12. FastForward
Worksheet
For the Month Ended December 31, 2011
P 1
Unadjusted Trial
Balance
Adjustments Adjusted Trial
Balance
Income
Statement
Balance Sheet and
Statement of
Changes in Equity
13. FastForward
Income Statement
For the Month Ended December 31, 2011
Revenues:
Consulting revenue 7,850
$
Rental revenue 300
Operating expenses:
Depr. expense - Equip. 375
$
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Total expenses 4,365
Net income 3,785
$
P 3
Prepare the Income Statement
14. FastForward
Statement of Changes in Equity
For the Month Ended December 31, 2011
C. Taylor, Capital 12/1/11 $ -0-
Add: Net income 3,785
$
Investment by owner 30,000 33,785
Total 33,785
Less: Withdrawal by owner 200
C. Taylor, Capital 12/31/11 33,585
$
P 3 PREPARE THE STATEMENT
OF CHANGES IN EQUITY
15. Prepare The Balance Sheet
FastForward
Balance Sheet
Assets
Cash 4,350
$
Accounts Receivable 1,800
Supplies 8,670
Prepaid Insurance 2,300
Equipment 26,000
$
Accumulated Depreciation 375 25,625
Total assets 42,745
$
Liabilities
Accounts Payable 6,200
Salaries Payable 210
Unearned Revenue 2,750
Total Liabilities 9,160
Equity
C Taylor, Capital 33,585
Total liabilities and Equity 42,745
$
12/31/11
P 3
16. Closing Entries (JURNAL PENUTUP)
1. Penutupan dilakukan di akhir periode, yang akan
membuat semua saldo akun pendapatan dan akun
beban menjadi nol (0), dalam rangka mengukur laba
bersih
2. Akun pendapatan dan akun beban disebut juga akun
sementara (temporary accounts), demikian juga akun
penarikan pemilik, karena akun tersebut mengukur
penarikan pemilik hanya selama satu periode
3. Ayat jurnal penutup memindahkan saldo pendapatan,
beban, dan penarikan pemilik ke akun modal.
19. On November 3, Z-Mart sold $2,400 of
merchandise on credit. The merchandise has a
cost basis to Z-Mart of $1,600.
Menjual barang dagangan-
PERPETUAL
P2
There are three general forms of business operations. A sole proprietorship is a business owned by just one individual. A court can order an owner to sell personal belongings to pay a proprietorship’s debt. This unlimited liability of a proprietorship is a disadvantage.
A partnership is owned by two or more individuals. Some partnerships have several thousand partners. A limited partnership (LP) includes a general partner(s) with unlimited liability and a limited partner(s) with liability restricted to the amount invested. A limited liability partnership (LLP) restricts partners’ liabilities to their own acts and the acts of individuals under their control. A limited liability company (LLC) offers the limited liability of a corporation and the tax treatment of a partnership (and proprietorship). Most proprietorships and partnerships are now organized as LLCs.
A corporation is a business legally separate from its owners, meaning it is responsible for its own acts and its own debts. Separate legal status means that a corporation can conduct business with the rights, duties, and responsibilities of a person. A corporation acts through its managers, who are its legal agents. A corporation is owned by individuals who normally are not active in the day-to-day operations of that business. For example, you may become an owner of IBM by purchasing shares on the New York Stock Exchange. While you are a part owner, you do not necessarily work for IBM nor are active in the operations of the company.
The basic accounting equation states that assets are equal to liabilities plus equity of a company. The equation makes sense because in a general way it states that assets must be equal to the claims against those assets. If you have an asset we can have two broad categories of claims against that asset. First, we may have claims by creditors (liabilities). Finally, after all creditor claims are satisfied, the residual owners, the shareholders, have a claim on those assets.
Assets are resources a company owns or controls. These resources are expected to yield future benefits. Examples are Web servers for an online services company, musical instruments for a rock band, and land for a vegetable grower. The term receivable is used to refer to an asset that promises a future inflow of resources. A company that provides a service or product on credit is said to have an account receivable from that customer.
Liabilities are creditors’ claims on assets. These claims reflect company obligations to provide assets, products or services to others. The term payable refers to a liability that promises a future outflow of resources. Examples are wages payable to workers, accounts payable to suppliers, notes payable to banks, and taxes payable to the government.
The owner’s claim on a company’s assets is called equity. Equity is the owner’s residual interest in the assets of a business after deducting liabilities. Equity is impacted by four types of accounts:
Owner’s capital,
Owner’s withdrawals,
Revenues, and
Expenses.
The owner’s claim on a company’s assets is called equity. Equity is the owner’s residual interest in the assets of a business after deducting liabilities. Equity is impacted by four types of accounts:
Owner’s capital,
Owner’s withdrawals,
Revenues, and
Expenses.
The owner’s claim on a company’s assets is called equity. Equity is the owner’s residual interest in the assets of a business after deducting liabilities. Equity is impacted by four types of accounts:
Owner’s capital,
Owner’s withdrawals,
Revenues, and
Expenses.
The closing process is an important step at the end of an accounting period after financial statements have been completed. After the formal financial statements have been prepared, we may begin the process of closing the books and getting ready for the next accounting period. Income is earned over a period of time. At the end of the time period, we start over and calculate income for the next period. The purpose of the closing process is to reset all revenue, expense and withdrawal accounts to a zero balance at the end of the period. By doing so, we can start the next accounting period anew. We will use a temporary account called income summary to facilitate the closing process. The account will never appear on any financial statement and will have a zero balance when the closing process is complete.
The closing process is an important step at the end of an accounting period after financial statements have been completed. After the formal financial statements have been prepared, we may begin the process of closing the books and getting ready for the next accounting period. Income is earned over a period of time. At the end of the time period, we start over and calculate income for the next period. The purpose of the closing process is to reset all revenue, expense and withdrawal accounts to a zero balance at the end of the period. By doing so, we can start the next accounting period anew. We will use a temporary account called income summary to facilitate the closing process. The account will never appear on any financial statement and will have a zero balance when the closing process is complete.
The closing process is an important step at the end of an accounting period after financial statements have been completed. After the formal financial statements have been prepared, we may begin the process of closing the books and getting ready for the next accounting period. Income is earned over a period of time. At the end of the time period, we start over and calculate income for the next period. The purpose of the closing process is to reset all revenue, expense and withdrawal accounts to a zero balance at the end of the period. By doing so, we can start the next accounting period anew. We will use a temporary account called income summary to facilitate the closing process. The account will never appear on any financial statement and will have a zero balance when the closing process is complete.
The difference between the totals of the Income Statement columns is net income or net loss. This occurs because revenues are entered in the Credit column and expenses in the Debit column. If the Credit total exceeds the Debit total, there is net income. If the Debit total exceeds the Credit total, there is a net loss. For FastForward, the Credit total exceeds the Debit total, giving a $3,785 net income. The net income from the Income Statement columns is then entered in the Balance Sheet and Statement of Owner’s Equity Credit column. Adding net income to the last Credit column implies that it is to be added to owner’s capital. If a loss occurs, it is added to the Debit column. This implies that it is to be subtracted from owner’s capital. The ending balance of owner’s capital does not appear in the last two columns as a single amount, but it is computed in the statement of changes in equity using these account balances.
You can see how we took the information directly from the worksheet and prepared the income statement for the month ended December 31, 2011. Net income reported by FastForward for the month is $3,785. We will see this amount again on the statement of
.
The statement of changes in equity adds together the net income and the owner’s investment of $30,000. The owner’s withdrawal of $200 reduces owner’s equity to $33,585.
The last step in preparing the financial statements is the preparation of the Balance Sheet. After we have completed the Income Statement and the Statement of Changes in Equity, we are ready to prepare our last financial statement, which is called the Balance Sheet. Asset and liability balances are transferred over from the adjusted trial balance to the Balance Sheet. The ending capital balance was determined on the Statement of Changes in Equity shown. The ending balance is transferred from that statement to the Balance Sheet. The Balance Sheet proves that the fundamental accounting equation is in balance and you can see that the Total Assets of $42,745 is equivalent to the sum of the total liabilities and owner’s equity.
This slide illustrates the flow of costs in an inventory system. If we take what we start the period with and add the net purchases during the period, we have the total merchandise available for sale during the period. At the end of the period, one of two things must happen to the merchandise available for sale. It is either still in inventory or it is sold. If it is in inventory, the cost will appear on the balance sheet as Ending Inventory. If it is sold, the cost will appear on the income statement as cost of goods sold.
Learning this flow of inventory costs will help you apply new material you will learn later.
On November 2, Z-Mart purchased $1,200 of merchandise inventory for cash.
When we purchase inventory, we debit the asset Merchandise Inventory for the cost of the inventory purchased and credit Cash. This entry is similar to the entry we would make if we purchased any asset, like a truck or land.
First, let’s see how to record a sale of merchandise inventory for Z-Mart. On November 3, Z-Mart sold $2,400 of merchandise on credit. The merchandise has a cost basis to Z-Mart of $1,600. Whenever a sale is made, the seller must make two entries: one for revenue and one for cost. The revenue entry includes a debit to Accounts Receivable (or Cash if it is a cash sale) and a credit to Sales. This entry is made for the sales price charged the customer, which in this example is $2,400. The cost entry includes a debit to Cost of Goods Sold and a credit to Merchandise Inventory for the cost of the goods sold to the customer, which in this example is $1,600.
