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Transparency Master 4-1

STEPS IN THE ACCOUNTING CYCLE


Instructions: List the following steps in the correct order.
Financial statements prepared.
Adjusted trial balance prepared.
Adjustment data assembled and analyzed.
Transactions posted to the ledger.
Closing entries journalized and posted to ledger.
Transactions analyzed and recorded in journal.
Unadjusted trial balance prepared.
Optional end-ofperiod spreadsheet prepared.
Post-closing trial balance prepared.
Adjusting entries journalized and posted to ledger.

Transparency Master 4-2

PURPOSE OF WORK SHEET


1. Tool to assist with end-of-accounting-period
work
2. Information to prepare adjusting entries and
financial statements on one continuous form
3. Format that is easily adapted to a computer
spreadsheet program

Transparency Master 4-3

WORK SHEET
To complete the columns of a work sheet:
1. List all account balances from the ledger in the
Trial Balance columns. Total the Debit and Credit columns; they should be equal.
2. Record the adjusting entries in the Adjustments
columns. Total the Debit and Credit columns;
they should be equal.
3. Enter the balance of each account, after computing any changes due to adjusting entries, in the
Adjusted Trial Balance columns. Total the Debit
and Credit columns; they should be equal.
4. Enter the balance of all revenue and expense
accounts in the Income Statement columns. Total the Debit and Credit columns; the difference
between these columns is Net Income.
5. Enter the balance of assets, liabilities, capital
stock, and dividends in the Balance Sheet columns. Total the Debit and Credit columns. Net
income must be added to the Credit column to
make the Balance Sheet columns balance.

Transparency Master 4-4

END-OF-PERIOD
SPREADSHEET (WORK SHEET)
Enter the following adjusting entries on the endof-period spreadsheet (work sheet) for Dixie Machinery:
1. $375 of the prepaid insurance has expired.
3. Depreciation to be recorded on the office
equipment is $400.
4. $350 of salaries are owed to Dixie Machinerys employees.

Transparency Master 4-5


A
1
2
3
4
5
6 Account Title
7 Cash
8 Accounts Receivable
9 Prepaid Insurance
10 Office Equipment
11 Acc. Depr.Office Equip.
12 Accounts Payable
13 Salaries Payable
14 Capital stock
15 Dividends
16 Repair Revenue
17 Salaries Expense
18 Rent Expense
19 Utilities Expense
20 Insurance Expense
21 Depr. Exp.Office Equip.
22
23
24
25
26
27

E
F
G
Dixie Machinery
End-of-Period Spreadsheet (Work Sheet)
For the Year Ended December 31, 20-Unadjusted
Adjusted
Trial Balance
Adjustments
Trial Balance
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
825
825
300
300
500
375
125
5,050
5,050
180
400
580
250
250
350
350
2,370
2,370
1,100
1,100
15,140
15,140
8,025
350
8,375
1,500
1,500
640
640
375
375
375
400
400
400
17,940
17,940
1,125
1,125
18,690
18,690

Transparency Master 4-6


A
1
2
3
4
5
6 Account Title
7 Cash
8 Accounts Receivable
9 Prepaid Insurance
10 Office Equipment
11 Acc. Depr.Office Equip.
12 Accounts Payable
13 Salaries Payable
14 Capital Stock
15 Dividends
16 Repair Revenue
17 Salaries Expense
18 Rent Expense
19 Utilities Expense
20 Insurance Expense
21 Depr. Exp.Office Equip.
22
23 Net Income
24
25
26
27

I
J
K
Dixie Machinery
End-of-Period Spreadsheet (Work Sheet)
For the Year Ended December 31, 20-Adjusted
Income
Balance
Trial Balance
Statement
Sheet
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
825
825
300
300
125
125
5,050
5,050
580
580
250
250
350
350
2,370
2,370
1,100
1,100
15,140
15,140
8,025
8,375
1,500
1,500
640
640
375
375
400
400
18,690
18,690
11,290
15,140
7,400
7,400

Transparency Master 4-7

FINANCIAL STATEMENTS
Income Statement
Revenues
Expenses

(from the work sheet)


(from the work sheet)

Net Income

Retained Earnings Statement


Beginning Retained
Earnings Balance
+ Net Income
Dividends

(from the work sheet or Retained


Earnings account in the ledger)
(from the income statement)
(from the work sheet)

Ending Retained Earnings Balance

Balance Sheet
Current Assets
(from the work sheet)
+ Property, Plant & Equip. (from the work sheet)
Total Assets
Current Liabilities
+ Long-Term Liabilities

(from the work sheet)


(from the work sheet)

Total Liabilities
+ Capital Stock (from the worksheet)
+ Retained Earnings (from Retained Earnings statement)
Total Liabilities and
Stockholder's Equity

Transparency Master 4-8

FINANCIAL STATEMENTS
Dixie Machinery
Income Statement
For the Year Ended December 31, 20-Revenues:
Repair revenue .............................
Expenses:
Salaries expense ..........................
Rent expense ...............................
Utilities expense ..........................
Depreciation expenseoffice
equipment .................................
Insurance expense.......................

$15,140
$8,375
1,500
640
400
375

Total expenses .....................

11,290

Net income .......................................

$ 3,850

Dixie Machinery
Retained Earnings Statement
For the Year Ended December 31, 20-Retained Earnings, January 1 .............
Net income ............................................
Less dividends .....................................
Increase in Retained Earnings ............
Retained Earnings, December 31 ........

$3,850
1,100
2,750
$2,750

Transparency Master 4-9

FINANCIAL STATEMENTS
Dixie Machinery
Balance Sheet
December 31, 20-Assets
Current assets:
Cash ............................ $ 825
Accounts receivable .. 300
Prepaid insurance ...... 125
Total current assets
$1,250

Liabilities
Current liabilities:
Accounts payable ............. $ 250
Salaries payable ...............
350
Total liabilities ......................
$ 600

Stockholders Equity
Property, plant , and equipment:
Office equipment ........ $5,050
Less accumulated
depreciation ......
580
Total property, plant,
and equipment
4,470
Total assets.....................
$5,720

Capital stock .........................


Retained Earnings ...............

2,370
2,750

Total liabilities and


Stockholders equity ........

$5,720

Transparency Master 4-10

WRITING EXERCISE
Keith Martin is the controller for Daniels Printing Service. Keith has been putting in a lot of overtime; therefore, Mr. Daniels has allowed Keith to hire an assistant.
Keith's assistant is a bright high school graduate, but
he has never taken an accounting class. Keith is trying
to decide which accounting activities could be delegated to his assistant. Keith is willing to give the assistant a few simple instructions on how to complete each
task, but he doesn't have time to teach the assistant to
be an accountant.
For each task listed, state whether Keith should continue to do the work or delegate the task to his assistant.
Explain each answer.
1. List the account balances from the general ledger in
the Trial Balance columns of the end-of-period
spreadsheet.
2. Add the Debit and Credit columns of the trial balance.
3. Make the adjusting entries on the spreadsheet.
4. Complete the spreadsheet.
5. Type the formal financial statements using the data
from the Income Statement and Balance Sheet columns of the spreadsheet.
6. Journalize and post the adjusting entries.

Transparency Master 4-11

CLOSING ENTRIES
Part A
Service Revenue
3,500 Bal.
3,500
Bal.

Bal.
Bal.

Bal.

Bal.

Salaries Expense
1,400
1,400
0

Dividends
1,200

Bal.
Bal.

1,200

Rent Expense
600
600
0

Retained Earnings
1,400
600
3,500
1,200
Bal.

300

Transparency Master 4-12

J. Jones Company
Income Statement
For the Year Ended December 31, 20-Service revenue .................................

$3,500

Expenses:
Salaries expense ............................

$1,400

Rent expense .................................

600

Total expenses ...........................

2,000

Net income .........................................

$1,500

J. Jones Company
Retained Earnings Statement
For the Year Ended December 31, 20-Retained Earnings January 1 .......

$00

Net income .....................................

$1,500

Less dividends ..............................

1,200

Increase in Retained Earnings .....

300

Retained Earnings, December 31 .

$300

Transparency Master 4-13

CLOSING ENTRIES
Part B

a.

Service Revenue
Bal.
3,500
3,500
Bal.

Bal.

Bal.

b.
c.

Rent Expense
600
b.

Salaries Expense
Bal.
1,400
b.
1,400
Bal.

Bal.
600

Bal.

Income Summary
a.
3,500
2,000
Bal. 1,500*
1,500
Bal.

*$1,500 Balance = Net Income

Dividends
1,200
d.
1,200
0

Retained Earnings
c.
d.

1,500

1,200

Bal.

300

Transparency Master 4-14

WRITING EXERCISE
1. Why are closing entries prepared?
2. Why do we use Income Summary when preparing closing entries?
3. Why are closing entries prepared after financial statements?
4. What are some examples of temporary accounts that would be closed for a physician?

Transparency Master 4-15

STEPS IN THE ACCOUNTING CYCLE


Transactions analyzed and recorded in journal.
Transactions posted to the ledger.
Unadjusted trial balance prepared.
Adjustment data assembled and analyzed.
Optional end-ofperiod spreadsheet prepared.
Adjusting entries journalized and posted to ledger.
Adjusted trial balance prepared.
Financial statements prepared.
Closing entries journalized and posted to ledger.
Post-closing trial balance prepared.