Accounting principles, 13th edition ch04
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Accounting Principles
Thirteenth Edition
Weygandt Kimmel Kieso
Chapter 4
Completing the
Accounting Cycle
Prepared by
Coby Harmon
University of California, Santa Barbara
Westmont College
Chapter Outline
Learning Objectives
LO 1 Prepare a worksheet.
LO 2 Prepare closing entries and a post-closing trial
balance.
LO 3 Explain the steps in the accounting cycle and how
to prepare correcting entries.
LO 4 Identify the sections of a classified balance sheet.
Copyright ©2018 John Wiley & Son, Inc.
2
The Worksheet
• Multiple-column form used in preparing financial
statements
• Not a permanent accounting record
• May be a computerized worksheet
• Prepared using a five step process
• Use of worksheet is optional
LO 1
Copyright ©2018 John Wiley & Son, Inc.
3
Account Titles
Cash
Supplies
Prepaid Insurance
Equipment
Notes Payable
Accounts Payable
Unearned Service Revenue
Owner's Capital
Owner's Drawings
Service Revenue
Salaries and Wages Expense
Rent Expense
Totals
Supplies Expense
Insurance Expense
Accumulated Depreciation
Depreciation Expense
Accounts Receivable
Interest Expense
Interest Payable
Salaries and Wages Payable
Totals
Net Income
Totals
Pioneer Advertising
Worksheet
For the Month Ended October 31, 2020
Adjusted
Trial Balance
Adjustments
Trial Balance
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
15,200
15,200
2,500
(a) 1,500
1,000
600
(b)
50
550
5,000
5,000
5,000
5,000
2,500
2,500
1,200 (d) 400
800
10,000
10,000
500
500
10,000
(d) 400
10,600
(e) 200
4,000
(g) 1,200
5,200
900
900
28,700
28,700
(a) 1,500
1,500
2
Step
1 (b) Step
Step
3
50
50
(c)
40
40
Enter
Prepare
a
Enter
(c)
40
40
trial balance
adjusted
(e)adjustment
200
200
(f)
50
50
data.
on the
balances.
(f)
50
50
worksheet.
(g) 1,200
1,200
3,440
3,440
30,190
30,190
ILLUSTRATION 4.1
Form for a worksheet
Income
Statement
Balance Sheet
Dr.
Cr.
Dr.
Cr.
15,200
1,000
550
5,000
5,000
2,500
800
10,000
500
10,600
5,200
900
1,500
Step
4
50
Extend adjusted
40
40
balances
to appropriate
200
50
statement columns.
50
Step
5 1,200
7,740
10,600
22,450
19,590
2,860Total the statement
2,860
10,600
10,600
22,450
22,450
columns,
compute net income
(or net loss), and
complete worksheet.
LO 1
Copyright ©2018 John Wiley & Son, Inc.
4
Step 1
Account Titles
Cash
Supplies
Prepaid Insurance
Equipment
Notes Payable
Accounts Payable
Unearned Service Revenue
Owner's Capital
Owner's Drawings
Service Revenue
Salaries and Wages Expense
Rent Expense
Totals
Supplies Expense
Insurance Expense
Accumulated Depreciation
Depreciation Expense
Accounts Receivable
Interest Expense
Interest Payable
Salaries and Wages Payable
Totals
Net Income
Totals
Pioneer Advertising
Worksheet
For the Month Ended October 31, 2020
Adjusted
Trial Balance
Adjustments
Trial Balance
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
15,200
15,200
2,500
(a) 1,500
1,000
600
(b)
50
550
5,000
5,000
5,000
5,000
2,500
2,500
1,200 (d) 400
800
10,000
10,000
500
500
10,000
(d) 400
10,600
(e) 200
4,000
(g) 1,200
5,200
900
900
28,700
28,700
(a) 1,500
1,500
(b) 50
50
(c)
40
40
(c)
40
40
(e) 200
200
(f)
50
50
(f)
50
50
(g) 1,200
1,200
3,440
3,440
30,190
30,190
Income
Statement
Dr.
Cr.
10,600
5,200
900
1,500
50
40
50
7,740
10,600
2,860
10,600
10,600
Trial balance amounts come
directly from ledger accounts.
Include all accounts
with balances.
LO 1
ILLUSTRATION 4.2
Preparing a trail balance
Copyright ©2018 John Wiley & Son, Inc.
Balance Sheet
Dr.
Cr.
15,200
1,000
550
5,000
5,000
2,500
800
10,000
500
40
200
50
1,200
22,450
19,590
2,860
22,450
22,450
5
Step 2 Enter Adjustments
The adjustments are the same as in Illustration 3.23.
a. Pioneer debits an additional account, Supplies Expense, $1,500 for the cost of
supplies used, and credits Supplies $1,500.
b. Pioneer debits an additional account, Insurance Expense, $50 for the
insurance that has expired, and credits Prepaid Insurance $50.
c. The company needs two additional depreciation accounts. It debits
Depreciation Expense $40 for the month’s depreciation, and credits
Accumulated Depreciation—Equipment $40.
d. Pioneer debits Unearned Service Revenue $400 for services performed, and
credits Service Revenue $400.
e. Pioneer debits an additional account, Accounts Receivable, $200 for services
performed but not billed, and credits Service Revenue $200.
f. The company needs two additional accounts relating to interest. It debits
Interest Expense $50 for accrued interest, and credits Interest Payable $50.
g. Pioneer debits Salaries and Wages Expense $1,200 for accrued salaries, and
CopyrightSalaries
©2018 Johnand
Wiley &
Son, Inc. Payable, $1,200.
LO 1 credits an additional account,
Wages
6
Step 2
Account Titles
Cash
Supplies
Prepaid Insurance
Equipment
Notes Payable
Accounts Payable
Unearned Service Revenue
Owner's Capital
Owner's Drawings
Service Revenue
Salaries and Wages Expense
Rent Expense
Totals
Supplies Expense
Insurance Expense
Accumulated Depreciation
Depreciation Expense
Accounts Receivable
Interest Expense
Interest Payable
Salaries and Wages Payable
Totals
Net Income
Totals
Pioneer Advertising
ILLUSTRATION 4.3
Worksheet
Entering the adjustments
For the Month Ended October 31, 2020
Adjusted
Income
Trial Balance
Adjustments
Trial Balance
Statement
Balance Sheet
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
15,200
15,200
15,200
2,500
(a) 1,500
1,000
1,000
600
(b)
50
550
550
5,000
5,000
5,000
5,000
Adjustments
5,000
Key:
5,000
2,500
2,500
2,500
1,200 (d) 400
(a) 800
800
Supplies Used
10,000
10,000
10,000
500
500 (b) Insurance
Expired
500
10,000
(d) 400
10,600
10,600
(e) 200
(c) Depreciation
Expensed
4,000
(g) 1,200
5,200
5,200
900
900 (d) Service
900
Revenue Recognized
28,700
28,700
(a) 1,500
1,500 (e) Service
1,500
Revenue Accrued
(b) 50
50
50
Interest Accrued
(c)
40
(f) 40
40
(c)
40
40
40
Accrued
(e) 200
200 (g) Salaries
200
(f)
50
50
50
(f)
50
50
50
(g) 1,200
1,200 adjustment
total
1,200
Enter
amounts,
3,440
3,440
30,190
30,190
7,740
10,600
22,450
19,590
adjustments
2,860 columns,
and check
2,860
10,600
10,600
22,450
22,450
for equality.
Add additional accounts as needed.
LO 1
Copyright ©2018 John Wiley & Son, Inc.
7
Step 3
Account Titles
Cash
Supplies
Prepaid Insurance
Equipment
Notes Payable
Accounts Payable
Unearned Service Revenue
Owner's Capital
Owner's Drawings
Service Revenue
Salaries and Wages Expense
Rent Expense
Totals
Supplies Expense
Insurance Expense
Accumulated Depreciation
Depreciation Expense
Accounts Receivable
Interest Expense
Interest Payable
Salaries and Wages Payable
Totals
Net Income
Totals
Pioneer Advertising
Worksheet
For the Month Ended October 31, 2020
Adjusted
Trial Balance
Adjustments
Trial Balance
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
15,200
15,200
2,500
(a) 1,500
1,000
600
(b)
50
550
5,000
5,000
5,000
5,000
2,500
2,500
1,200 (d) 400
800
10,000
10,000
500
500
10,000
(d) 400
10,600
(e) 200
4,000
(g) 1,200
5,200
900
900
28,700
28,700
(a) 1,500
1,500
(b) 50
50
(c)
40
40
(c)
40
40
(e) 200
200
(f)
50
50
(f)
50
50
(g) 1,200
1,200
3,440
3,440
30,190
30,190
ILLUSTRATION 4.4
Entering adjusted balances
Income
Statement
Dr.
Cr.
10,600
5,200
900
1,500
50
40
50
7,740
10,600
2,860
10,600
10,600
Balance Sheet
Dr.
Cr.
15,200
1,000
550
5,000
5,000
2,500
800
10,000
500
40
200
50
1,200
22,450
19,590
2,860
22,450
22,450
Check equality of adjusted trial balance columns.
LO 1
Copyright ©2018 John Wiley & Son, Inc.
8
Step 4
Account Titles
Cash
Supplies
Prepaid Insurance
Equipment
Notes Payable
Accounts Payable
Unearned Service Revenue
Owner's Capital
Owner's Drawings
Service Revenue
Salaries and Wages Expense
Rent Expense
Totals
Supplies Expense
Insurance Expense
Accumulated Depreciation
Depreciation Expense
Accounts Receivable
Interest Expense
Interest Payable
Salaries and Wages Payable
Totals
Net Income
Totals
Pioneer Advertising
Worksheet
For the Month Ended October 31, 2020
Adjusted
Trial Balance
Adjustments
Trial Balance
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
15,200
15,200
2,500
(a) 1,500
1,000
600
(b)
50
550
5,000
5,000
5,000
5,000
2,500
2,500
1,200 (d) 400
800
10,000
10,000
500
500
10,000
(d) 400
10,600
(e) 200
4,000
(g) 1,200
5,200
900
900
28,700
28,700
(a) 1,500
1,500
(b) 50
50
(c)
40
40
(c)
40
40
(e) 200
200
(f)
50
50
(f)
50
50
(g) 1,200
1,200
3,440
3,440
30,190
30,190
ILLUSTRATION 4.5
Extending adjusted trial balance amounts
Income
Statement
Balance Sheet
Dr.
Cr.
Dr.
Cr.
15,200
1,000
550
5,000
5,000
2,500
800
10,000
500
10,600
5,200
900
1,500
50
40
40
200
50
50
1,200
7,740
10,600
22,450
19,590
2,860
2,860
10,600
10,600
22,450
22,450
Extend adjusted trial balance amounts to appropriate financial statement columns.
LO 1
Copyright ©2018 John Wiley & Son, Inc.
9
Step 5
Account Titles
Cash
Supplies
Prepaid Insurance
Equipment
Notes Payable
Accounts Payable
Unearned Service Revenue
Owner's Capital
Owner's Drawings
Service Revenue
Salaries and Wages Expense
Rent Expense
Totals
Supplies Expense
Insurance Expense
Accumulated Depreciation
Depreciation Expense
Accounts Receivable
Interest Expense
Interest Payable
Salaries and Wages Payable
Totals
Net Income
Totals
Pioneer Advertising
Worksheet
For the Month Ended October 31, 2020
Adjusted
Trial Balance
Adjustments
Trial Balance
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
15,200
15,200
2,500
(a) 1,500
1,000
600
(b)
50
550
5,000
5,000
5,000
5,000
2,500
2,500
1,200 (d) 400
800
10,000
10,000
500
500
10,000
(d) 400
10,600
(e) 200
4,000
(g) 1,200
5,200
900
900
28,700
28,700
(a) 1,500
1,500
(b) 50
50
(c)
40
40
(c)
40
40
(e) 200
200
(f)
50
50
(f)
50
50
(g) 1,200
1,200
3,440
3,440
30,190
30,190
ILLUSTRATION 4.6
Compute net income or net loss
Income
Statement
Balance Sheet
Dr.
Cr.
Dr.
Cr.
15,200
1,000
550
5,000
5,000
2,500
800
10,000
500
10,600
5,200
900
1,500
50
40
40
200
50
50
1,200
7,740
10,600
22,450
19,590
2,860
2,860
10,600
10,600
22,450
22,450
Compute net income or net loss.
LO 1
Copyright ©2018 John Wiley & Son, Inc.
10
Steps in Preparing a Worksheet
Net income is shown on a worksheet 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.
LO 1
Copyright ©2018 John Wiley & Son, Inc.
11
Preparing Financial Statements from a
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 can prepare financial statements before
they journalize and post adjusting entries
LO 1
Copyright ©2018 John Wiley & Son, Inc.
12
Preparing Statements from a Worksheet
Pioneer Advertising
Income Statement
For the Month Ended October 31, 2020
Revenues
Service revenue
Expenses
Salaries and wages expense
Supplies expense
Rent expense
Insurance expense
Interest expense
Depreciation expense
Total expenses
Net income
LO 1
ILLUSTRATION 4.7
Financial statements from a worksheet
$10,600
$5,200
1,500
900
50
50
40
Copyright ©2018 John Wiley & Son, Inc.
7,740
$2,860
13
Preparing Statements from a Worksheet
Pioneer Advertising
Owner’s Equity Statement
For the Month Ended October 31, 2020
Owner’s capital, October 1
Add: Investments
Net income
$10,000
2,860
Less: Drawings
Owner’s capital, October 31
LO 1
ILLUSTRATION 4.7
Financial statements from a worksheet
Copyright ©2018 John Wiley & Son, Inc.
$
0
12,860
12,860
500
$12,360
14
Pioneer Advertising
Balance Sheet
October 31, 2020
Assets
Cash
Accounts receivable
Supplies
Prepaid insurance
Equipment
$5,000
Less: Accumulated depreciation
40
Total assets
Liabilities and Owner’s Equity
Liabilities
Notes payable
$5,000
Accounts payable
2,500
Interest payable
50
Unearned service revenue
800
Salaries and wages payable
1,200
Total liabilities
Owner’s equity
Owner’s capital
Total liabilities and owner’s equity
LO 1
ILLUSTRATION 4.7
Financial statements from a worksheet
Copyright ©2018 John Wiley & Son, Inc.
$15,200
200
1,000
550
4,960
$21,910
$ 9,550
12,360
$21,910
15
Preparing Adjusting Entries from a
Worksheet
• 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
LO 1
Copyright ©2018 John Wiley & Son, Inc.
16
DO IT! 1 Worksheet
Susan Elbe is preparing a worksheet. Explain to Susan how she
should extend the following adjusted trial balance accounts to
the financial statement columns of the worksheet.
Cash Balance sheet (debit)
Owner’s Drawings Balance sheet (debit)
Accumulated Depreciation Balance sheet (credit)
Service Revenue Income statement (credit)
Accounts Payable
Balance sheet (credit)
Salaries and Wages Expense
LO 1
Income statement (debit)
Copyright ©2018 John Wiley & Son, Inc.
17
Closing the Books
At the end of the accounting period, the company
makes the accounts ready for the next period.
Analyze
Journalize
Post
Trial Balance Adjusting Entries
Post-Closing Trial
Adjusted Trial
Financial StatementsClosing Entries
Balance
Balance
LO 2
Copyright ©2018 John Wiley & Son, Inc.
18
Closing the Books
LO 2
ILLUSTRATION 4.8
Temporary versus permanent
accounts
TEMPORARY
These accounts are closed
PERMANENT
These accounts are not closed
All revenue accounts
All asset accounts
All expense accounts
All liability accounts
Owner's drawing account
Owner's capital account
Copyright ©2018 John Wiley & Son, Inc.
19
Preparing Closing Entries
Closing entries formally recognize in the ledger the
transfer of:
• Net income (or net loss) to owner’s capital
• Owner’s drawings to owner’s capital
Produce a zero balance in each temporary account.
Companies generally journalize and post closing entries
only at end of the annual accounting period.
LO 2
Copyright ©2018 John Wiley & Son, Inc.
20
ILLUSTRATION 4.9
Diagram of closing process—
proprietorship
Preparing Closing Entries
(Individual)
Expenses
Income
Summary
2
(Individual)
Revenues
1
3
Key:
1. Close Revenues to Income
Summary.
2. Close Expenses to Income
Summary.
3. Close Income Summary to Owner’s
Capital.
4. Close Owner’s Drawings to Owner’s
Capital.
LO 2
Owner’s
Drawings
Owner’s
Capital
4
Copyright ©2018 John Wiley & Son, Inc.
21
Closing Entries Illustrated
GENERAL JOURNAL
Account Titles and Explanations
Date
2020
Oct. 31 Service Revenue
Income Summary
(To close revenue account)
31 Income Summary
Supplies Expense
Depreciation Expense
Insurance Expense
Salaries and Wages Expense
Rent Expense
Interest Expense
(To close expense accounts)
LO 2
Copyright ©2018 John Wiley & Son, Inc.
ILLUSTRATION 4.10
Closing entries journalized
Ref.
Debit
400
350
10,600
350
631
711
722
726
729
729
7,740
Page J3
Credit
10,600
1,500
40
50
5,200
900
50
22
Closing Entries Illustrated
GENERAL JOURNAL
Account Titles and Explanations
ILLUSTRATION 4.10
Closing entries journalized
Date
2020
Oct. 31 Income Summary
Owner’s Capital
(To close net income to capital)
Ref.
350
301
2,860
31 Owner’s Capital
Owner’s Drawings
(To close drawings to capital)
301
306
500
LO 2
Copyright ©2018 John Wiley & Son, Inc.
Debit
Page J3
Credit
2,860
500
23
Posting
Closing
Entries
ILLUSTRATION 4.11
LO 2
Copyright ©2018 John
Wiley & Son, Inc.
24
Pioneer Advertising
Post-Closing Trial Balance
October 31, 2020
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Equipment
Accumulated Depreciation
Notes Payable
Accounts Payable
Unearned Service Revenue
Salaries and Wages Payable
Interest Payable
Owner’s Capital
LO 2
ILLUSTRATION 4.12
Post-Closing Trial Balance
Debit
$15,200
200
1,000
550
5,000
$21,950
Copyright ©2018 John Wiley & Son, Inc.
Credit
$
40
5,000
2,500
800
1,200
50
12,360
$21,950
25
