The Accounting Cycle Continued: Preparing Worksheets and Financial Statements - PowerPoint PPT Presentation

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The Accounting Cycle Continued: Preparing Worksheets and Financial Statements

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  1. The Accounting Cycle Continued:Preparing Worksheetsand Financial Statements Chapter 4

  2. 1 2 Journal 3 Ledger Business transactions Book of original entry Book of final entry 5 4 Worksheet Trial balance The Accounting Cycle

  3. 6 Financial Statements Statement of owner’s equity Income statement The Accounting Cycle Worksheet Trial balance Adjustments Adjusted trial balance Income statement Balance sheet Balance sheet

  4. Adjustments: prepaid rent, office supplies, depreciation on equipment, and accrued salaries. Learning Objective 1

  5. Learning Unit 4-1(Preparing the Worksheet) The worksheet is not a formal report. Correct heading information is used. It is used to facilitate the preparation of adjusting entries and financial statements.

  6. Learning Unit 4-1(Preparing the Worksheet) Worksheet Sections The trial balance The adjustments The adjusted trial balance Income statement Balance sheet

  7. Learning Unit 4-1(Preparing the Worksheet) Account Titles Trial Balance Dr. Cr. Adjustments Dr. Cr. Adj. Trial Bal. Dr. Cr. Cash, Accts. Rec. Office Supplies Prepaid Rent Equipment Accounts Payable B. Clark, Capital B. Clark, Withdrawals Fees Salaries Expense Other Expenses Office Supplies Expense Rent Expense Depreciation Expense Accum. Depreciation Salaries Payable Totals Net income 11,155 600 1,200 6,000 3,350 10,000 625 8,000 1,300 470 21,350 21,350

  8. Learning Unit 4-1(Preparing the Worksheet) Assets must be adjusted to show amounts used or allocated to periods. Supplies used Prepaid rent expired Depreciation Salaries incurred

  9. Learning Unit 4-1(Preparing the Worksheet) Expenses incurred must be recorded in the correct period before the period closes. What are examples? Supplies used Prepaid rent expired

  10. Learning Unit 4-1(Preparing the Worksheet) Depreciation is a unique adjustment. Accounting period

  11. Learning Unit 4-1(Preparing the Worksheet) Historical cost of the asset remains in the financial statements. This cost remains in the records as a balance in the asset account. This cost is allocated to expense over the life of the asset. What is the accompanying account?

  12. Learning Unit 4-1(Preparing the Worksheet) The accompanying (contra-asset) account is called AccumulatedDepreciation. This account is used for the yearly credited amounts. The normal balance is a credit balance.

  13. Learning Unit 4-1(Preparing the Worksheet) Cost of equipment $6,000 Less: Estimated residual value –1,200 Depreciable base $4,800 Estimated useful life 5 years (Cost – Residual value) ÷ Estimated useful life ($6,000 – $1,200) ÷ 5 = $960 $960 ÷ 12 = $80 per month

  14. Book value Learning Unit 4-1(Preparing the Worksheet) Clark’s Word Processing Services Balance Sheet May 31, 200x Word processing equipment $6,000 Less: Accumulated depreciation 80 $5,920

  15. Learning Unit 4-1(Preparing the Worksheet) Clark’s Word Processing Services paid $1,300 in office salaries. The last salary checks for the month were paid on May 27. John Murray worked for Clark on May 28, 29, 30, and 31, but his next pay check is not due until June 3.

  16. Office Salary Expense 1,300 350 Learning Unit 4-1(Preparing the Worksheet) Is John Murray’s earnings of $350 an expense for May? Yes

  17. Learning Unit 4-1(Preparing the Worksheet) Account Titles Trial Balance Dr. Cr. Adjustments Dr. Cr. Adj. Trial Bal. Dr. Cr. Cash, Accts. Rec. Office Supplies Prepaid Rent Equipment Accounts Payable B. Clark, Capital B. Clark, Withdrawals Fees Salaries Expense Other Expenses Office Supplies Expense Rent Expense Depreciation Expense Accum. Depreciation Salaries Payable Totals Net income 11,155 600 1,200 6,000 3,350 10,000 625 8,000 1,300 470 21,350 21,350 (a) 500 (b) 400 (d) 350 (a) 500 (b) 400 (c) 80 (c) 80 (d) 350

  18. Preparation of adjusted trial balance on the worksheet. Learning Objective 2

  19. Adjustments Example What are the adjusting entries for supplies? Journal: Debit Credit Supplies Expense xxx Supplies (record correct amounts) xxx The balance in the supplies account after adjusting entries will be equal to the dollar amount of the supplies on hand at the end of the accounting period.

  20. Adjustments Example Adjusting entries for depreciation. Journal: Debit Credit Depreciation Expense xxx Accum. Depr. Equipment xxx To record the proper amounts for all relevant asset accounts

  21. Adjustments Example What are the adjusting entries for accrued service revenue? Journal: Debit Credit Accounts Receivable xxx Revenue xxx To record the proper amounts for relevant asset and revenue accounts

  22. Adjustments Example Account Titles Trial Balance Dr. Cr. Adjustments Dr. Cr. Adj. Trial Bal. Dr. Cr. Cash, Accts. Rec. Office Supplies Prepaid Rent Equipment Accounts Payable B. Clark, Capital B. Clark, Withdrawals Fees Salaries Expense Other Expenses Office Supplies Expense Rent Expense Depreciation Expense Accum. Depreciation Salaries Payable Totals Net income 11,155 600 1,200 6,000 3,350 10,000 625 8,000 1,300 470 21,350 21,350 (a) 500 (b) 400 (d) 350 (a) 500 (b) 400 (c) 80 (c) 80 (d) 350 1,330 1,330 11,155 100 800 6,000 3,350 10,000 625 8,000 1,650 470 500 400 80 80 350 21,780 21,780

  23. The income statement and balance sheet sections of the worksheet. Learning Objective 3

  24. Account Titles Adj. Trial Bal. Dr. Cr. Inc. Statement Dr. Cr. Balance Sheet Dr. Cr. Cash, Accts. Rec. Office Supplies Prepaid Rent Equipment Accounts Payable B. Clark, Capital B. Clark, Withdrawals Fees Salaries Expense Other Expenses Office Supplies Expense Rent Expense Depreciation Expense Accum. Depreciation Salaries Payable Totals Net income 11,155 100 800 6,000 3,350 10,000 625 8,000 1,650 470 500 400 80 80 350 21,780 21,780 8,000 1,650 470 500 400 80 3,100 8,000 4,900 11,155 100 800 6,000 3,350 10,000 625 80 350 18,680 13,780 4,900 The Income Statement and Balance Sheet Section

  25. Preparing financial statements from the worksheet. Learning Objective 4

  26. Learning Unit 4-2 (Preparingthe Financial Statements) Income Statement It reports revenues and expenses. Statement of Owner's Equity Beginning capital balance from the balance sheet columns – Withdrawals – Loss, or + Net income = Ending capital balance

  27. Learning Unit 4-2 (Preparingthe Financial Statements) Balance Sheet Use the asset and liability balances from the balance sheet columns. Use the corrected owner’s equity amounts from the statement of owner’s equity.

  28. End of Chapter 4