Accounting for business decision solutions

Chapter
4-1
Completing the Accou
Financial Accounting
http://www.brightscholarships.com/
ChapterChapter 44ChapterChapter 44

Chapter
4-2
1. Prepare a worksheet.
2. Explain the process of closing the books.
3. Describe the content and purpose of a post-closing
trial balance.
4. State the required steps in the accounting cycle.
5. Explain the approaches to preparing correcting
entries.
6. Identify the sections of a classified balance sheet.
Study ObjectivesStudy ObjectivesStudy ObjectivesStudy Objectives

Chapter
4-3
Using aUsing a
WorksheetWorksheet
Using aUsing a
WorksheetWorksheet
Steps inSteps in
preparationpreparation
PreparingPreparing
financialfinancial
statementsstatements
PreparingPreparing
adjusting entriesadjusting entries
Closing theClosing the
BooksBooks
Closing theClosing the
BooksBooks
Summary ofSummary of
AccountingAccounting
CycleCycle
Summary ofSummary of
AccountingAccounting
CycleCycle
ClassifiedClassified
Balance SheetBalance Sheet
ClassifiedClassified
Balance SheetBalance Sheet
Current assetsCurrent assets
Long-termLong-term
investmentsinvestments
Property, plant,Property, plant,
and equipmentand equipment
Intangible assetsIntangible assets
Current liabilitiesCurrent liabilities
Long-termLong-term
liabilitiesliabilities
Stockholders’Stockholders’
equityequity
ReversingReversing
entries—Anentries—An
optional stepoptional step
CorrectingCorrecting
entries—Anentries—An
avoidable stepavoidable step
Completing the Accounting CycleCompleting the Accounting CycleCompleting the Accounting CycleCompleting the Accounting Cycle
PreparingPreparing
closing entriesclosing entries
Posting closingPosting closing
entriesentries
Preparing aPreparing a
post-closing trialpost-closing trial
balancebalance

Chapter
4-4
A multiple-column form used in preparing
financial statements.
Not a permanent accounting record.
Five step process.
Use of worksheet is optional.
Using A WorksheetUsing A WorksheetUsing A WorksheetUsing A Worksheet
SO 1 Prepare a worksheet.SO 1 Prepare a worksheet.
WorksheetWorksheet

Chapter
4-5
Steps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a Worksheet
Illustration 4-1

Chapter
4-6
Illustration The trial balance for Undercover Roofing for the month
ended March 31, 2008, is as follows.
Account Titles Dr. Cr.
Cash 2,500$
Accounts Receivable 1,800
Roofing Supplies 1,100
Equipment 6,000
Accumulated Depreciation 1,200$
Accounts Payable 1,400
Unearned Revenue 300
Common stock 1,000
Retained earnings 6,000
Dividends 600
Service Revenue 3,000
Salaries Expense 700
Miscellaneous Expense 200
Totals 12,900$ 12,900$
Trial Balance
Other data:
1. Supplies on hand total $140.
2. Depreciation for March is
$200.
3. Unearned revenue amounted
to $130 on March 31.
4. Accrued salaries are $350.
Instructions
a. Prepare and complete the
worksheet.

Chapter
4-7
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 2,500
Roofing Supplies 1,100
Equipment 6,000
Accumulated Depreciation 1,200
Common stock 1,000
Dividends 600
Service Revenue 3,000
Salaries Expense 700
Totals 12,900 12,900
Balance Sheet
Adjusted Income
Trial Balance Adjustments Trial Balance Statement
Trial balance amounts
come directly from
ledger accounts.
Include all
accounts with
balances.
1. Prepare a Trial Balance on the Worksheet1. Prepare a Trial Balance on the Worksheet

Chapter
4-8
Cash 2,500
Roofing Supplies 1,100 960
Equipment 6,000
Accumulated Depreciation 1,200 200
Unearned Revenue 300 170
Common stock 1,000
Dividends 600
Service Revenue 3,000 170
Salaries Expense 700 350
Totals 12,900 12,900
Supplies Expense 960
Depreciation Expense 200
Salaries Payable 350
Totals 1,680 1,680
Net Income
Totals
Balance Sheet
Adjusted Income
(a)
(a)
(b)
(b)
(d)
(d)
(c)
(c)
Enter adjustment
amounts, total
adjustments columns,
and check for equality.
Add additional
accounts as
needed.
Adjustments Key:
(a) Supplies used.
(b) Depreciation expense.
(c) Service revenue earned.
(d) Salaries accrued.
2. Enter the Adjustments in the Adjustments Columns2. Enter the Adjustments in the Adjustments Columns

Chapter
4-9
Cash 2,500 2,500
Accounts Receivable 1,800 1,800
Roofing Supplies 1,100 960 140
Equipment 6,000 6,000
Accumulated Depreciation 1,200 200 1,400
Accounts Payable 1,400 1,400
Unearned Revenue 300 170 130
Common stock 1,000 1,000
Retained earnings 6,000 6,000
Dividends 600 600
Service Revenue 3,000 170 3,170
Salaries Expense 700 350 1,050
Miscellaneous Expense 200 200
Totals 12,900 12,900
Supplies Expense 960 960
Depreciation Expense 200 200
Salaries Payable 350 350
Totals 1,680 1,680 13,450 13,450
Net Income
Totals
Balance Sheet
Adjusted Income
(a)
(a)
(b)
(b)
(d)
(d)
(c)
(c)
Total the adjusted
trial balance columns
and check for equality.
3. Complete the Adjusted Trial Balance Columns3. Complete the Adjusted Trial Balance Columns

Chapter
4-10
Cash 2,500 2,500
Accounts Receivable 1,800 1,800
Roofing Supplies 1,100 960 140
Equipment 6,000 6,000
Accumulated Depreciation 1,200 200 1,400
Accounts Payable 1,400 1,400
Unearned Revenue 300 170 130
Common stock 1,000 1,000
Retained earnings 6,000 6,000
Dividends 600 600
Service Revenue 3,000 170 3,170 3,170
Salaries Expense 700 350 1,050 1,050
Miscellaneous Expense 200 200 200
Totals 12,900 12,900
Supplies Expense 960 960 960
Depreciation Expense 200 200 200
Salaries Payable 350 350
Totals 1,680 1,680 13,450 13,450 2,410 3,170
Net Income
Totals
Balance Sheet
Adjusted Income
(a)
(a)
(b)
(b)
(d)
(d)
(c)
(c)
Extend all revenue and expense
account balances to the income
statement columns.
4. Extend Amounts to Financial Statement Columns4. Extend Amounts to Financial Statement Columns

Chapter
4-11
Cash 2,500 2,500 2,500
Accounts Receivable 1,800 1,800 1,800
Roofing Supplies 1,100 960 140 140
Equipment 6,000 6,000 6,000
Accumulated Depreciation 1,200 200 1,400 1,400
Accounts Payable 1,400 1,400 1,400
Unearned Revenue 300 170 130 130
Common stock 1,000 1,000 1,000
Retained earnings 6,000 6,000 6,000
Dividends 600 600 600
Service Revenue 3,000 170 3,170 3,170
Totals 12,900 12,900
Salaries Payable 350 350 350
Totals 1,680 1,680 13,450 13,450 2,410 3,170 11,040 10,280
Net Income
Totals
Balance Sheet
Adjusted Income
(a)
(a)
(b)
(b)
(d)
(d)
(c)
(c)
Extend all asset, liability, and
equity account balances to the
balance sheet columns.
4. Extend Amounts to Financial Statement Columns4. Extend Amounts to Financial Statement Columns

Chapter
4-12
Cash 2,500 2,500 2,500
Accounts Receivable 1,800 1,800 1,800
Roofing Supplies 1,100 960 140 140
Equipment 6,000 6,000 6,000
Accumulated Depreciation 1,200 200 1,400 1,400
Accounts Payable 1,400 1,400 1,400
Unearned Revenue 300 170 130 130
Common stock 1,000 1,000 1,000
Retained earnings 6,000 6,000 6,000
Dividends 600 600 600
Service Revenue 3,000 170 3,170 3,170
Totals 12,900 12,900
Salaries Payable 350 350 350
Totals 1,680 1,680 13,450 13,450 2,410 3,170 11,040 10,280
Net Income 760 760
Totals 3,170 3,170 11,040 11,040
Balance Sheet
Adjusted Income
5. Total Columns, Compute Net Income (Loss)5. Total Columns, Compute Net Income (Loss)
Compute Net income or Net loss.
(a)
(a)
(b)
(b)
(d)
(d)
(c)
(c)

Chapter
4-13
Net income is shown on a work sheet in the:
a. income statement debit column only.
b. balance sheet debit column only.
c. income statement credit column and balance
sheet debit column.
d. income statement debit column and balance
sheet credit column.
Review QuestionReview Question

Chapter
4-14
Income statement is prepared from the
income statement columns.
Balance sheet and retained earnings
statement are prepared from the balance
sheet columns.
Preparing Financial Statements from a WorksheetPreparing Financial Statements from a WorksheetPreparing Financial Statements from a WorksheetPreparing Financial Statements from a Worksheet
WorksheetWorksheet

Chapter
4-15
Revenues 3,170$
Service revenues
Expenses
Salaries expense 1,050$
Supplies expense 960
Depreciation expense 200
Miscellaneous expense 200
Total expenses 2,410
Net income 760$
Undercover Roofing
Income Statement
For the Month Ended March 31, 2008
b. Prepare an income statement for the month ended
March 31, 2008.

Chapter
4-16
b. Prepare a statement of retained earnings for the
month ended March 31, 2008.
Retained earnings, beginning 6,000$
Add: Net income 760
Less: Dividends (600)
Retained earnings, ending 6,160$
Undercover Roofing
Retained Earnings Statement
For the Month Ended March 31, 2008

Chapter
4-17
b. Prepare a
balance sheet
as of March 31,
2008.
Current assets
Cash 2,500$
Accounts receivable 1,800
Roofing supplies 140
Total current assets 4,440
Property, plant, and equipment
Equipment 6,000
Less: Accumulated depreciation 1,400 4,600
Total assets 9,040$
Current liabilities
Accounts payable 1,400$
Salaries payable 350
Unearned revenue 130
Total current liabilities 1,880
Stockholders' equity
Common stock 1,000
Total liabilities and stockholder's equity 9,040$
Liabilities and Stockholders' Equity
Assets
Undercover
Roofing
Balance Sheet
March 31, 2008

Chapter
4-18
The 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.
Preparing Adjusting Entries from a WorksheetPreparing Adjusting Entries from a WorksheetPreparing Adjusting Entries from a WorksheetPreparing Adjusting Entries from a Worksheet
Adjusting EntriesAdjusting Entries

Chapter
4-19
c. Journalize the adjusting entries from the
adjustments columns of the worksheet.
Account Title Ref. Debit Credit
Mar. 31 Supplies expense 960
Roofing supplies 960
Accumulated depreciation 200
Unearned revenue 170
Service revenue 170
Salaries expense 350
Date

Chapter
4-20
At the end of the accounting period, the company
makes the accounts ready for the next period.
Closing the BooksClosing the BooksClosing the BooksClosing the Books
SO 2 Explain the process of closing the books.SO 2 Explain the process of closing the books.
Illustration 4-5

Chapter
4-21
Closing entriesClosing entries formally recognize, in the general
ledger, the transfer of
net income (or net loss) and
dividends
to retained earnings at the end of the
accounting period.

Chapter
4-22
Illustration 4-6
Retained Earnings is a
permanent account; all
other accounts are
temporary accounts.
Dividends are closed directly
to Retained Earnings and not
to Income Summary because
Dividends are not an expense.
Note:

Chapter
4-23
Service revenue 3,170
Income summary 3,170
Income summary 2,410
Salary expense 1,050
Supplies expense 960
Income summary 760
Retained earnings 760
Retained earnings 600
Dividends 600
Miscellaneous expense 200
d. Journalize the closing entries from the financial
statement columns of the worksheet.
Closing
Entries
need
to be
Posted

Chapter
4-24
Purpose is to prove the equality of the permanent
account balances after journalizing and posting of
closing entries.
Preparing a Post-Closing Trial BalancePreparing a Post-Closing Trial BalancePreparing a Post-Closing Trial BalancePreparing a Post-Closing Trial Balance
SO 3 Describe the content and purpose of a post-closing trial balance.SO 3 Describe the content and purpose of a post-closing trial balance.
Account Titles Dr. Cr.
Cash 2,500$
Roofing Supplies 140
Equipment 6,000
Accumulated Depreciation 1,400$
Common Stock 1,000
Retained Earnings 6,160
Totals 10,440$ 10,440$
Trial Balance
Post-Closing
All temporary accounts
will have zero balances.

Chapter
4-25
Summary of the Accounting CycleSummary of the Accounting CycleSummary of the Accounting CycleSummary of the Accounting Cycle
1. Analyze business transactions1. Analyze business transactions
2. Journalize the
transactions
2. Journalize the
transactions
6. Prepare an adjusted trial
balance
6. Prepare an adjusted trial
balance
7. Prepare financial
statements
7. Prepare financial
statements
8. Journalize and post
closing entries
closing entries
9. Prepare a post-closing
trial balance
9. Prepare a post-closing
trial balance
4. Prepare a trial balance4. Prepare a trial balance
3. Post to ledger accounts3. Post to ledger accounts
adjusting entries
adjusting entries
Illustration 4-12
SO 4 State the required steps in the accounting cycle.SO 4 State the required steps in the accounting cycle.

Chapter
4-26
Correcting entriesCorrecting entries
are unnecessary if the records are error-free.
are made whenever an error is discovered.
must be posted before closing entries.
Instead of preparing a correcting entry, it is possible
to reverse the incorrect entry and then prepare the
correct entry.
Correcting Entries—An Avoidable StepCorrecting Entries—An Avoidable StepCorrecting Entries—An Avoidable StepCorrecting Entries—An Avoidable Step
SO 5 Explain the approaches to preparing correcting entries.SO 5 Explain the approaches to preparing correcting entries.

Chapter
4-27
BE4-9BE4-9 At Batavia Company, the following errors were
discovered after the transactions had been journalized and
posted. Prepare the correcting entries.
1. A collection on account from a customer was recorded as a
debit to Cash and a credit to Service Revenue for $780.
Cash 780Incorrect
entry Service revenue 780
Cash 780Correct
entry Accounts receivable 780
Service revenue 780CorrectingCorrecting
entryentry
Accounts receivable 780

Chapter
4-28
BE4-9BE4-9 At Batavia Company, the following errors were
discovered after the transactions had been journalized and
posted. Prepare the correcting entries.
2. The purchase of supplies on account for $1,570 was recorded
as a debit to Supplies and a credit to Accounts Payable $1,750.
Supplies 1,750Incorrect
entry Accounts payable 1,750
Supplies 1,570Correct
entry Accounts payable 1,570
Accounts payable 180CorrectingCorrecting
entryentry
Supplies 180

Chapter
4-29
The Classified Balance SheetThe Classified Balance SheetThe Classified Balance SheetThe Classified Balance Sheet
SO 6 Identify the sections of a classified balance sheet.SO 6 Identify the sections of a classified balance sheet.
Presents a snapshot at a point in time.
To improve understanding, companies group
similar assets and similar liabilities together.
Assets Liabilities and Owner’s Equity
Current assets Current liabilities
Long-term investments Long-term liabilities
Property, plant, and equipment Stockholders’ equity
Intangible assets
Illustration 4-17
Standard ClassificationsStandard Classifications

Chapter
4-30
Assets that a company expects to convert to
cash or use up within one year or the
operating cycle, whichever is longer.
Operating cycle is the average time it takes
from the purchase of inventory to the
collection of cash from customers.
Current AssetsCurrent Assets

Chapter
4-31
Companies usually list current asset accounts in the order
they expect to convert them into cash.
Illustration 4-19
Current AssetsCurrent Assets

Chapter
4-32
Cash, and other resources that are reasonably
expected to be realized in cash or sold or
consumed in the business within one year or the
operating cycle, are called:
a. Current assets.
b. Intangible assets.
c. Long-term investments.
d. Property, plant, and equipment.

Chapter
4-33
Investments in stocks and bonds of other companies.
Investments in long-term assets such as land or
buildings that a company is not currently using in its
operating activities.
Long-Term InvestmentsLong-Term Investments
Illustration 4-20

Chapter
4-34
Long useful lives.
Currently used in operations.
Depreciation - allocating the cost of assets to a
number of years.
Accumulated depreciation - total amount of
depreciation expensed thus far in the asset’s
life.
Property, Plant, and EquipmentProperty, Plant, and Equipment

Chapter
4-35
Illustration 4-21
Property, Plant, and EquipmentProperty, Plant, and Equipment

Chapter
4-36
Assets that do not have physical substance.
Intangible AssetsIntangible Assets
Illustration 4-22

Chapter
4-37
Patents and copyrights are
a. Current assets.
b. Intangible assets.
c. Long-term investments.
d. Property, plant, and equipment.

Chapter
4-38
Obligations the company is to pay within the
coming year.
Usually list notes payable first, followed by
accounts payable. Other items follow in order
of magnitude.
Liquidity - ability to pay obligations expected
to be due within the next year.
Current LiabilitiesCurrent Liabilities

Chapter
4-39
Illustration 4-23
Current LiabilitiesCurrent Liabilities

Chapter
4-40
Obligations a company expects to pay after one year.
Long-Term LiabilitiesLong-Term Liabilities
Illustration 4-24

Chapter
4-41
Which of the following is not a long-term
liability?
a. Bonds payable
b. Current maturities of long-term obligations
c. Long-term notes payable
d. Mortgages payable

Chapter
4-42
Proprietorship - one capital account.
Partnership - capital account for each partner.
Corporation - Capital Stock and Retained Earnings.
Stockholders’ (Owners’) EquityStockholders’ (Owners’) Equity
Illustration 4-25

Chapter
4-43
What are your personal assets?
What are your personal liabilities?
Some Facts:
48% of Americans think they know how much wealth
they have.
2005 was the first year since the Depression when
Americans spent more money than they made.
All About YouAll About YouAll About YouAll About You
Your Personal Balance SheetYour Personal Balance Sheet
Net
Worth=

Chapter
4-44
Some Facts:
The total net worth of U.S. households hit a record
$51.09 trillion during 2005.
Economists note that a rise in house prices actually
results in a fall in individual savings.
When asked about very important wealth-building
strategies for all Americans, 16% said “win the
lottery.”
Your Personal Balance SheetYour Personal Balance Sheet

Chapter
4-45
In a recent study, individuals were asked whether
they could save 20% of their household income.
Inconsistent
thinking?
Should you
prepare a
personal
balance
sheet?

Chapter
4-46
What Do You Think?What Do You Think?
Should you prepare a personal balance sheet?
YES: In order to attain your desired financial
objectives, you need to set goals early.
NO: Your financial situation right now bears very
little resemblance to what it will look like after you
graduate. At that point, you will have a better job,
and you won’t have to pay tuition. Right now, you’re
just “bleeding cash.”

Chapter
4-47
“Copyright © 2008 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted
in Section 117 of the 1976 United States Copyright Act
without the express written permission of the copyright owner
is unlawful. Request for further information should be
addressed to the Permissions Department, John Wiley & Sons,
Inc. The purchaser may make back-up copies for his/her own
use only and not for distribution or resale. The Publisher
assumes no responsibility for errors, omissions, or damages,
caused by the use of these programs or from the use of the
information contained herein.”
CopyrightCopyrightCopyrightCopyright

Accounting for business decision solutions

Recommended

Recommended

More Related Content

Viewers also liked

Viewers also liked (17)

Similar to Accounting for business decision solutions

Similar to Accounting for business decision solutions (20)

Recently uploaded

Recently uploaded (20)

Accounting for business decision solutions

Editor's Notes