accum. Depreciation

  120 Wages Payable 250 Depreciation Expense

  25 Insurance Expense 100 Rent Revenue

  24

  23

  22

  21

  20

  19

  18

  17

  16

  14

  Account Title Debit Credit Debit Credit Debit Credit Adjusted

Trial Balance Income Statement Balance Sheet

  13

  12

  11

  10

  9

  8

  7

  6

  5

  4

  3

  2

  1

  50 43,400 43,400

  

Now, let’s extend the balances

from the Adjusted Trial Balance

column.

Now, let’s extend the balances

from the Adjusted Trial Balance

column.

  Cash 2,065

  19

  9

  10

  11

  12

  13

  14

  15

  16

  17

  18

  20

  7

  21

  22

  23

  24 Insurance Expense 100 100 Rent Revenue

  120 120 Wages Payable 250

  250

   Depreciation Expense

  50

  50 Accum. Depreciation

  50

  50

  8

  6

  2,065

  900

  Accounts Receivable 2,720

  2,720

  Supplies 760

  760

  Prepaid Insurance 2,300

  2,300

  Land 20,000

  20,000

  Office Equipment 1,800

  1,800

  Accounts Payable 900

  Unearned Rent 240

  5

  240

  Capital Stock 25,000

  25,000

  Dividends 4,000

  4,000

  Fees Earned 16,840 16,840 Wages Expense 4,525 4,525 Rent Expense 1,600 1,600 Utilities Expense 985 985 Supplies Expense 2,040 2,040 Miscellaneous Expense 455 455

  Account Title Debit Credit Debit Credit Debit Credit Adjusted

Trial Balance Income Statement Balance Sheet

  1

  2

  3

  4

  43,400 43,400

  

These four

columns are

summed.

These four

columns are

summed.

  Cash 2,065 2,065 Accounts Receivable 2,720 2,720 Supplies 760

  13

  50 Accum. Depreciation

  50

  120 120 Wages Payable 250 250 Depreciation Expense

  24 Insurance Expense 100 100 Rent Revenue

  23

  22

  21

  20

  19

  18

  17

  16

  15

  14

  12

  760 Prepaid Insurance 2,300 2,300 Land 20,000

  3

  20,000 Office Equipment 1,800 1,800 Accounts Payable 900

  900 Unearned Rent 240 240 Capital Stock 25,000

  25,000 Dividends 4,000 4,000 Fees Earned 16,840 16,840 Wages Expense 4,525 4,525 Rent Expense 1,600 1,600 Utilities Expense 985 985 Supplies Expense 2,040 2,040 Miscellaneous Expense 455 455

  Account Title Debit Credit Debit Credit Debit Credit Adjusted

Trial Balance Income Statement Balance Sheet

  1

  2

  4

  11

  5

  6

  7

  8

  9

  10

  50 50 43,400 43,400 9,755 16,960 33,645 26,440

  

The difference between the

Income Statement column

totals is the net income (or net

loss) for the period.

  

The difference between the

Income Statement column

totals is the net income (or net

loss) for the period.

  

The difference between the

The difference between the

Balance Sheet column totals is

Balance Sheet column totals is

also the income (or net loss)

also the income (or net loss)

for the period.

for the period.

  Income Statement Balance Sheet 9,755 16,960 33,645 26,440 7,205

  7,205 16,960 16,960 33,645 33,645 Net Income Net Income

  NetSolutions Income Statement For Two Months Ended December 31, 2005

  Fees earned $16,840 Rent revenue 120 Total revenues $16,960 Expenses: Wages expense $ 4,525 Supplies expense 2,040 Rent expense 1,600 Utilities expense 985 Insurance expense 100 Depreciation expense 50 Miscellaneous expense 455 Total expenses 9,755 Net income $ 7,205

Every amount on this income statement was taken from the

  

Every amount on this income statement was taken from the

  NetSolutions Retained Earnings Statement For the Two Months Ended December 31, 2005 Net income for November and December 7,205 Less dividends 4,000 Retained earnings, December 31, 2005 Either from the

  Either from the $3,205 income From the income From the statement or the Balance Sheet statement or the Balance Sheet work sheet. debit column of work sheet. debit column of the work sheet. the work sheet.

  NetSolutions Balance Sheet December 31, 2005 Assets Liabilities Current assets: Current liabilities: Cash $ 2,065 Accounts payable $900

  Accounts receivable 2,720 Wages payable 250 Supplies 760 Unearned rent 240 Prepaid insurance 2,300 Total liabilities $ 1,390 Total current assets $ 7,845 Property, plant, and equipment: Land $20,000

  Office equip. $1,800 Less accum. depreciation 50 1,750 Capital stock $25,000 Total property, plant Retained earnings 3,205

  28,205 and equipment 21,750 Total liabilities and Assets Liabilities Current assets: Current liabilities:

Cash $ 2,065 Accounts payable $900

  

Accounts receivable 2,720 Wages payable 250

Supplies 760 Unearned rent 240

Prepaid insurance 2,300 Total liabilities $ 1,390 Total current assets $ 7,845 Property, plant, and equipment: Land $20,000

  Office equip. $1,800 Less accum. depreciation 50 1,750 Capital stock $25,000

Total property, plant Retained earnings 3,205

  28,205 and equipment 21,750 Total liabilities and Stockholders’ Equity

  From the Retained Earnings Statement

  From the Retained Earnings Statement Adjusting and Closing Entries Adjusting and Closing Entries

  Adjusting entries are recorded in the journal at the end of the accounting period.

  Adjusting entries are recorded in the journal at the end of the accounting period.

  

Adjusting and Closing Entries

Adjusting and Closing Entries

  If a work sheet has been If a work sheet has been prepared, the data for prepared, the data for these entries are in the these entries are in the Adjustments columns.

  Adjustments columns. The Closing Process The Closing Process

  Income Summary

  1 Revenues are transferred to Income Summary

  transferred to Income Summary

2 Expenses are

  transferred to Retained Earnings Dividends are transferred to Retained Earnings

3 Net Income or Net Loss is

RETAINED EARNINGS

  The Closing Process The Closing Process

  Income Summary

  1 Revenues are transferred to Income Summary

  transferred to Income Summary

2 Expenses are

  transferred to Retained Earnings Dividends are transferred to Retained Earnings

The Income Summary

account does not appear on

the financial statements. The Income Summary account does not appear on the financial statements.

3 Net Income or Net Loss is

RETAINED EARNINGS

  

The Closing Process

The Closing Process

  Fees Earned Wages Expense Bal. 16,840

  

Income Summary

Bal. 4,525 Rent Expense

  Rent Revenue Bal. 1,600 Bal. 120 Depreciation Expense Bal.

  Note: The Utilities Expense balances shown balances shown

50 Note: The

  

Retained Earnings

Bal. 985 are adjusted are adjusted

  Bal. 25,000 Supplies Expense balances before balances before

  Bal. 2,040 closing. The closing. The

  Insurance Expense following following

  Bal. 100 sequence sequence

  

Dividends

Miscellaneous Expense demonstrates the demonstrates the

  Bal. 4,000 Bal. 455 closing process. closing process. The Closing Process The Closing Process

  Fees Earned Wages Expense Bal. 16,840 16,840 Income Summary Bal. 4,525

  16,960 Rent Expense Rent Revenue Bal. 1,600

  Bal. 120 120 Depreciation Expense Bal.

50 Step 1 Utilities Expense Retained Earnings Bal. 985

  Debit each revenue Supplies Expense account for the

  Bal. 2,040 amount of its

  Insurance Expense balance, and credit

  Bal. 100 Dividends

  Income Summary Miscellaneous Expense Bal. 4,000 Bal. 455 for the total The Closing Process The Closing Process

  Fees Earned Wages Expense Bal. 16,840 16,840 Income Summary 4,525 Bal. 4,525 9,775 16,960 Rent Expense

  Rent Revenue 1,600 Bal. 1,600 Bal. 120 120 Depreciation Expense Bal.

  50

50 Step 2 Utilities Expense Retained Earnings Bal. 985 985

  Debit Income Supplies Expense

  Summary for the 2,040 Bal. 2,040 total expenses and

  Insurance Expense credit each expense

  Bal. 100 100 account for its

  Dividends Miscellaneous Expense balance. Bal. 4,000 455 Bal. 455 The Closing Process The Closing Process

  Fees Earned Wages Expense Bal. 16,840 16,840 Income Summary 4,525 Bal. 4,525 9,775 16,960 Rent Expense

  Rent Revenue 7,205 1,600 Bal. 1,600 Bal. 120 120 Depreciation Expense Bal.

  50

50 Step 3 Utilities Expense Retained Earnings

  Debit Income Bal. 985 985 7,205 Supplies Expense

  Summary for the 2,040 Bal. 2,040 amount of its

  Insurance Expense balance (in this

  Bal. 100 100 Dividends case, the net

  Miscellaneous Expense Bal. 4,000 455 income) and credit

  Bal. 455

  The Closing Process The Closing Process

  Fees Earned Wages Expense Bal. 16,840 16,840 Income Summary 4,525 Bal. 4,525 9,775 16,960 Rent Expense

  Rent Revenue 7,205 1,600 Bal. 1,600 Bal. 120 120 Depreciation Expense Bal.

  50

50 Step 4 Utilities Expense Retained Earnings Bal. 985

  Debit Retained 985 7,205 4,000 Supplies Expense

  Earnings for the 2,040 Bal. 2,040 balance of

  Insurance Expense Dividends and

  Bal. 100 100 Dividends credit Dividend for

  Miscellaneous Expense 4,000 Bal. 4,000 455 Bal. 455 the same amount.

  

Review of the Closing Process

Review of the Closing Process

  Fees Earned Wages Expense Bal. 16,840 16,840 16,480 Income Summary 4,525 4,525 Bal. 4,525

  

9,775 9,775 16,960

Rent Expense 16,960 Rent Revenue 7,205 1,600 7,205 Bal. 1,600 1,600

  Bal. 120 120 120 Depreciation Expense Bal.

  50

  50

50 Utilities Expense

   Close Revenues

Retained Earnings

Bal. 985

   985 985 7,205 4,000 4,000 7,205 Close Expenses Supplies Expense 2,040 Bal. 2,040 2,040 Close Income Summary Insurance Expense

   Close Dividends Bal. 100 100 100

Dividends

Miscellaneous Expense

   4,000 4,000 Bal. 4,000 455 445 Bal. 455

  

After the closing entries

After the closing entries

are posted, all of the

are posted, all of the

temporary accounts have

temporary accounts have

zero balances.

zero balances.

  

Post-closing Trial Balance

Post-closing Trial Balance

  NetSolutions Post-Closing Trial Balance December 31, 2005 Cash

  2 065 00 Accounts Receivable 2 720 00 Supplies

  760 00 Prepaid Insurance 2 300 00 Land

  20 000 00 Office Equipment 1 800 00 Accumulated Depreciation

  50 00 Accounts Payable 900 00 Wages Payable 250 00 Unearned Rent 240 00 Capital Stock

  25 000 00 Retained Earnings 3 205 00 29 645 00 29 645 00 Working Capital = $7,845 – $1,390 Working

  Capital = Current

Assets Current Ratio =

Current

  Financial Analysis for NetSolutions Financial Analysis for

NetSolutions

  • – Current Liabilities Working Capital = $6,455

  

Assets

÷ Current Liabilities

  Financial Analysis for NetSolutions Financial Analysis for

NetSolutions

  Current Ratio = $7,845 ÷ $1,390

  Current Ratio =

  

5.6 Financial Analysis for NetSolutions Financial Analysis for NetSolutions

  This ratio implies that NetSolutions is able to pay its current liabilities.

  This ratio implies that NetSolutions is able to pay its current liabilities. Financial Analysis for Financial Analysis for

  

NetSolutions

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