PREPARING

FINANCIAL STATEMENTS
Dr. Michael Shen

© Copyright National University of Singapore. All Rights Reserved.

 LEARNING OBJECTIVES

1. Prepare an adjusted trial balance

2. Explain a classified statement of financial position
3. Prepare financial statements from an adjusted trial balance
4. Prepare closing entries
 LEARNING OBJECTIVE 1
Prepare an adjusted trial balance
ACCOUNTING PROCESS OR
ACCOUNTING CYCLE
 FASTFORWARD - TRIAL BALANCE

First, the initial

Next, FastForward’s
unadjusted amounts
adjustments are added.
are added to the
worksheet.

Finally, the totals are

determined.
 LEARNING OBJECTIVE 2
Explain a classified statement of financial position
CLASSIFIED STATEMENT OF FINANCIAL POSITION
Categories of a Classified Statement of Financial Position
Assets Liabilities and Equity
Current assets Current liabilities
Noncurrent assets Noncurrent liabilities
Equity

Current items are those expected to come due (both

collected and owed) within the longer of one year or the
company’s normal operating cycle.
This consistency in presentation allows users to quickly
identify current assets that are most easily converted to
cash and current liabilities that are shortly coming due.
 Current or short-term assets are expected
to be sold, collected, or used within one
Most liquid
year or the company’s operating cycle,
whichever is longer.

Noncurrent or long-term assets are

assets not used up within one year or
Least liquid the operating cycle, whichever is
longer.

Total current assets + Total noncurrent assets = Total assets

Total current liabilities + Total Current or short-term liabilities are obligations due
noncurrent liabilities within one year or the company’s operating cycle,
whichever is longer.
= Total liabilities
Noncurrent or long-term liabilities are
obligations not due within one year or the
company’s operating cycle, whichever is
Equity is the owners’ or longer.
shareholders’ claim on the assets.
LEARNING OBJECTIVE 3
Prepare financial statements
from an adjusted trial balance
ACCOUNTS

Balance Sheet

Share
Capital Statement of
Changes in Equity

Income
Statement
 1. PREPARE THE INCOME STATEMENT
Adjusted
Trial Balance FastForward
December 31, 2011
Dr. Cr. Income Statement
Cash
Accounts receivable
$ 4,350
1,800
For Month Ended December 31, 2020
Supplies 8,670 Revenues
Prepaid insurance 2,300
Equipment 26,000 Consulting revenue $7,850
Accum. depr. - Equip. Adjusted
Adjusted
Adjusted

Adjusted
$ 375 Adjusted

Rental revenue 300

Trial Balance
December 31, 2011
Dr. Cr.
Trial Balance
47,685 $ 47,685 Totals $
Cash
Accounts receivable
Supplies
Prepaid insurance
$

Trial Balance
Trial Balance
4,350
1,800
8,670
2,300
December 31, 2011
Equipment
December 31, 2011
26,000

Trial Balance
Accum. depr. - Equip. $ 375

Accounts payable December 31, 2011

Accounts payable 6,200

Dr. Cr.
Adjusted
6,200
Salaries payable 210
230 Utilities expense Unearned consulting revenue
Share capital
Dr. Cr.
2,750
30,000
Retained earnings 0

1,050 Supplies expense

Dividends
Consulting revenue

Cash
Rental revenue
$
200

4,350
Cash
7,850
300
$ 4,350 Trial Balance
1,000 Rent expense
Depr. expense
Salaries expense
Insurance expense

Accounts receivable
Rent expense
Supplies expense
Utilities expense
Dr. 375
1,610
100

1,800
1,000
1,050
230
Cr. Accounts receivable 1,800 December 31, 2011
Supplies
December 31, 2011
Totals $ 47,685 $ 47,685
8,670 Dr. Cr.
Cash
Salaries payable Supplies $ 4,350
8,670
210
$8,150
100 Insurance expense Prepaid insurance 2,300
Prepaid insurance 2,300 Cash $ 4,350
1,610 Salaries expense Accounts receivable
Equipment 1,800
26,000 Equipment Accounts receivable 26,000 1,800
375 Depr. expense Accum. depr. - Equip. $ Accum.
375 depr. - Equip.
Supplies $8,670 375
Supplies 8,670
300
7,850
Rental revenue
Unearned consulting
Consulting revenue Prepaid insurance revenue 2,300
Accounts payable
Salaries payable
Unearned consulting revenue
Dr.
Accounts
6,200
Salaries
Unearned
2,750
Cr.
payableinsurance
2,750
Prepaid
210 payable
Equipment
consulting
Accum. revenue
depr. - Equip.
2,3006,200
26,000 210
2,750$ 375
Equipment 26,000

Expenses
200 Dividends Share
30,000 capital
Accounts payable 30,000 6,200

30,000
0
Share
Cash capitalAccum. depr. - Equip.
Retained earnings
Share capital
Share capital
Retained earnings
Dividends
$ $ 3754,350
200
Retained
30,000
earningspayable
0 Salaries
DividendsUnearned consulting revenue 200
0 210
2,750
Accounts payable
Consulting revenue Consulting
6,200
7,850 revenue
Share capital 7,850 30,000

Retained
Accountsearnings
2,750 Unearned consulting revenue
210 Salaries payable
receivable
Rental revenue
Salaries payable
Depr. expense 375
Rental
300 revenue
2101,800
Depr. expense
Dividends
Salaries expense
0
Retained earnings

Consulting revenue
375
1,610
200
300 0

Dep expense - Equip $ 375

Accounts payable
Unearned consulting revenue 7,850
6,200
Salaries expense 1,610 2,750
InsuranceRental
expenserevenue 100

Dividends
300

Supplies Share
Insurance expense 100
200
375 $ Accum. depr. - Equip.
26,000 Equipment capital
Rent expense 1,000 30,0008,670
Rent expense
Depr. expense 1,000 375
Supplies expense 1,050 Supplies expense
Salaries expense 1,050 1,610
2,300 Prepaid insurance Retained earnings
Utilities expense 230
0
Utilities expense
Insurance expense 230 100
8,670
1,800
Supplies
Consulting
Accounts receivable revenue
Prepaid insurance
Dividends
Totals $ 200
47,685
2,300
$ Totals
47,685
7,850
Rent expense
Supplies expense
$ 47,685 $1,000
47,685
1,050

Dr.
4,350
Cr.
December 31, 2011
Trial Balance
Cash

Rental
$Consulting revenue
revenue
Equipment Rental revenue
Depr. expense 375
7,850
300
26,000
Utilities expense
Totals
300
$
230
47,685 $ 47,685
Salaries expense 1,610
Salaries expense
Adjusted
Depr.
Accum. expense
depr. - Equip. 1,610
375 $ 375
Salaries
Accounts
Insurance
Rent expense
expense
payable
expense

Supplies expense
100
1,000
1,050 1,610 6,200 Insurance expense 100
Utilities expense 230
Insurance expense
Salaries payable $ 47,685 100

Rent expense
Unearned
Totals

consulting revenue
$ 47,685

1,000
210
2,750
Rent expense 1,000
Supplies expense
Share capital 1,050 30,000 Supplies expense 1,050
Utilities
Retained expense
earnings 230 0
Totals
Dividends $ 47,685 200 $ 47,685 Utilities expense 230
Consulting revenue 7,850
Rental revenue 300 Total expenses 4,365
Depr. expense 375
Salaries expense 1,610
Net profit $ 3,785
Insurance expense 100
2. PREPARE THE STATEMENT OF CHANGES IN EQUITY
FastForward
Income Statement
For Month Ended December 31, 2020
Revenues Note: Net Profit from the Income
Consulting revenue $7,850
Rental revenue 300
Statement carries to the Statement of
$8,150 Changes in Equity.
Expenses
Dep expense - Equip $ 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Total expenses 4,365
FastForward
Net profit $ 3,785
Statement of Changes in Equity
For Month Ended December 31, 2020
Share Capital Retained Earnings Total Equity
Balance at December 1 0 0 0
Plus: Issuance of shares $ 30,000 $ $ 30,000
Net profit 3,785 3,785
Less: Dividends 200 200
Balance at December 31 $ 30,000 $ 3,585 $ 33,585
 3. PREPARE THE STATEMENT OF FINANCIAL POSITION
FastForward
FastForward Statement of Financial Position
Statement of Changes in Equity December 31, 2020
For Month Ended December 31, 2020
Share Capital Retained EarningsTotal Equity Assets
Balance at December 1 0 0 0 Current assets
Plus: Issuance of shares $ 30,000 $ $ 30,000
Cash $ 4,350
Net profit 3,785 3,785
Less: Dividends 200 200 Accounts receivable 1,800
Balance at December 31 $ 30,000 $ 3,585 $ 33,585 Supplies 8,670
Prepaid insurance 2,300
Adjusted Total current assets $ 17,120
Trial Balance
Equipment $ 26,000
December 31, 2011
Dr. Cr. Less: Accum dep 375 25,625
Cash 4,350 Total noncurrent assets 25,625
Accounts receivable 1,800 Total assets $ 42,745
Supplies 8,670
Prepaid insurance 2,300 Liabilities and Equity
Equipment 26,000
Adjusted
Trial Balance Current liabilities
Accum. depr. - Equip. 375 Adjusted
Adjusted
Trial Balance
Trial Balance
December 31, 2011
December 31, 2011
Adjusted
Trial Balance
Adjusted
Trial Balance
December 31, 2011

Accounts payable 6,200

Dr. Cr. December 31, 2011
Cash
Dr. Cr. Dr. Cr. Dr. Cr.

December 31, 2011

4,350
Cash
Accounts receivable 1,800 4,350 Cash 4,350

Accounts payable
Cash 4,350

6,200
Supplies receivable
Accounts 8,670 1,800 Accounts receivable 1,800
Prepaid insurance Accounts
2,300 receivable 1,800
Supplies 8,670 Supplies 8,670
Equipment
Prepaid insurance Supplies
26,000 8,670
Accum. depr. - Equip. 2,300 375 Prepaid insurance 2,300
Equipment
Accounts payable
Prepaid insurance
26,000 6,200
2,300 Equipment 26,000
Accum. depr. - Equip.
Salaries payable Equipment 210 375 26,000 Accum. depr. - Equip.

Salaries payable 210

375

Salaries payable
Unearned consulting
payable revenue Accum. depr. - Equip.
2,750 375 payable

Dr. 210 Cr.

Accounts 6,200 Accounts 6,200
Share capital 30,000
Salaries payable
Retained earnings
Accounts payable 0
210 6,200 payable
Salaries 210
Unearned
Dividends consulting revenue Salaries
200 payable 2,750 Unearned
210 consulting revenue 2,750
Share capital
Consulting revenue 7,850 30,000
Unearned consulting revenue Share
2,750capital 30,000
Rental revenue
Retained earnings 300
Share 0 Retained
30,000 earnings 0
Depr. expense 375 capital
Dividends 200 Dividends 200

Unearned consulting revenue

Salaries expense Retained
1,610 earnings 0

Cash
Consulting
Rental
Supplies
Depr.
revenue
Insurance expense
revenue
Rent expense

$
expense
expense
Utilities expense
Salaries
Totals
expense
4,350 2,750
100
Dividends
1,000
Consulting
1,050
Rental
375
230 revenue
$ 47,685
1,610
revenue

$ 47,685
7,850
300
200
Consulting revenue
Rental revenue
7,850
Depr. expense
300 expense
Salaries
375
1,610
7,850
300

Unearned consulting revenue 2,750

Insurance expense Depr. expense
100 375 Insurance expense 100

Share capital
Rent expense Salaries expense
1,000 1,610 Rent expense 1,000
Supplies expense
30,000
Insurance
1,050 expense 100 Supplies expense 1,050

Accounts receivable
Utilities expense Rent expense
230 1,000 Utilities expense 230
Totals

1,800 $ 47,685
Supplies expense
Utilities expense
$ 47,685 1,050
230
Totals $ 47,685 $ 47,685

Total current liabilities 9,160

Retained earnings
Totals $ 47,685 $ 47,685

0
Supplies
Dividends 200
8,670 Total liabilities 9,160
Prepaid
Consulting insurance
revenue 2,300 7,850 Share capital 30,000
Equipment
Rental revenue 26,000 300
Retained earnings 3,585
Accum. depr. - Equip.
Depr. expense 375 $
Adjusted
Adjusted
Trial Balance
Trial Balance
December
December
375
31, 201131, 2011

Cash

Salaries expense
Cash receivable
Dr. Dr.
4,350

1,610
4,350
Cr. Cr.
Total equity 33,585
Accounts payable
Accounts 1,800
Accounts receivable
Supplies
Prepaid
Supplies
Equipment
insurance
Prepaid insurance
Accum. depr. - Equip.
8,670 1,800
2,300 8,670
26,000
2,300
375
6,200
Total liabilities and equity $ 42,745
Equipment
Accounts payable 26,000 6,200

Insurancepayable
Salaries

Salaries
Unearned
expense
Accum.payabledepr. - Equip.
Accountsconsulting
Share capital
payablerevenue
Salaries payable
Retained earnings
Unearned consulting revenue 200
100 210
2,750
30,000
0
375

210
6,200
210
2,750
Dividends

Rent expense
Share capital
Consulting revenue 30,000

1,000
7,850
Rental
Retained revenue
earnings 300 0

Unearned consulting revenue

Depr. expense 375

2,750
Dividends 200
Salaries expense 1,610
Consulting
Insurance revenue
expense 100
7,850
Rental
Rent revenue
expense 1,000 300

Supplies expense
Supplies expense
Depr. expense
Utilities expense
Salaries expense
Totals 1,050
1,050
230
$ 47,685
375
1,610
$ 47,685

Share capital
Insurance expense
Rent expense

Utilities expense
Supplies expense
Utilities expense
230
100
1,000
1,050
230
30,000
Totals $ 47,685 $ 47,685

Retained
Totals earnings $ 47,685 $ 47,685 0
LEARNING OBJECTIVE 4
Prepare closing entries
 CLOSING PROCESS
❑ Done after financial statements have been completed to
prepare accounts for next period

❑ Temporary accounts are closed at the end of the

accounting period
 TEMPORARY AND PERMANENT ACCOUNTS
Revenues Assets

Liabilities
Dividends
Expenses

Equity
Temporary Permanent
Accounts Accounts

Income
Summary The closing process
applies only to
temporary accounts.
 TEMPORARY AND PERMANENT ACCOUNTS
Temporary (nominal) accounts accumulate data related to
one accounting period. These accounts are “closed” at the
end of the period to get ready for the next period.

Permanent (real) accounts report activities related to one or

more future accounting periods. They carry ending balances
to the next accounting period and are not “closed.”
 FastForward
Adjusted Trial Balance
December 31, 2020
Debit Credit
Cash $ 4,350
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Using the adjusted trial
Equipment 26,000 balance, let’s prepare
Accumulated depreciation-Equipment $ 375
Accounts payable 6,200 the closing entries for
Salaries payable 210 FastForward.
Unearned consulting revenue 2,750
Share capital 30,000
Retained earnings 0
Dividends 200
Consulting revenue 7,850
Rental revenue 300
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $ 47,685 $ 47,685
 FastForward
Adjusted Trial Balance
December 31, 2020
Debit Credit
Cash $ 4,350
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation - Equipment $ 375 1. Close Credit Balances
Accounts payable
Salaries payable
6,200
210
in Revenue Accounts to
Unearned consulting revenue 2,750 Income Summary.
Share capital 30,000
Retained earnings 0
Dividends 200
Consulting revenue 7,850
Rental revenue 300
Depreciation expense - Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $ 47,685 $ 47,685
  CLOSE CREDIT BALANCES IN
REVENUE ACCOUNTS TO INCOME SUMMARY

Dr. Cr.
Dec. 31 Consulting revenue 7,850
Rental revenue 300
Income summary 8,150

Now, let’s look at the ledger accounts after posting this closing entry.
  CLOSE CREDIT BALANCES IN
REVENUE ACCOUNTS TO INCOME SUMMARY

Consulting Revenue
7,850 7,850

Income Summary
8,150
Rental Revenue
300 300
 FastForward
Adjusted Trial Balance
December 31, 2020
Debit Credit
Cash $ 4,350
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation - Equipment $ 375
Accounts payable 6,200
2. Close Debit Balances
Salaries payable 210 in Expense Accounts to
Unearned consulting revenue 2,750
Share capital 30,000
Income Summary.
Retained earnings 0
Dividends 200
Consulting revenue 7,850
Rental revenue 300
Depreciation expense - Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $ 47,685 $ 47,685
 CLOSE DEBIT BALANCES IN EXPENSE ACCOUNTS
TO INCOME SUMMARY
Dr. Cr.
Dec. 31 Income summary 4,365
Depreciation expense - Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230

Now, let’s look at the ledger accounts after posting this

closing entry.
 CLOSE DEBIT BALANCES IN EXPENSE ACCOUNTS
TO INCOME SUMMARY
Depreciation
Expense -
Rent Expense
Equipment 1,000 1,000
375 375

Income Summary
Salaries Expense Supplies Expense 4,365 8,150
1,610 1,610 1,050 1,050
3,785

Net Profit
Insurance Expense Utilities Expense
100 100 230 230
 FastForward
Adjusted Trial Balance
December 31, 2020
Debit Credit
Cash $ 4,350
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation - Equipment $ 375
Accounts payable 6,200
3. Close Income
Salaries payable 210 Summary to Retained
Unearned consulting revenue 2,750
Share capital 30,000
Earnings.
Retained earnings 0
Dividends 200
Consulting revenue 7,850
Rental revenue 300
Depreciation expense - Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $ 47,685 $ 47,685
 CLOSE INCOME SUMMARY TO RETAINED EARNINGS

Dr. Cr.
Dec. 31 Income summary 3,785
Retained earnings 3,785

Now, let’s look at the ledger accounts after posting this

closing entry.
Income Summary
Retained Earnings 4,365 8,150
0
3,785 3,785 3,785
 FastForward
Adjusted Trial Balance
December 31, 2020
Debit Credit
Cash $ 4,350
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation - Equipment $ 375
Accounts payable 6,200
4. Close Dividends
Salaries payable 210 Account to Retained
Unearned consulting revenue 2,750
Share capital 30,000
Earnings.
Retained earnings 0
Dividends 200
Consulting revenue 7,850
Rental revenue 300
Depreciation expense - Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $ 47,685 $ 47,685
  CLOSE DIVIDENDS ACCOUNT
TO RETAINED EARNINGS

Dr. Cr.
Dec. 31 Retained earnings 200
Dividends 200
Now, let’s look at the ledger accounts after posting this
closing entry.
Retained Earnings
Dividends 0
200 200 200 3,785

3,585
 SUMMARY OF THE CLOSING PROCESS

Ending Retained Earnings =

Beginning Retained Earnings + Net Profit – Dividends
 ACCOUNTING PROCESS OR ACCOUNTING CYCLE

Steps 9 and 10 not covered so

not examinable for this course.
THE END