This document discusses key accounting concepts including the accounting cycle, journal entries, the general ledger, and trial balance. It provides examples of business transactions and their impact on the accounting equation. The accounting cycle involves recording transactions, preparing journal entries, posting to ledger accounts, creating an adjusted trial balance, and producing financial statements. Double-entry accounting and the rules for debit and credit entries are also explained.

1. FINANCIAL ACCOUNTING
Lecture 1-2

2. LEARNING OBJECTIVES
 Accounting and business environment
 Accounting cycle

3. To start a business you need:
• An idea that will become a product or service
• A market of customers who want the product or service
you offer
TYPES OF BUSINESS ORGANIZATIONS
 Service companies
 Merchandise companies
 Manufacturing companies

4. FORMS OF BUSINESS ORGANIZATION
 Proprietorship
 Partnership
 Corporation

5. BUSINESS ACTIVITIES
 Financing activities
 Investing activities
 Operating activities

6. Accounting
- a process of
identifying, recording, summarizi
ng, and reporting economic
information to decision makers
in the form of financial
statements.
6

7. Types of accounting
Financial Cost and Tax accounting
accounting management
accounting

8. Users of Accounting Information
• investors
 investors
Financial Accounting • creditors
 creditors
• regulators
 regulators
EXTERNAL USERS • customers
 customers
• competitors
 competitors
8

9. Users of Accounting Information
• investors
Financial Accounting • creditors
• regulators
EXTERNAL USERS • Customers
• Suppliers
Financial Accounting
• owners
 Owners
INTERNAL USERS • managers
 Managers
• employees

Employees
9

10. ACCOUNTING CONCEPTS AND PRINCIPLES
 What is the primary objective of financial
Accounting and Reporting?
Accountants follow professional guidelines.
The rules that govern accounting are called GAAP
(generally accepted accounting principles).
Financial Accounting Standards Board (FASB)

11. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
AND CONCEPTS
 Entity - Every entity is a separate economic unit and
should be kept distinct from the activities of its
owners and other companies
 Monetary Unit - only economic events that have
monetary transactions will be reported in the financial
statements
 Cost Principle - assets are presented at their original
(historical) cost
 Going Concern - companies are established with the
goal that they will operate for an indefinitely long
period of time
11-
52

12.  Periodicity - economic activities of any
firm can be divided into discrete time
periods for reporting purposes
 Matching Principle -all revenues must be
recorded in the accounting period in
which the goods are sold or services are
rendered and all expenses must be
recorded in the accounting period in
which they are incurred to produce such
revenues

13. Basic Accounting Equation
Owner’s
Assets = Liabilities +
Equity
The basic tool of accounting is the accounting equation. It
measures the economic resources of a business and
claims to those resources.
The accounting equation shows how
assets, liabilities, and owner’s equity are related.
The accounting equation shows the financial position of
the business.

14. ASSETS , LIABILITIES, AND OWNER’S EQUITY
Assets are the economic resources of a business that
are expected to provide benefits to the business in
the future.
Assets are what the business owns.
For example: Cash, merchandise
inventory, furniture, and land.

15. ASSETS , LIABILITIES, AND OWNER’S EQUITY
Claims to those assets come from two sources:
 Liabilities are outsider claims to the assets of a business.
 Owner’s equity or capital represents the insider claims to
the assets of a business.
= + Owner’s
Assets Liabilities
Equity
Economic
resources Claims to economic resources

16. Effects of Transactions on Owner’s Equity
OWNER’S EQUITY
decreased by increased by
Owner’s withdrawals Owner’s investments
Expenses Revenues
16

17. EFFECTS OF A BUSINESS TRANSACTION ON
ACCOUNTING EQUATION
1. Investment by owner. Kay Torres invests $20,000 of her
own money to start business . The Kay Torres Travel Agency
began an activity on June 1, 2011.
Assets = Liabilities + Owner’s Equity
Cash Owner’s Equity
(1) +$20,000 = + $20,000
Bal. $20,000 = $20,000

18. 2. Purchase an equipment for cash. The travel agency
purchases equipment, paying cash of $9,000.
Assets = Liabilities + Owner’s Equity
Cash + Equipment = Owner’s Equity
(1) +$20,000 + $20,000
(2) -$9,000 +$9,000
Bal. $11,000 + $9,000= $20,000

19. 3. Borrow cash from the bank. The travel agency borrows
$15,000 cash from the bank and signs a 2 year note payable
to the bank.
Assets = Liabilities + Owner’s Equity
Cash + Equipment = Notes payable Owner’s Equity
(1) +$20,000 + $20,000
(2) -$9,000 +$9,000
(3) +$15,000 +$15,000
Bal. $26,000 + $9,000= $15,000 + $20,000

20. 4. Purchase supplies on credit. The travel agency purchases
office supplies for the agency, agreeing to pay $1,200 within
30 days.
Assets = Liabilities Owner’s
+ Equity
Cash + Supplies Equipment Accounts Notes Owner’s
= Payable payable Equity
(1) + $20,000
+$20,000
(2) -$9,000 +$9,000
(3) +$15,000
+$15,000
(4) +$1,200 +$1,200
Bal.
$26,000 + $1,200+ $9,000= $1,200+ $15,000 + $20,000

21. 5. Provide services for cash. The travel agency makes
$2,300 of travel arrangements and collects this amount in
cash.
Assets = Liabilities Owner’s
+ Equity
Cash + Supplies Equipment Accounts Notes Owner’s
= Payable payable Equity
(1) + $20,000
+$20,000
(2) -$9,000 +$9,000
(3) +$15,000
+$15,000
(4) +$1,200 +$1,200
(5) +$2,300 +$2,300
Bal.
$28,300 + $1,200+ $9,000= $1,200+ $15,000 + $22,300

22. 6. Provide services on credit. The travel agency performs $5,200
of services and ,in return, receives clients promises to pay this
$5,200 within one month.
Assets = Liabilities Owner’s
+ Equity
Cash + Accounts Supplies Equipment Accounts Notes Owner’s
Receivable = Payable payable Equity
(1) +
+$20,000 $20,000
(2) - +$9,000
$9,000
(3) +$15,000
+$15,000
(4) +$1,200 +$1,200
(5) +$2,300
+$2,300
(6) +$5,200 +$5,200
Bal.
$28,300 $5,200 $1,200+ $9,000= $1,200+ $15,000 $27,500

23. 7. Partial payments of accounts payable. The travel agency pays
$600 to the store where it purchased $1,200 worth of supplies in
transaction (4).
Assets = Liabilities Owner’s
+ Equity
Cash + Accounts Supplies Equipment Accounts Notes Owner’s
Receivable = Payable payable Equity
(4) +$1,200 +$1,200
(5) +$2,300
+$2,300
(6) +$5,200 +$5,200
(7)-$600 -$600
Bal.
$27,700 $5,200+ $1,200+ $9,000= $600+ $15,000 $27,500
+ +

24. 8. (8),(9),(10). Payments of expenses. During the month, the
travel agency pays $900 in cash for building rent, $1,100 for
salaries, and $300 for utilities.
Assets = Liabilities Owner’s
+ Equity
Cash + Accounts Supplies Equipment Accounts Notes Owner’s
Receivable = Payable payable Equity
(4) +$1,200 +$1,200
(5) +$2,300
+$2,300
(6) +$5,200 +$5,200
(7)-$600 -$600
(8) -$900 -$900
(9)-
$1,100 -$1,100
(10)-$300 -$300
Bal.
$25,400 $5,200+ $1,200+ $9,000= $600+ $15,000 $25,200

25. THE ACCOUNTING CYCLE
Transactions
9. Reversing entries 1. Journalization
8. Post-closing trail
balance 2. Posting
7. Closing entries 3. Trial balance
Work
6. Financial 4. Adjustments
Sheet
Statements
5. Adjusted trial
balance
LO 3 Identify steps in the accounting cycle.

26. TRANSACTIONS AND EVENTS
What to Record?
FASB states, “transactions and other events and
circumstances that affect a business enterprise.”
Types of Events:
External – between a business and its environment.
Internal – event occurring entirely within a business.

27. DEBITS AND CREDITS
An arrangement that shows
Account the effect of transactions on
an account.
Debit = “Left”
Credit = “Right”
An Account can Account Name
be illustrated in a Debit / Dr. Credit / Cr.
T-Account form.

28. Owner’
Assets = Liability + s + Revenu - Expense
equity e
+ - - + - + - + + -
Bal. Bal. Bal. Bal. Bal.

29. DEBITS AND CREDITS
An Account shows the effect of transactions on a
given asset, liability, equity, revenue, or expense
account.
Double-entry accounting system (two-sided effect).
Recording done by debiting at least one account and
crediting another.
DEBITS must equal CREDITS.
LO 2 Explain double-entry rules.

30. 1. JOURNALIZING
General Journal – a chronological record
of transactions. Journal Entries are
recorded in the journal.

31. ANALYSIS OF TRANSACTION
ANALYSIS
1. Investment by owner. Kay Torres invests
$20,000 of her own money to start business .
The Kay Torres Travel Agency began an activity
on June 1, 2011.
DEBIT-CREDIT Increases in assets are recorded by debits; debit
RULES
cash $20,000
Increases in owner’s equity are recorded by credits;
credit owner’s equity
JOURNAL 06.01. Cash 20,000
ENTRY
Owner’s equity 20,000
ENTRIES IN Cash Owner’s equity
LEDGER
ACCOUNTS 06/01. 20,000 20,000 06/01

32. GENERAL JOURNAL Page 1
№ Date Description PR Debit Credit
1 June 1 Cash 20,000
Owner's equity 20,000
to record owner's investment
2 June 3 Equipment 9,000
Cash 9,000
to record purchasing equipment by cash
3 June 6 Cash 15,000
Notes payable 15,000
to record bank loan

33. GENERAL JOURNAL Page 1
P
№ Date Description R Debit Credit
4 June 11 Supplies 1,200
Accounts payable 1,200
to record purchasing supplies on credit
5 June 13 Cash 2,300
Service revenue 2,300
to record providing services for cash
6 June 19 Accounts receivable 5,200
Service revenue 5,200
to record providing services on credit

34. GENERAL JOURNAL Page 1
№ Date Description PR Debit Credit
7 June 21 Accounts payable 600
Cash 600
to record partial payment of accounts payable
8 June 26 Building rent expense 900
Cash 900
to record building rent expense
9 June 28 Salary expense 1,100
Cash 1,100
to record salary expense

35. GENERAL JOURNAL Page 1
№ Date Description PR Debit Credit
10 June 30 Utilities expense 300
Cash 300
to record utilities expense

36. 2. POSTING TO THE GENERAL LEDGER
The Ledger contains the entire group of accounts maintained by a
company.

37. LEDGER AND CHART OF ACCOUNTS
The chart of accounts is a list of all accounts and includes an
identifying number for each account.
Account Number Account Name Account Number Account Name
1001 Cash 4301 Owner's withdrawal
1201 Accounts receivable 5101 Revenues
1601 Supplies 7101 Rental revenue
1801 Prepaid insurance 7102 Salaries expense
2001 Equipment 7103 Insurance expense
3101 Accounts payable 7104 Rent expense
3201 Unearned revenue 7105 Supplies expense
4101 Owner's equity 7105 Utilities expense

38. GENERAL JOURNAL Page
№ Date Description PR Debit Cred
1 June 1 Cash 1001 20,000
Owner's equity 20,00
to record owner's investment
General Ledger
2 June 3 Equipment 9,000
Cash Cash Acct. No. 1001
9,00
№ Date to record purchasing equipment by cash Balance
Explanation Ref. Debit Credit
3 1 1-Jun 6 Cash
June GJ 1 20,000 15,000 20,000
Notes payable 15,00
to record bank loan

39. GENERAL JOURNAL Page 1
Date Description PR Debit Credit
June 1 Cash 20,000
Owner's equity 20,000
to record owner's investment
June 3 Equipment 9,000
Cash 9,000
to record purchasing equipment by cash
June 6 Cash 15,000
Owner's capital Acct. No.
Notes payable 15,000
Date Explanation Ref. Debit Credit Balance
1-Jun to record bank loan
GJ1 20,000 20,000

40. Owner’s
Cash equity
(1) 20,000 20,000 (1)

41. 3. TRIAL BALANCE
Trial Balance – a list of each
account and its balance; used
to prove equality of debit and
credit balances.

42. TRIAL BALANCE
Acct. No. Account Debit Credit
Cash $ 25,400
Accounts receivable 5,200
Supplies 1,200
Equipment 9,000
Accounts payable $ 600
Note payable 15,000
Owner's equity 20,000
Service revenue 7,500
Building rent expense 900
Salary expense 1,100
Utilities expense 300

43. 4. ADJUSTING ENTRIES
Revenues - recorded in the period in which
they are earned.
Expenses - recognized in the period in
which they are incurred.
Adjusting entries - needed to ensure that
the revenue recognition and matching
principles are followed.

44. PROBLEMS IN ACCOUNTING MEASUREMENTS
The identification of the accounting
period.
The proper point in time to
recognize revenue.
The appropriate moment to record
an expense. 44

45. Identification of the
Accounting Period

46. TIME PERIOD PRINCIPLE
For reporting purposes, an
organization’s life can be divided
into separate accounting periods
 months,
 quarters,
 years, etc.
46

47. THE ACCOUNTING PERIOD
Annual
1 2
Semiannual
1 2 3 4
Quarter
1 2 3 4 5 6 7 8 9 10 11 12
Month

48. The proper point in time
to recognize revenues.

49. REVENUE RECOGNITION . . .
Revenue is generally recognized
 At the time services are performed;
or
 When goods are sold and delivered
to a customer.
49

50. The proper point in time
to recognize expenses.

51. THE MATCHING PRINCIPLE
The matching principle requires
that all expenses incurred to
generate the revenues recognized
in an accounting period be
matched with those revenues.
51

52. Accrual Basis
Accounting

53. Revenue
Accrual Basis
Recognition
Accounting
Matching
Principle

54. ACCRUAL BASIS ACCOUNTING
Revenues are recognized
(recorded) when earned, without
regard to when cash is received;
Expenses are recorded as incurred
without regard to when they are
paid.
54

55. An adjusting entry is recorded to
bring an asset or liability account
balance to its proper amount.

56. Exh.
3.4
FRAMEWORK FOR ADJUSTMENTS
Framework for Adjustments
Adjustments
Prepaid Depreciation Unearned Accrued Accrued
Expenses Revenues Expenses Revenues
Transactions where cash is paid or
received before a related expense
or revenue is recognized.
Transactions where cash is paid or
received after a related expense
or revenue is recognized.

57. Exh.
3.4
FRAMEWORK FOR ADJUSTMENTS
Framework for Adjustments
Adjustments
Prepaid Depreciation Unearned Accrued Accrued
Expenses Revenues Expenses Revenues
Transaction where cash is paid
before a related expense is
recognized.

58. ADJUSTING PREPAID EXPENSES
Resources paid Here is the check
for my first
for prior to 6 months’ rent.
receiving the
actual benefits.
Asset Expense
Unadjusted Credit Debit
Balance Adjustment Adjustment

59. ADJUSTING PREPAID EXPENSES
 OnDecember 1, 2011, Scott Company
paid $12,000 to cover rent for December
2011 through May 2012.
 Let’s
look at the adjusting journal entry
needed on December 31, 2011.
GENERAL JOURNAL Page 34
Date Description PR Debit Credit
Dec. 31 Rent Expense 2,000
Prepaid Rent 2,000
to record monthl y rent

60. ADJUSTING PREPAID EXPENSES
 After posting, the accounts involved look
like this:
Prepaid Rent Rent Expense
12/1 $12,000 12/31 $2,000 12/31 $2,000

61. Exh.
3.4
FRAMEWORK FOR ADJUSTMENTS
Framework for Adjustments
Adjustments
Prepaid Depreciation Unearned Accrued Accrued
Expenses Revenues Expenses Revenues
Transaction where cash is
received before a related revenue
is recognized.

62. ADJUSTING UNEARNED REVENUE
Cash received in
advance of Buy your season tickets for
providing all home basketball games NOW!
products or
services. “GO SEAWOLVES”
Liability Revenue
Debit Unadjusted Credit
Adjustment Balance Adjustment

63. ADJUSTING UNEARNED REVENUE
On October 1, 2011, UAA sold 1,000 season
tickets to its 20 home basketball games for
$100 each. UAA makes the following entry:
GENERAL JOURNAL Page 34
Date Description PR Debit Credit
Oct. 1 Cash 100,000
Unearned Basketball Revenue 100,000
Recei pts for 1,000 sea son ti ck ets

64. ADJUSTING UNEARNED REVENUE
On December 31, UAA has played 10 of its
regular home games, winning 8 and
losing 2.
GENERAL JOURNAL Page 34
Date Description PR Debit Credit
Dec. 31
Prepare the appropriate Adjusting
Entry on December 31

65. ADJUSTING UNEARNED REVENUE
On December 31, UAA has played 10 of its
regular home games, winning 8 and
losing 2.
GENERAL JOURNAL Page 34
Date Description PR Debit Credit
Dec. 31 Unearned Basketball Revenue 50,000
Basketball Revenue 50,000
to recogni ze ba sk etba l l revenue

66. ADJUSTING UNEARNED REVENUE
 After posting, the accounts involved look
like this
Unearned Basketball
Revenue Basketball Revenue
12/31 $50,000 10/1 $100,000 12/31 $50,000

67. Exh.
3.4
FRAMEWORK FOR ADJUSTMENTS
Framework for Adjustments
Adjustments
Prepaid Depreciation Unearned Accrued Accrued
Expenses Revenues Expenses Revenues
Transaction where cash is paid
before a related expense is
recognized.

68. ADJUSTING FOR DEPRECIATION
 Depreciation is the process of
computing expense from allocating the
cost of plant and equipment over its
expected useful lives.
Straight-Line Asset Cost – Salvage Value
=
Depreciation Useful Life

69. ADJUSTING FOR DEPRECIATION
2. Purchase an equipment for cash. The travel
agency purchases equipment, paying cash of
$9,000.
• Let’s compute depreciation expense for
the year ended June 30, 2011.
2011 $9,000 - $0
Depreciation =
Expense 5
= $1,800/12=150. for month 69

70. ADJUSTING FOR DEPRECIATION
 Prepare the journal entry.
GENERAL JOURNAL Page 2
Date Description PR Debit Credit
June 31 Depreciation Exp. 12,000
Accum. Depreciation 12,000
To record a nnua l depreci a ti on
Accumulated depreciation is
a contra asset account.

71. ADJUSTING FOR DEPRECIATION
 Afterposting, the accounts involved
look like this:
Equipment Depreciation Expense
6/3 $9,000 6/30 $150
Accumulated Depreciation
6/30 $150

72. ADJUSTING FOR DEPRECIATION
Kay Torres Co.Ltd
Balance Sheet
At June 30, 2011
Assets The
Cash
. equipment
. account is
. shown on
Equipment $ 9,000
Less: accumulated deprec. (150) 8,850 the balance
. sheet like
. this.
.
Total Assets

73. ADJUSTING FOR SUPPLIES
At the end of current period balance of Supplies
was $900 . So we must adjust supplies expense.
– Prepare the journal entry.
GENERAL JOURNAL Page 2
Date Description PR Debit Credit
June 30 Supplies expense 300
Supplies 300
To record suppl i es expence

74. ADJUSTING FOR SUPPLIES
 Afterposting, the accounts involved
look like this:
Supplies Supplies Expense
6/11 $1,200 $300 6/30 6/30 $300

75. Exh.
3.4
FRAMEWORK FOR ADJUSTMENTS
Framework for Adjustments
Adjustments
Prepaid Depreciation Unearned Accrued Accrued
Expenses Revenues Expenses Revenues
Transaction where cash is paid
after a related expense is
recognized.

76. ADJUSTING FOR ACCRUED EXPENSES
Costs incurred in a Its accrued bank loan
period that are interest!
both unpaid and
unrecorded.
Expense Liability
Debit Credit
Adjustment Adjustment

77. ADJUSTING FOR ACCRUED EXPENSES
3. Borrow cash from the bank. The travel agency
borrows $15,000 cash from the bank and signs a 2 year
note payable to the bank. Interest rate 12%. Must pay at
the end year.
06/30/11 First payment
Month end Date of interest
31/12/11
06/05/11
Record adjusting
journal entry.

78. ADJUSTING FOR ACCRUED EXPENSES
3. Borrow cash from the bank. The travel agency borrows
$15,000 cash from the bank and signs a 2 year note payable
to the bank. Interest rate 12%. Must pay at the end year.
GENERAL JOURNAL Page 34
Date Description PR Debit Credit
June 30 Interest expense 150
Interest payable 150
to record i nterest a ccrua l

79. ADJUSTING FOR ACCRUED EXPENSES
 Afterposting, the accounts involved will
look like this . . .
Interest Expense Interest Payable
06/30 $150 06/30 $150

80. Exh.
3.4
FRAMEWORK FOR ADJUSTMENTS
Framework for Adjustments
Adjustments
Prepaid Depreciation Unearned Accrued Accrued
Expenses Revenues Expenses Revenues
Transaction where cash is
received after a related revenue
is recognized.

81. ADJUSTING FOR ACCRUED REVENUES
Revenues earned Yes, you can pay me
for your tax return
in a period that
when I finish the work.
are both
unrecorded and
not yet received.
Asset Revenue
Debit Credit
Adjustment Adjustment

82. ADJUSTING FOR ACCRUED REVENUES
Smith & Jones, CPAs, had $31,200 of work completed but
not yet billed to clients. Let’s make the adjusting entry
necessary on December 31, 2002, the end of the
company’s fiscal year.
GENERAL JOURNAL Page 34
Date Description PR Debit Credit
Dec. 31 Accounts Receivable 31,200
Service Revenues 31,200
Revenues ea rned but not recei ved

83. Exh.
Exhibit 3.18 3.18
Summary of Adjustments and
Financial Statement Links
Before Adjusting Adjusting
Category
B/S I/S Entry
Dr. Expense
Prepaid Expense Asset Expense
Cr. Asset
Dr. Liability
Unearned Revenue Liability Revenue
Cr. Revenue
Dr. Expense
Accrued Expenses Liability Expense
Cr. Liability
Dr. Asset
Accrued Revenues Asset Revenue
Cr. Revenue
Overstated
Understated

84. USING A WORKSHEET
Worksheet
A multiple-column form used in preparing
financial statements.
Not a permanent accounting record.
Five step process.
Use of worksheet is optional.
LO 1 Prepare a worksheet.

85. STEPS IN PREPARING A WORKSHEET
Illustration 4-2

86. 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 25,400
Accounts Receivable 5,200 Trial balance amounts
Supplies 1,200 come directly from
Equipment 9,000 ledger accounts.
Accumulated Depreciation
Accounts Payable 600
Notes payable 15,000
Owner's equity 20,000
Service Revenue 7,500
Salaries Expense 1,100 Include all
accounts with
Rent expense 900
balances.
Utilities expense 300
Totals 43,100 43,100

87. 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 25,400
Accounts Receivable 5,200
Supplies 1,200 a. 300
Equipment 9,000
Accumulated Depreciation b. 150
Accounts Payable 600 Adjustments Key:
Notes payable 15,000
Owner's equity 20,000 (a) Supplies used.
(b) Depreciation expense.
Service Revenue 7,500
Salaries Expense 1,100 (c) Interest expense
Rent expense 900
accrued
Utilities expense 300
Totals 43,100 43,100
Supplies expense a. 300
Depr. Expense b. 150
Interest expense c. 150 Enter adjustment
Interest payable c. 150 amounts, total
Totals 600 600
Add additional adjustments columns,
accounts as and check for equality.
needed.

88. 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 24,400 24,400
Accounts Receivable 5,200 5,200
Supplies 1,200 a. 300 900
Equipment 9,000 9,000
Accumulated Depreciation b. 150 150
Accounts Payable 600 600
Notes payable 15,000 15,000
Owner's equity 20,000 20,000
Owner's withdrawal 1,000 1,000
Service Revenue 7,500 7,500 Total the adjusted trial
Salaries Expense 1,100 1,100 balance columns and
Rent expense 900 900 check for equality.
Utilities expense 300 300
Totals 43,100 43,100
Supplies expense a. 300 300
Depr. Expense b. 150 150
Interest expense c. 150 150
Interest payable c. 150 150
Totals 600 600 43,400 43,400

89. 4. Extend Amounts to Financial Statement Columns
Adjusted Income
Trial Balance Adjustments Trial Balance Extend all asset,
Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 25,400 25,400
liability, and equity
Accounts Receivable
Supplies
5,200
1,200 a. 300
5,200
900
account balances to
Equipment 9,000 9,000 the balance sheet
Accumulated Depreciation b. 150 150
Accounts Payable 600 600 columns.
Notes payable 15,000 15,000
Owner's equity 20,000 20,000
Service Revenue 7,500 7,500 7,500
Salaries Expense 1,100 1,100 1,100
Rent expense 900 900 900
Utilities expense 300 300 300
Totals 43,100 43,100
Supplies expense a. 300 300 300
Depr. Expense b. 150 150 150
Interest expense c. 150 150 150
Interest payable c. 150 150
Totals 600 600 43,400 43,400 2,900 7,500

90. 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 25,400 25,400
Accounts Receivable 5,200 5,200
Supplies 1,200 a. 300 900
Equipment 9,000 9,000
Accumulated Depreciation b. 150 150
Accounts Payable 600 600
Notes payable 15,000 15,000
Owner's equity 20,000 20,000
Retained Earnings
Service Revenue 7,500 7,500 7,500
Salaries Expense 1,100 1,100 1,100
Rent expense 900 900 900
Utilities expense 300 300 300
Totals 43,100 43,100
Supplies expense a. 300 300 300
Depr. Expense b. 150 150 150
Interest expense c. 150 150 150
Interest payable c. 150 150
Totals 600 600 43,400 43,400 2,900 7,500
Income before tax 4,600
Income tax expense 460
Net Income 4,140
Total 7,500 7,500
Compute Net Income or Net Loss.

91. 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 25,400 25,400 25,400
Accounts Receivable 5,200 5,200 5,200
Supplies 1,200 a. 300 900 900
Equipment 9,000 9,000 9,000
Accumulated Depreciation b. 150 150 150
Accounts Payable 600 600 600
Notes payable 15,000 15,000 15,000
Owner's equity 20,000 20,000 20,000
Retained Earnings 4,140
Service Revenue 7,500 7,500 7,500
Salaries Expense 1,100 1,100 1,100
Rent expense 900 900 900
Utilities expense 300 300 300
Totals 43,100 43,100
Supplies expense a. 300 300 300
Depr. Expense b. 150 150 150
Interest expense c. 150 150 150
Interest payable c. 150 150 150
Totals 600 600 43,400 43,400 2,900 7,500
Income before Tax 4,600
Income tax expense 460
Net Income 4,140 460
Tax payable
Total 7,500 7,500 40,500 40,500

92. FINANCIAL STATEMENTS
 BALANCE SHEET
 INCOME STATEMENT
 STATEMENT OF OWNER’S EQUITY
 STATEMENT OF CASH FLOW

93. PREPARE THE FINANCIAL STATEMENTS
Prepare the
Kay Torres Co.ltd Income
Income Statement
For the Month Ended June 30, 2011 Statement.
Revenues:
Service revenue $ 7,500
Total revenues 7,500 A work sheet
Operating expenses: does not
Depr. expense - Equip. $ 150
Rent expense $ 900 substitute for
Salaries expense 1,100
Supplies expense 300
financial
Interest expense 150 statements.
Utilities expense 300
Total expenses 2,900
Net income $ 4,600

94. Kay Torres Co.ltd
Income Statement
Prepare the
For the Month Ended June 30, 2011 Statement of
Revenues:
Service revenue $ 7,500 Changes in Owner’s
Total revenues 7,500 Equity.
Operating expenses:
Depr. expense - Equip. $ 150
Rent expense $ 900
Salaries expense 1,100
Supplies expense 300
Kay Torres Co.ltd
Interest expense 150
Utilities expense 300 Statement of Changes in Owner's Equity
Total expenses 2,900 For the Month Ended June 30, 2011
Income before Tax $ 4,600
Income Tax Expense 460 Owner's equity 6/1/2011 $ -0-
Net Income 4140
Add: Net income $ 4,140
Investment by owner 20,000 24,140
Total 24,140
Less: Withdrawal by owner -
Owner's equity 6/30/2011 $ 24,140

95. Kay Torres Co.ltd
Statement of Changes in Owner's Equity
Prepare the
For the Month Ended June 30, 2011 Balance Sheet.
Kay Torres Co.ltd
Owner's equity 6/1/2011 $ -0- Balance Sheet
Add: Net income $ 4,140 30-Jun-11
Investment by owner 20,000 24,140 Assets
Total 24,140 Cash $ 25,40
Accounts receivable 5,20
Less: Withdrawal by owner -
Supplies 90
Owner's equity 6/30/2011 $ 24,140 Equipment $ 9,000
Less: accum. depr. (150) 8,85
Total assets $ 40,35
Liabilities
Accounts payable $ 600
Notes payable 15,000
Income tax payable 460
Interest payable 150
Total liabilities $ 16,21
Owner's Equity
Owner,s equity 20,00
Retained earnings 4,14
Total Owner's Equity 24,14
Total liabilities and equity $ 40,35

96. CLOSING THE BOOKS
At the end of the accounting period, the company
makes the accounts ready for the next period.
LO 2 Explain the process of closing the books.

97. CLOSING THE BOOKS
Closing entries formally recognize, in the general
ledger, the transfer of
Income tax expense to Tax payable
Net income to Retained earnings.
Closing entries are only at the end of the annual
accounting period.
LO 2 Explain the process of closing the books.

98. RECORDING CLOSING ENTRIES
Let’s see how the
Close Revenue accounts closing process
to Income Summary. works!
Close Expense accounts
to Income Summary.
Close Income Summary
account to Tax payable.
4 Close income Summary
account to Retained
Earnings

99. CLOSING PROCESS
Income Summary Service revenue
7,500
Balances
before
closing. 7,500
Income Summary
Revenue Accounts
7,500
7,500 7,500
7,500 -
Close Revenue
accounts to Income
Summary.

100. GENERAL JOURNAL Page 1
№ Date Description PR Debit Credit
June 30 Service revenue 7,500
Income summary 7,500
to record closing entries of revenue

101. CLOSING PROCESS
Salary expense
1,100 1,100
Close Expense Supplies expense
accounts to Income 300 300
- Summary.
-
Rent expense
900 900 Depreciation expense
150 150
Income Summary
-
1,100 7,500
900 -
Utitilies expense
300 300 300
Interest expense
300 150 150
150
-
150
-
460
Tax payable
460 4,140 Retained earnings
0 4,140
460 4,140

102. GENERAL JOURNAL Page
№ Date Description PR Debit Credit
June 30 Service revenue 7,500
Income summary 7,500
to record closing entries of revenue
Income summary 1,100
Salary expense 1,100
to record closing entries of salary expense
Income summary 900
Rent expense 900
to record closing entries of rent expense

103. GENERAL JOURNAL Page
№ Date Description PR Debit Credit
June 30 Income summary 300
Utilities expense 300
to record closing entries of utilities expense
Income summary 300
Supplies expense 300
to record closing entries of Supplies expense
Income summary 150
Depreciation expense 150
to record closing entries of rent expense

104. GENERAL JOURNAL Page
№ Date Description PR Debit Credit
June 30 Income summary 150
Interest expense 150
to record closing entries of interest expense
Income summary 460
Tax payable 460
to record closing entries of income tax expense
Income summary 4,140
retained earnings 4,140
to record closing entries of Net income