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) danproses penyesuaian dalam akuntansi
Chapter 3 The Matching Concept
and the Adjusting
st21 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.
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Objectives
Objectives1. 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 for24 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
RENTCash 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 TBAccounts 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 $20,000Office 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 ExpenseRent 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 adjustedBal. 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 theBal. 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 1,600Bal. 120 120 120 Depreciation Expense Bal.
50
50
50 Utilities Expense
Close Revenues
Retained Earnings
Bal. 985985 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 Expense4,000 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 BalanceNetSolutions 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 LiabilitiesFinancial 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