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The Accounting Cycle Continued: Preparing Worksheets and Financial Statements Chapter 4 1 2 Journal 3 Ledger Business transactions Book of original entry Book of final entry 5 4 Worksheet Trial balance The Accounting Cycle 6 Financial Statements Statement of owner’s equity

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The accounting cycle continued preparing worksheets and financial statements l.jpg

The Accounting Cycle Continued:Preparing Worksheetsand Financial Statements

Chapter 4


The accounting cycle l.jpg

1

2 Journal

3 Ledger

Business

transactions

Book of

original entry

Book of

final entry

5

4

Worksheet

Trial balance

The Accounting Cycle


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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


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Adjustments: prepaid rent,

office supplies, depreciation on

equipment, and accrued salaries.

Learning Objective 1


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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.


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Learning Unit 4-1(Preparing the Worksheet)

Worksheet Sections

The trial balance

The adjustments

The adjusted trial balance

Income

statement

Balance

sheet


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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


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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


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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


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Learning Unit 4-1(Preparing the Worksheet)

Depreciation is a unique adjustment.

Accounting

period


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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?


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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.


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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


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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


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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.


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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


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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


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Preparation of adjusted trial

balance on the worksheet.

Learning Objective 2


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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.


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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


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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


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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


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The income statement and

balance sheet sections

of the worksheet.

Learning Objective 3


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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


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Preparing financial statements

from the worksheet.

Learning Objective 4


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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


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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.