Accounting principles 8th weygars kieso kimmel chapter 04

Chapter
4-1


CHAPTER 4

COMPLETING THE
ACCOUNTING
CYCLE
Accounting Principles, Eighth Edition
Chapter
4-2


Study
Study Objectives
Objectives
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.

Chapter
4-3


Completing
Completing the
the Accounting
Accounting Cycle
Cycle

Using a
Worksheet
Steps in
preparation
Preparing
financial
statements
Preparing

adjusting entries

Chapter
4-4

Closing the
Books
Preparing
closing entries
Posting closing
entries
Preparing a
post-closing trial
balance

Summary of
Accounting
Cycle
Reversing
entries—An
optional step
Correcting
entries—An
avoidable step

Classified
Balance Sheet
Current assets
Long-term
investments

Property, plant,
and equipment
Intangible assets
Current liabilities
Long-term
liabilities
Owner’s equity


Using
Using A
A Worksheet
Worksheet

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

Chapter
4-5

LO 1 Prepare a worksheet.


Steps
Steps in
in Preparing

Preparing aa Worksheet
Worksheet
Illustration 4-2

Chapter
4-6

LO 1 Prepare a worksheet.


Steps
Steps in
in Preparing
Preparing aa Worksheet
Worksheet

Example

The trial balance for Undercover Roofing for the month ended March
31, 2008, is as follows.
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

LO 1 Prepare a worksheet.


Steps
Steps in
in Preparing
Preparing aa Worksheet
Worksheet
1. Prepare a Trial Balance on the Worksheet
Account Titles
Cash
Accounts Receivable
Roofing Supplies
Equipment
Accumulated Depreciation
Accounts Payable
Unearned Revenue
I. Spy, Capital
I. Spy, Drawing
Service Revenue
Salaries Expense
Miscellaneous Expense
Totals

Include all
accounts with
balances.

Chapter
4-8

Trial Balance
Dr.
Cr.
2,500
1,800
1,100
6,000
1,200
1,400
300
7,000
600
3,000
700
200
12,900
12,900

Adjustments
Dr.
Cr.

Adjusted
Trial Balance
Dr.
Cr.

Income
Statement
Dr.
Cr.

Balance Sheet
Dr.
Cr.

Trial balance amounts
come directly from
ledger accounts.

LO 1 Prepare a worksheet.


Steps
Steps in
in Preparing
Preparing aa Worksheet
Worksheet
2. Enter the Adjustments in the Adjustments Columns
Account Titles
Cash
Accounts Receivable
Roofing Supplies
Equipment
Accumulated Depreciation
Accounts Payable
Unearned Revenue

I. Spy, Capital
I. Spy, Drawing
Service Revenue
Salaries Expense
Miscellaneous Expense
Totals
Supplies Expense
Depreciation Expense
Salaries Payable
Totals

Chapter
4-9

Trial Balance
Adjustments
Dr.
Cr.
Dr.
Cr.
2,500
1,800
1,100
(a) 960
6,000
1,200
(b) 200
1,400
300 (c) 170
7,000

600
(c) 170
3,000
700
350
(d)
200
12,900
12,900
(a) 960
(b) 200
(d) 350
1,680
1,680

Add additional
accounts as
needed.

Adjusted
Trial Balance
Dr.
Cr.

Income
Statement
Dr.
Cr.

Balance Sheet

Dr.
Cr.

Adjustments Key:
(a) Supplies used.
(b) Depreciation expense.
(c) Service revenue earned.
(d) Salaries accrued.

Enter adjustment
amounts, total
adjustments columns,
and check for equality.
LO 1 Prepare a worksheet.


Steps
Steps in
in Preparing
Preparing aa Worksheet
Worksheet
3. Complete the Adjusted Trial Balance Columns
Account Titles
Cash
Accounts Receivable
Roofing Supplies
Equipment
Accumulated Depreciation
Accounts Payable
Unearned Revenue

I. Spy, Capital
I. Spy, Drawing
Service Revenue
Salaries Expense
Miscellaneous Expense
Totals
Supplies Expense
Depreciation Expense
Salaries Payable
Totals

Chapter
4-10

Trial Balance
Adjustments
Dr.
Cr.
Dr.
Cr.
2,500
1,800
1,100
(a) 960
6,000
1,200
(b) 200
1,400
300 (c) 170
7,000

600
(c) 170
3,000
700
350
(d)
200
12,900
12,900
(a) 960
(b) 200
(d) 350
1,680
1,680

Total the adjusted
trial balance columns
and check for equality.

Adjusted
Trial Balance
Dr.
Cr.
2,500
1,800
140
6,000
1,400
1,400
130

7,000
600
3,170
1,050
200

Income
Statement
Dr.
Cr.

Balance Sheet
Dr.
Cr.

960
200
13,450

350
13,450

LO 1 Prepare a worksheet.


Steps
Steps in
in Preparing
Preparing aa Worksheet
Worksheet

4. Extend Amounts to Financial Statement Columns
Account Titles
Cash
Accounts Receivable
Roofing Supplies
Equipment
Accumulated Depreciation
Accounts Payable
Unearned Revenue
I. Spy, Capital
I. Spy, Drawing
Service Revenue
Salaries Expense
Miscellaneous Expense
Totals
Supplies Expense
Depreciation Expense
Salaries Payable
Totals

Chapter
4-11

Trial Balance
Adjustments
Dr.
Cr.
Dr.
Cr.
2,500

1,800
1,100
(a) 960
6,000
1,200
(b) 200
1,400
300 (c) 170
7,000
600
(c) 170
3,000
700
350
(d)
200
12,900
12,900
(a) 960
(b) 200
(d) 350
1,680
1,680

Adjusted
Trial Balance
Dr.
Cr.
2,500
1,800

140
6,000
1,400
1,400
130
7,000
600
3,170
1,050
200
960
200
13,450

Extend all revenue and expense
account balances to the income
statement columns.

Income
Statement
Dr.
Cr.

Balance Sheet
Dr.
Cr.

3,170
1,050
200

960
200

350
13,450

2,410

3,170

LO 1 Prepare a worksheet.


Steps
Steps in
in Preparing
Preparing aa Worksheet
Worksheet
4. Extend Amounts to Financial Statement Columns
Account Titles
Cash
Accounts Receivable
Roofing Supplies
Equipment
Accumulated Depreciation
Accounts Payable
Unearned Revenue
I. Spy, Capital
I. Spy, Drawing
Service Revenue

Salaries Expense
Miscellaneous Expense
Totals
Supplies Expense
Depreciation Expense
Salaries Payable
Totals

Chapter
4-12

Trial Balance
Adjustments
Dr.
Cr.
Dr.
Cr.
2,500
1,800
1,100
(a) 960
6,000
1,200
(b) 200
1,400
300 (c) 170
7,000
600
(c) 170
3,000

700
350
(d)
200
12,900
12,900
(a) 960
(b) 200
(d) 350
1,680
1,680

Adjusted
Trial Balance
Dr.
Cr.
2,500
1,800
140
6,000
1,400
1,400
130
7,000
600
3,170
1,050
200
960
200

13,450

Extend all asset, liability, and
equity account balances to the
balance sheet columns.

Income
Statement
Dr.
Cr.

Balance Sheet
Dr.
Cr.
2,500
1,800
140
6,000
1,400
1,400
130
7,000
600

3,170
1,050
200
960
200

350
13,450

2,410

3,170

11,040

350
10,280

LO 1 Prepare a worksheet.


Steps
Steps in
in Preparing
Preparing aa Worksheet
Worksheet
5. Total Columns, Compute Net Income (Loss)
Account Titles
Cash
Accounts Receivable
Roofing Supplies
Equipment
Accumulated Depreciation
Accounts Payable
Unearned Revenue
I. Spy, Capital

I. Spy, Drawing
Service Revenue
Salaries Expense
Miscellaneous Expense
Totals
Supplies Expense
Depreciation Expense
Salaries Payable
Totals
Net Income
Totals

Trial Balance
Adjustments
Dr.
Cr.
Dr.
Cr.
2,500
1,800
1,100
(a) 960
6,000
1,200
(b) 200
1,400
300 (c) 170
7,000
600
3,000

(c) 170
700
350
(d)
200
12,900
12,900
(a) 960
(b) 200
(d) 350
1,680
1,680

Adjusted
Trial Balance
Dr.
Cr.
2,500
1,800
140
6,000
1,400
1,400
130
7,000
600
3,170
1,050
200
960

200
13,450

Income
Statement
Dr.
Cr.

Balance Sheet
Dr.
Cr.
2,500
1,800
140
6,000
1,400
1,400
130
7,000
600

3,170
1,050
200
960
200

350
13,450

2,410
760
3,170

3,170

11,040

3,170

11,040

350
10,280
760
11,040

Compute Net Income or Net Loss.
Chapter
4-13

LO 1 Prepare a worksheet.


Steps
Steps in
in Preparing
Preparing aa Worksheet
Worksheet

Review Question
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.
Chapter
4-14

LO 1 Prepare a worksheet.


Preparing
Preparing Financial
Financial Statements
Statements from
from aa Worksheet
Worksheet

Worksheet
Income statement is prepared from the
income statement columns.
Balance sheet and owner’s equity statement
are prepared from the balance sheet columns.
Companies journalize and post adjusting entries.

Chapter
4-15

LO 1 Prepare a worksheet.


Preparing
Preparing Financial
Financial Statements
Statements from
from aa Worksheet
Worksheet
b. Prepare an income statement for the month ended
March 31, 2008.
Undercover Roofing
Income Statement
For the Month Ended March 31, 2008
Revenues
Service revenues
Expenses
Salaries expense
Supplies expense
Depreciation expense
Miscellaneous expense
Total expenses
Net income
Chapter
4-16

$

3,170

$

2,410
760

$ 1,050
960
200
200

LO 1 Prepare a worksheet.


Preparing
Preparing Financial
Financial Statements
Statements from
from aa Worksheet
Worksheet
b. Prepare an owner’s equity statement for the month
ended March 31, 2008.

Undercover Roofing
Statement of Owner's Equity
For the Month Ended March 31, 2008
I. Spy, Capital, March 1
Add: Net income
Less: Drawings
I. Spy, Capital, March 31

Chapter
4-17

$

$

7,000
760
(600)
7,160

LO 1 Prepare a worksheet.


Preparing
Preparing Financial
Financial Statements
Statements from
from aa Worksheet
Worksheet
b. Prepare a balance sheet as of March 31, 2008.
Undercover
Roofing
Balance Sheet
March 31, 2008

Assets
Current assets

Cash
Accounts receivable
Roofing supplies
Total current assets
Property, plant, and equipment
Equipment
Less: Accumulated depreciation
Total assets

$

6,000
1,400
$

Liabilities and Owner's Equity
Current liabilities
Accounts payable
Salaries payable
Unearned revenue
Total current liabilities
Owner's equity
I. Spy, Capital
Total liabilities and owner's equity
Chapter
4-18

$

$

2,500
1,800
140
4,440

4,600
9,040

1,400
350
130
1,880
7,160
9,040

LO 1 Prepare a worksheet.


Preparing
Preparing Adjusting
Adjusting Entries
Entries from
from aa Worksheet
Worksheet

Adjusting Entries
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.

Chapter
4-19

LO 1 Prepare a worksheet.


Preparing
Preparing Financial
Financial Statements
Statements from
from aa Worksheet
Worksheet
c. Journalize the adjusting entries from the

adjustments columns of the worksheet.

Date
Mar. 31

Account Title
Supplies expense

Ref.

Debit
960

Roofing supplies
Depreciation expense

960
200

Accumulated depreciation
Unearned revenue

200
170

Service revenue
Salaries expense
Salaries payable
Chapter
4-20

Credit

170
350
350
LO 1 Prepare a worksheet.


Preparing
Preparing Financial
Financial Statements
Statements from

from aa Worksheet
Worksheet

Discussion Question
Q4-2. Explain the purpose of the worksheet.

See notes page for discussion
Chapter
4-21

LO 1 Prepare a worksheet.


Closing
Closing the
the Books
Books
At the end of the accounting period, the company
makes the accounts ready for the next period.

Illustration 4-5

Chapter
4-22

LO 2 Explain the process of closing the books.


Closing
Closing the

the Books
Books
Closing entries formally recognize, in the general
ledger, the transfer of
net income (or net loss) and
owner’s drawing
to owner’s capital.
Closing entries are only at the end of the annual
accounting period.
Chapter
4-23

LO 2 Explain the process of closing the books.


Closing
Closing the
the Books
Books

Note:
Owner’s Drawing is closed
directly to Capital and not
to Income Summary
because Owner’s Drawing
is not an expense.

Chapter
4-24

Illustration 4-6

Owner’s Capital is a
permanent account; all
other accounts are
temporary accounts.

LO 2 Explain the process of closing the books.


Closing
Closing the
the Books
Books
d. Journalize the closing entries from the financial
statement columns of the worksheet.

Closing
Entries
need
to be
Posted

Chapter
4-25

Service revenue
Income summary

3,170

Income summary
Salary expense
Supplies expense
Depreciation expense
Miscellaneous expense

2,410

Income summary
I. Spy, Capital

760

I. Spy, Capital
I. Spy, Drawing

600

3,170
1,050
960
200
200
760
600

LO 2 Explain the process of closing the books.