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Chapter Chapter 44Completing the Completing the
Accounting CycleAccounting CycleFinancial and Managerial Accounting
8th Edition
Warren Reeve Fess
2
1. Review the seven basic steps of the accounting cycle.
2. Prepare a work sheet.3. Prepare financial statements from a work sheet.4. Prepare adjusting and closing entries from a work
sheet.5. Explain what is meant by the fiscal year and the
natural business year.6. Analyze and interpret the financial solvency of a
business by computing working capital and the current ratio.
ObjectivesObjectivesObjectivesObjectives
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Seven Basic Steps of the Accounting Cycle
Seven Basic Steps of the 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.
4
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 assets that are expected to be converted into cash, sold, or used up usually in less than a
year are current assets.
That’s correct. Cash and other assets that are expected to be converted into cash, sold, or used up usually in less than a
year are current assets.
5
For example?For example?
Well… besides cash, there’s notes receivable, accounts receivable, supplies, and
other prepaid items.
Well… besides cash, there’s notes receivable, accounts receivable, supplies, and
other prepaid items.
6
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.
7
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.
Accounts payable Wages payable Interest payable Unearned fees
Liabilities not due for more than a year
usually are long-term liabilities.
Liabilities not due for more than a year
usually are long-term liabilities.
Mortgage note payable
Mortgage payableBond payable
8
The Work SheetThe 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.
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.
9
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 SheetThe Work Sheet
10
The Work SheetThe 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
11
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360Capital Stock 25,000Dividends 4,000Fees Earned 16,340Wages Expense 4,275Rent Expense 1,600Utilities Expense 985Supplies Expense 800Miscellaneous Expense 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
NetSolutionsWork Sheet
For the Two Months Ended December 31, 2005
The Unadjusted The Unadjusted Trial BalanceTrial Balance
The Unadjusted The Unadjusted Trial BalanceTrial Balance
123456789
10111213141516171819202122
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(a) The (a) The SuppliesSupplies account has a debit of account has a debit of $2,000. A count of supplies at the end of $2,000. A count of supplies at the end of the period reveals that $760 is on hand. the period reveals that $760 is on hand. Therefore, $1,240 in supplies was used Therefore, $1,240 in supplies was used during the two-month period.during the two-month period.
(a) The (a) The SuppliesSupplies account has a debit of account has a debit of $2,000. A count of supplies at the end of $2,000. A count of supplies at the end of the period reveals that $760 is on hand. the period reveals that $760 is on hand. Therefore, $1,240 in supplies was used Therefore, $1,240 in supplies was used during the two-month period.during the two-month period.
13
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360Capital Stock 25,000Dividends 4,000Fees Earned 16,340Wages Expense 4,275Rent Expense 1,600Utilities Expense 985Supplies Expense 800Miscellaneous Expense 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
NetSolutionsWork Sheet
For the Two Months Ended December 31, 2005
123456789
10111213141516171819202122
(a) 1,240
(a) 1,240
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(b)(b) The The Prepaid Insurance Prepaid Insurance account has a account has a debit balance of $2,400, which debit balance of $2,400, which represents prepayment of insurance for represents prepayment of insurance for 24 months beginning December 1. 24 months beginning December 1. Thus, the insurance expense for this Thus, the insurance expense for this month is $100 ($2,400 ÷ 24).month is $100 ($2,400 ÷ 24).
(b)(b) The The Prepaid Insurance Prepaid Insurance account has a account has a debit balance of $2,400, which debit balance of $2,400, which represents prepayment of insurance for represents prepayment of insurance for 24 months beginning December 1. 24 months beginning December 1. Thus, the insurance expense for this Thus, the insurance expense for this month is $100 ($2,400 ÷ 24).month is $100 ($2,400 ÷ 24).
15
Cash 2,065Accounts Receivable 2,220Supplies 2,000 (a) 1,240Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360Capital Stock 25,000Dividends 4,000Fees Earned 16,340Wages Expense 4,275Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
NetSolutionsWork Sheet
For the Two Months Ended December 31, 2005
123456789
10111213141516171819202122
Insurance Expense (b) 100
Accounts are added as needed.
(b) 100
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(c) The (c) The Unearned Rent Unearned Rent account has a credit account has a credit balance of $360, which represents the balance of $360, which represents the receipt of three-months’ rent beginning receipt of three-months’ rent beginning with December 1. Thus, the rent revenue with December 1. Thus, the rent revenue for December is $120.for December is $120.
(c) The (c) The Unearned Rent Unearned Rent account has a credit account has a credit balance of $360, which represents the balance of $360, which represents the receipt of three-months’ rent beginning receipt of three-months’ rent beginning with December 1. Thus, the rent revenue with December 1. Thus, the rent revenue for December is $120.for December is $120.
FOR REN
T
17
Cash 2,065Accounts Receivable 2,220Supplies 2,000 (a) 1,240Prepaid Insurance 2,400 (b) 100Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360Capital Stock 25,000Dividends 4,000Fees Earned 16,340Wages Expense 4,275Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
NetSolutionsWork Sheet
For the Two Months Ended December 31, 2005
123456789
10111213141516171819202122
Insurance Expense (b) 100
(c) 120
Rent Revenue (c) 120
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Cash 2,065Accounts Receivable 2,220Supplies 2,000 (a) 1,240Prepaid Insurance 2,400 (b) 100Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360 (c) 120Capital Stock 25,000Dividends 4,000Fees Earned 16,340Wages Expense 4,275Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
Net Solutions - Work SheetFor the Two Months Ended December 31, 2005
123456789
10111213141516171819202122
Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250
(d) 250
(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.(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.
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Cash 2,065Accounts Receivable 2,220Supplies 2,000 (a) 1,240Prepaid Insurance 2,400 (b) 100Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360 (c) 120Capital Stock 25,000Dividends 4,000Fees Earned 16,340Wages Expense 4,275 (d) 250Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
Net Solutions - Work SheetFor the Two Months Ended December 31, 2005
123456789
10111213141516171819202122
Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250
(e) 500
(e) 500
(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.(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.
20
Cash 2,065Accounts Receivable 2,220 (e) 500Supplies 2,000 (a) 1,240Prepaid Insurance 2,400 (b) 100Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360 (c) 120Capital Stock 25,000Dividends 4,000Fees Earned 16,340 (e) 500Wages Expense 4,275 (d) 250Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
Net Solutions - Work SheetFor the Two Months Ended December 31, 2005
123456789
10111213141516171819202122
Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250Depreciation Expense (f) 50Accum. Depreciation (f) 50
(f) Depreciation of the office equipment is $50 for December.(f) Depreciation of the office equipment is $50 for December.(f) Depreciation of the office equipment is $50 for December.(f) Depreciation of the office equipment is $50 for December.
21
Cash 2,065Accounts Receivable 2,220 (e) 500Supplies 2,000 (a) 1,240Prepaid Insurance 2,400 (b) 100Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360 (c) 120Capital Stock 25,000Dividends 4,000Fees Earned 16,340 (e) 500Wages Expense 4,275 (d) 250Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
123456789
10111213141516171819202122232425
Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250 Depreciation Expense (f) 50 Accum. Depreciation (f) 50
2,260 2,260Summed Summed
and and ruledruled
Summed Summed and and
ruledruled
22
Cash 2,065 2,065Accounts Receivable 2,220 (e) 500 2,720Supplies 2,000 (a) 1,240 760Prepaid Insurance 2,400 (b) 100 2,300Land 20,000 20,000Office Equipment 1,800 1,800Accounts Payable 900 900Unearned Rent 360 (c) 120 240Capital Stock 25,000 25,000Dividends 4,000 4,000Fees Earned 16,340 (e) 500 16,840Wages Expense 4,275 (d) 250 4,525Rent Expense 1,600 1,600Utilities Expense 985 985Supplies Expense 800 (a) 1,240 2,040Miscellaneous Expense 455 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
123456789
10111213141516171819202122232425
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
2,260 2,260 43,400 43,400
23
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 SheetThe Work Sheet
24
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 SheetThe Work Sheet
25
Cash 2,065Accounts Receivable 2,720Supplies 760Prepaid Insurance 2,300Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 240Capital Stock 25,000Dividends 4,000Fees Earned 16,840Wages Expense 4,525Rent Expense 1,600Utilities Expense 985Supplies Expense 2,040Miscellaneous Expense 455
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Income Statement Balance Sheet
123456789
10111213141516171819202122232425
Insurance Expense 100 Rent Revenue 120 Wages Payable 250 Depreciation Expense 50 Accum. Depreciation 50
43,400 43,400
26
Cash 2,065 2,065Accounts Receivable 2,720 2,720Supplies 760 760Prepaid Insurance 2,300 2,300Land 20,000 20,000Office Equipment 1,800 1,800Accounts Payable 900 900Unearned Rent 240 240Capital Stock 25,000 25,000Dividends 4,000 4,000Fees Earned 16,840 16,840Wages Expense 4,525 4,525Rent Expense 1,600 1,600Utilities Expense 985 985Supplies Expense 2,040 2,040Miscellaneous Expense 455 455
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Income Statement Balance Sheet
123456789
10111213141516171819202122232425
Insurance Expense 100 100 Rent Revenue 120 120 Wages Payable 250 250 Depreciation Expense 50 50 Accum. Depreciation 50 50
43,400 43,400
27
Cash 2,065 2,065Accounts Receivable 2,720 2,720Supplies 760 760Prepaid Insurance 2,300 2,300Land 20,000 20,000Office Equipment 1,800 1,800Accounts Payable 900 900Unearned Rent 240 240Capital Stock 25,000 25,000Dividends 4,000 4,000Fees Earned 16,840 16,840Wages Expense 4,525 4,525Rent Expense 1,600 1,600Utilities Expense 985 985Supplies Expense 2,040 2,040Miscellaneous Expense 455 455
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Income Statement Balance Sheet
123456789
10111213141516171819202122232425
Insurance Expense 100 100 Rent Revenue 120 120 Wages Payable 250 250 Depreciation Expense 50 50 Accum. Depreciation 50 50
43,400 43,400 9,755 16,960 33,645 26,440
28
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 Balance Sheet column totals is also the income
(or net loss) for the period.
The difference between the Balance Sheet column totals is also the income
(or net loss) for the period.
9,755 16,960 33,645 26,4407,205 7,205
16,960 16,960 33,645 33,645
Income Statement Balance Sheet
Net IncomeNet Income Net IncomeNet Income
29
NetSolutionsIncome StatementFor Two Months Ended December 31, 2005
Fees earned $16,840Rent revenue 120
Total revenues $16,960Expenses:
Wages expense $ 4,525Supplies expense 2,040Rent expense 1,600Utilities expense 985Insurance expense 100Depreciation expense 50Miscellaneous expense 455
Total expenses 9,755Net income $ 7,205
Every amount on this income statement was taken from the Every amount on this income statement was taken from the Income Statement column of the work sheet.Income Statement column of the work sheet.
Every amount on this income statement was taken from the Every amount on this income statement was taken from the Income Statement column of the work sheet.Income Statement column of the work sheet.
30
NetSolutionsRetained Earnings StatementFor the Two Months Ended December 31, 2005
Net income for November and December 7,205
Less dividends 4,000
Retained earnings, December 31, 2005 $3,205
Either from the Either from the income statement or income statement or
from the balance from the balance sheet on the work sheet on the work
sheet.sheet.
Either from the Either from the income statement or income statement or
from the balance from the balance sheet on the work sheet on the work
sheet.sheet.
From the From the Balance Sheet Balance Sheet
debit column of debit column of the work sheet.the work sheet.
From the From the Balance Sheet Balance Sheet
debit column of debit column of the work sheet.the work sheet.
31
NetSolutionsBalance SheetDecember 31, 2005
Assets LiabilitiesCurrent assets: Current liabilities:
Cash $ 2,065 Accounts payable $900Accounts receivable 2,720 Wages payable 250Supplies 760 Unearned rent 240Prepaid insurance 2,300 Total liabilities$ 1,390 Total current assets $ 7,845
Property, plant, and equipment:
Land $20,000Office equip. $1,800Less 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
Total assets $29,595 stockholders’ equity$29,595
Assets LiabilitiesCurrent assets: Current liabilities:
Cash $ 2,065 Accounts payable $900Accounts receivable 2,720 Wages payable 250Supplies 760 Unearned rent 240Prepaid insurance 2,300 Total liabilities$ 1,390 Total current assets $ 7,845
Property, plant, and equipment:
Land $20,000Office equip. $1,800Less 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
Total assets $29,595 stockholders’ equity$29,595
Stockholders’ Equity
From the Retained From the Retained Earnings StatementEarnings StatementFrom the Retained From the Retained Earnings StatementEarnings Statement
32
Adjusting and Closing EntriesAdjusting and Closing EntriesAdjusting and Closing EntriesAdjusting 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.
If a work sheet has been prepared, the data for these entries are in the Adjustments columns.
If a work sheet has been prepared, the data for these entries are in the Adjustments columns.
33
RETAINED EARNINGSRETAINED EARNINGS
The Closing ProcessThe Closing ProcessThe Closing ProcessThe Closing Process
Income Summary
11Revenues are transferred to Income Summary22
Expenses are transferred to Income Summary
33 Net Income or Net Loss is transferred to Retained Earnings
44Dividends are transferred to Retained Earnings
34
RETAINED EARNINGSRETAINED EARNINGS
The Closing ProcessThe Closing ProcessThe Closing ProcessThe Closing Process
Income Summary
11Revenues are transferred to Income Summary22
Expenses are transferred to Income Summary
33 Net Income or Net Loss is transferred to Retained Earnings
44Dividends are transferred to Retained Earnings
The The Income Summary Income Summary account does not appear on account does not appear on
the financial statements.the financial statements.
The The Income Summary Income Summary account does not appear on account does not appear on
the financial statements.the financial statements.
35
Wages Expense
Bal. 4,525
Rent Expense
Bal. 1,600
Depreciation Expense
Bal. 50
Utilities Expense
Bal. 985
Supplies Expense
Bal. 2,040
Insurance Expense
Bal. 100
Miscellaneous Expense
Bal. 455
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
Retained Earnings
Dividends
Bal. 4,000
Income Summary
Note: Note: The The balances shown balances shown
are adjusted are adjusted balances before balances before
closing. The closing. The following following sequence sequence
demonstrates the demonstrates the closing process.closing process.
Note: Note: The The balances shown balances shown
are adjusted are adjusted balances before balances before
closing. The closing. The following following sequence sequence
demonstrates the demonstrates the closing process.closing process.
The Closing ProcessThe Closing ProcessThe Closing ProcessThe Closing Process
36
Wages Expense
Bal. 4,525
Rent Expense
Bal. 1,600
Depreciation Expense
Bal. 50
Utilities Expense
Bal. 985
Supplies Expense
Bal. 2,040
Insurance Expense
Bal. 100
Miscellaneous Expense
Bal. 455
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
Retained Earnings
Dividends
Bal. 4,000
Income Summary
Debit each revenue account for the amount of its
balance, and credit Income Summary
for the total revenue.
16,840
120
16,960
The Closing ProcessThe Closing ProcessThe Closing ProcessThe Closing Process
37
Wages Expense
Bal. 4,525
Rent Expense
Bal. 1,600
Depreciation Expense
Bal. 50
Utilities Expense
Bal. 985
Supplies Expense
Bal. 2,040
Insurance Expense
Bal. 100
Miscellaneous Expense
Bal. 455
Retained Earnings
Dividends
Bal. 4,000
Income Summary
Debit Income Summary for the total expenses and credit each expense
account for its balance.
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
16,840
120
16,9609,755
455
100
2,040
985
50
1,600
4,525
The Closing ProcessThe Closing ProcessThe Closing ProcessThe Closing Process
38
Wages Expense
Bal. 4,525
Rent Expense
Bal. 1,600
Depreciation Expense
Bal. 50
Utilities Expense
Bal. 985
Supplies Expense
Bal. 2,040
Insurance Expense
Bal. 100
Miscellaneous Expense
Bal. 455
Retained Earnings
Dividends
Bal. 4,000
Income Summary
Debit Income Summary for the
amount of its balance (in this
case, the net income) and credit
Retained Earnings.
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
16,840
120
16,9609,755
455
100
2,040
985
50
1,600
4,525
7,205
7,205
The Closing ProcessThe Closing ProcessThe Closing ProcessThe Closing Process
39
Wages Expense
Bal. 4,525
Rent Expense
Bal. 1,600
Depreciation Expense
Bal. 50
Utilities Expense
Bal. 985
Supplies Expense
Bal. 2,040
Insurance Expense
Bal. 100
Miscellaneous Expense
Bal. 455
Retained Earnings
Dividends
Bal. 4,000
Income Summary
Debit Retained Earnings for the
balance of Dividends and
credit Dividend for the same amount.
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
16,840
120
16,9609,755
455
100
2,040
985
50
1,600
4,525
7,205
4,000
4,000
The Closing ProcessThe Closing ProcessThe Closing ProcessThe Closing Process
7,205
40
Wages Expense
Bal. 4,525
Rent Expense
Bal. 1,600
Depreciation Expense
Bal. 50
Utilities Expense
Bal. 985
Supplies Expense
Bal. 2,040
Insurance Expense
Bal. 100
Miscellaneous Expense
Bal. 455
Retained Earnings
Dividends
Bal. 4,000
Income Summary
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
16,480
120
16,9609,775
445
100
2,040
985
50
1,600
4,525
7,205
7,205
4,000
4,000
Close RevenuesClose Revenues
Close ExpensesClose Expenses
Close Income SummaryClose Income Summary
Close DividendsClose Dividends
16,84016,840
120120
16,96016,960
4,5254,525
1,6001,600
5050
985985
2,0402,040
100100
455455
9,7559,755
7,2057,205
7,2057,205
4,0004,000
4,0004,000
Review of the Closing ProcessReview of the Closing ProcessReview of the Closing ProcessReview of the Closing Process
After the closing entries are posted, all of the temporary accounts have zero balances.
After the closing entries are posted, all of the temporary accounts have zero balances.
41
Post-closing Trial BalancePost-closing Trial BalancePost-closing Trial BalancePost-closing Trial Balance
NetSolutionsPost-Closing Trial Balance
December 31, 2005Cash 2 065 00Accounts Receivable 2 720 00Supplies 760 00Prepaid Insurance 2 300 00Land 20 000 00Office Equipment 1 800 00Accumulated Depreciation 50 00Accounts Payable 900 00Wages Payable 250 00Unearned Rent 240 00Capital Stock 25 000 00Retained Earnings 3 205 00
29 645 00 29 645 00
42
Financial Analysis for Financial Analysis for NetSolutionsNetSolutions
Financial Analysis for Financial Analysis for NetSolutionsNetSolutions
Working Capital = $7,845 – $1,390
Working Capital =
Current Assets
–Current
Liabilities
Working Capital = $6,455
43
Current Ratio =
Current Assets
÷Current
Liabilities
Financial Analysis for Financial Analysis for NetSolutionsNetSolutions
Financial Analysis for Financial Analysis for NetSolutionsNetSolutions
Current Ratio = $7,845 ÷ $1,390
Current Ratio = 5.6
44
Financial Analysis for Financial Analysis for NetSolutionsNetSolutions
Financial Analysis for Financial Analysis for NetSolutionsNetSolutions
This ratio implies that NetSolutions is able to pay
its current liabilities.
This ratio implies that NetSolutions is able to pay
its current liabilities.
NetSolutions can use the current ratio to make comparisons across
companies and with industry averages.
NetSolutions can use the current ratio to make comparisons across
companies and with industry averages.