SEQUENCE OF PROCEDURES IN ACCOUNTING CYCLE

1. Journalize the transactions

2. Post to ledger accounts

3. Prepare a trial balance

4. Make end of period adjustments

5. Prepare an adjusted trial balance

6. Prepare financial statement and appropriate disclosures

7. Journalize and post-closing entries

8. Prepare an after closing trial balance

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 THE COMPLETION OFACCOUNTING CYCLE:

QUESTION: Reed Geophysical Company adjusts and closes its accounts t the end of the year. At
December 31, 19-, the balances in the ledger accounts prior to managing adjusting entries were as
follows:

REED GEOPHYSICAL COMPANY

Trial Balance
December 31, 19-

DEBIT $ CREDIT $
Cash (Current Asset; BS) 12540
Prepaid office rent (Current Asset; BS) 3300
Prepaid subscription (Current Asset; BS) 960
Supplies (Current Asset; BS) 1300
Equipment (Fixed Asset; BS) 20000
Accumulated depreciation-Equipment (Contra Asset; BS) 1200
Notes Payable (Current Liability; BS) 5000
Unearned consulting fees (Current Liability; BS) 35650
Glen Reed Capital (Owner’s Equity; STATEMENT OF OWNER’S EQUITY) 17040
Glenn Reed Drawings (STATEMENT OF OWNER’S EQUITY) 27000
Consulting Fee earned (Revenue; IS) 90860
Salaries expense (IS) 66900
Telephone expense (IS) 2550
Rent expense (IS) 11000
Miscellaneous expenses (IS) 4200
149750 149750

OTHER DATA:

a) For the first 11 months of the year, office rent had been charged the Rent expense account a
rate of $ 1000 per month. On December 1, the company signed a new rental agreement at a
rate of $ 1100 per month, and paid three months’ rent in advance. This advance payment was
debited to the Prepaid Rent account.

b) Subscription expired during the year in the total amount of $ 710.

c) An estimate of supplies on hand was made at December 31, the estimated cost of the unused
supplies was $ 450.

d) The useful life of the equipment has been estimated at 10 years from date of acquisition. No
depreciation expense has been recorded for the current year.

e) Accrued interest on notes payable mounted to $ 100 at year end. (Set up accounts for Interest
Expense and Interest Payable.

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 f) Consulting series valued at $ 32550 were rendered during the year for clients who had made
payment in advance.

g) It is the custom of the firm to bill clients only when consulting work is completed or, in the case
of prolonged engagement, at six-month intervals. At December 31, engineering services valued
at $ 3000 had been rendered to clients but not yet billed. Nod advance payments had been
received from these clients.

h) Salaries earned by employees but not yet paid amounted to $ 2200 at December 31.

INSTRURCTIONS:

i. Record the necessary adjusting entries at the year end, December 31,19 --
ii. Prepare an adjusted trial balance at December 31, 19---
iii. Prepare an Income Statement for the year ended Dec. 31. 19__
iv. Prepare a Statement of Owner’s Equity for the year ended December 31,19---
v. Prepare a Balance Sheet at December 31, 19—
vi. Journalize closing entries
_____________________________________________________________________________________

i. ADJUSTING ENTRIES:

a. For the first 11 months of the year, office rent had been charged the Rent expense account at a
rate of $ 1000 per month. On December 1, the company signed a new rental agreement at a rate of $
1100 per month, and paid three months’ rent in advance. This advance payment was debited to the
Prepaid Rent account.

DATE ACCOUNT TITLE AND EXPLANATION DEBIT $ CREDIT $

Dec. 31 Rent expense 1100
Prepaid office rent 1100
To record rent expense for the month of December.

b. Subscription expired during the year in the total amount of $ 710.

DATE ACCOUNT TITLE AND EXPLANATION DEBIT $ CREDIT $

Dec. 31 Subscription expense 710
Prepaid subscription 710
Subscription expense for the year

c. An estimate of supplies on hand was made at December 31, the estimated cost of the unused
supplies was $ 450.

DATE ACCOUNT TITLE AND EXPLANATION DEBIT $ CREDIT $

Dec. 31 Supplies expense 850
Supplies (1300-450=850 850
Supplies used for the year

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d. The useful life of the equipment has been estimated at 10 years from date of acquisition. No
depreciation expense has been recorded for the current year.

DATE ACCOUNT TITLE AND EXPLANATION DEBIT $ CREDIT $

Dec. 31 Depreciation expense (20000/10) 2000
Accumulated Depreciation-equipment 2000
Depreciation expense for the year

e. Accrued interest on notes payable mounted to $ 100 at year end. (Set up accounts for Interest
Expense and Interest Payable.

DATE ACCOUNT TITLE AND EXPLANATION DEBIT $ CREDIT $

Dec. 31 Interest expense 100
Interest payable 100
Accrued interest on notes payable

f. Consulting series valued at $ 32550 were rendered during the year for clients who had made
payment in advance.

DATE ACCOUNT TITLE AND EXPLANATION DEBIT $ CREDIT $

Dec. 31 Unearned consulting fees 32550
Consulting fees earned 32550
Service performed for clients who had paid in
advance

g. It is the custom of the firm to bill clients only when consulting work is completed or, in the case
of prolonged engagement, at six-month intervals. At December 31, engineering services valued at $
3000 had been rendered to clients but not yet billed. Nod advance payments had been received from
these clients.

DATE ACCOUNT TITLE AND EXPLANATION DEBIT $ CREDIT $

Dec. 31 Consulting fees receivable 3000
Consulting fees earned 3000
Services rendered but not billed

h. Salaries earned by employees but not yet paid amounted to $ 2200 at December 31.

DATE ACCOUNT TITLE AND EXPLANATION DEBIT $ CREDIT $

Dec. 31 Salaried expense 2200
Salaries payable 2200
Salaried due but not paid

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POSTING TO LEDGER ACCOUNTS:

CASH (CA)
DATE DEBIT CREDIT BALANCE
12540 DR

a. For the first 11 months of the year, office rent had been charged the Rent expense account at a
rate of $ 1000 per month. On December 1, the company signed a new rental agreement at a rate of $
1100 per month, and paid three months’ rent in advance. This advance payment was debited to the
Prepaid Rent account.

PREPAID OFFICE RENT (CA)

DATE DEBIT CREDIT BALANCE
3300 DR
1100 2200 DR

b. Subscription expired during the year in the total amount of $ 710.

PREPAID SUBSCRIPTION (CA)

DATE DEBIT CREDIT BALANCE
960 DR
710 250 DR

C. An estimate of supplies on hand was made at December 31, the estimated cost of the unused
supplies was $ 450.

SUPPLIES (CA)
DATE DEBIT CREDIT BALANCE
1300 DR
850 450 DR

EQUIPMENT (FA)
DATE DEBIT CREDIT BALANCE
20000 DR
d. The useful life of the equipment has been estimated at 10 years from date of acquisition. No
depreciation expense has been recorded for the current year.

ACCUMULATED DEPRECIATION-EQUIPMENT (CONTRA ASSET)

DATE DEBIT CREDIT BALANCE
1200 CR
2000 3200 CR
e. Accrued interest on notes payable mounted to $ 100 at year end. (Set up accounts for Interest
Expense and Interest Payable.
NOTES PAYABLE (CL)
DATE DEBIT CREDIT BALANCE
5000 CR

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f. Consulting series valued at $ 32550 were rendered during the year for clients who had made
payment in advance.

UNEARNED CONSULTING FEES (CL)

DATE DEBIT CREDIT BALANCE
35650 CR
32550 3100 CR

g. It is the custom of the firm to bill clients only when consulting work is completed or, in the case
of prolonged engagement, at six-month intervals. At December 31, engineering services valued at $
3000 had been rendered to clients but not yet billed. Nod advance payments had been received from
these clients.

GLENN REED CAPITAL

DATE DEBIT CREDIT BALANCE
17040 CR

GLENN REED DRAWINGS (CONTRA CAPITAL)

DATE DEBIT CREDIT BALANCE
27000 DR

CONSULTING FEES EARNED (REVENUE)

DATE DEBIT CREDIT BALANCE
90860 CR
32550 123410 CR
3000 126410 CR

h. Salaries earned by employees but not yet paid amounted to $ 2200 at December 31.

SALARIES EXPENSE
DATE DEBIT CREDIT BALANCE
66900 DR
2200 69100 DR

TELEPHONE EXPENSE
DATE DEBIT CREDIT BALANCE
2550 DR

RENT EXPENSE
DATE DEBIT CREDIT BALANCE
11000 DR
1100 12100 DR

MISCELLANEOUS EXPENSE
DATE DEBIT CREDIT BALANCE

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 4200 DR

SUBSCRIPTION EXPENSE
DATE DEBIT CREDIT BALANCE
710 710 DR

SIUPPLIES EXPENSE
DATE DEBIT CREDIT BALANCE
850 850 DR

DEPRECIATION EXPENSE
DATE DEBIT CREDIT BALANCE
2000 2000 DR

INTEREST EXPENSE
DATE DEBIT CREDIT BALANCE
100 100 DR

INTEREST PAYABLE (CL)

DATE DEBIT CREDIT BALANCE
100 100 CR
CONSULTING FEES RECEIVABLE (CA)
DATE DEBIT CREDIT BALANCE
3000 3000 DR

SALARIES PAYABLE (CL)

DATE DEBIT CREDIT BALANCE
2200 2200 CR

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PREPARE AN ADJUSTED TRIAL BALANCE:
REED GEOPHYSICAL COMPANY
Adjusted Trial Balance
As at December 31, 19-

DEBIT $ CREDIT $
Cash (Current Asset; BS) $ 12540
Prepaid office rent (Current Asset; BS) (3300-1100) 2200
Prepaid Subscription (Current Asset; BS) (960-710) 250
Supplies (Current Asset; BS) (1300-850) 450
Equipment at cost (Fixed Asset; BS) 20000
Accumulated depreciation-Equipment (Contra Asset; BS); (1200+2000) $ 3200
Notes Payable (Current Liability; BS) 5000
Unearned consulting fees (Current Liability; BS); (35650-32550) 3100
Glen Reed Capital (Owner’s Equity; STATEMENT OF OWNER’S EQUITY) 17040
Glenn Reed Drawings (Contra equity; STATEMENT OF OWNER’S EQUITY 27000
Interest payable (CL; BS) 100
Consulting fees receivable (CA); 3000
Consulting Fee earned (Revenue; IS) (90680+35730) 126410
Salaries payables (CL; BS) 2200
Salaries expense (Exp. ;IS); (66900+2200) 69100
Telephone expense (Exp. IS) 2550
Rent expense (Exp.;IS) (11000+1100) 12100
Miscellaneous expenses (Exp.;IS) 4200
Subscription expense. (EXp. ;IS) 710
Supplies expense (Exp. ;IS) 850
Depreciation expense-Equipment (Exp.; IS) 2000
Interest expense (Exp.; IS) 100
157050 157050

PREPARE FINANCIAL STATEMENTS:

REED GEOPHYSICAL COMPANY
Income Statement
For the year ended, December 31, 19-
Revenue: $ $
Consulting Fees earned $ 126410
Expenses:
Salaries expense $ 69100
Telephone expense 2550
Rent expense 12100
Miscellaneous expense 4200
Subscription expense 710
Supplies expense 850
Depreciation expense-equipment 2000
100 (91610)

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 Net Income 34800
REED GEOPHYSICAL COMPANY
Statement of Owner’s Equity
For the year ended December 31, 19-
$
Glenn Reed Capital at start of the year 17040
Add Net Income 34800
51840
Less Drawings (27000)
Glenn Reed Capital at the end of the year 24840

REED GEOPHYSICAL COMPANY

Balance Sheet
As at December 31, 19-

Assets: $ Liabilities and Owner’s Equity $

Cash 12540 Notes Payable 5000

Prepaid Office rent 2200 Unearned consulting fees 3100
Prepaid subscriptions 250 Salaries Payable 2200
Supplies 450 Interest Payable 100
Consulting Fees receivable 3000 Glenn Reed Capital 24840
Equipment 20000
Accumulated Depreciation: equipment. (3200) 16800 ______
35240 35240
CLOSING OF REVENUE, EXPENSES, DRAWING; INCOME SUMMARY (JOURNAL ENTRIES):
DATE ACCOUNTS TITS AND EXPLANATION DEBT $ CREDIT $
Dec. 31 Consulting fees earned (Revenue) 126410
Income Summary 126410
To close the revenue accounts
Income Summary 91610
Salaries Expense 69100
Telephone expense 2550
Rent expense 12100
Miscellaneous expense 4200
Subscription expense 710
Supplies expense 850
Depreciation expense-equipment 2000
Interest expense 100
To close expenses accounts
Income Summary 34800
Capital 34800
To close Income Summary account

Capital 27000
Drawings 27000
To close the owner’s drawings account

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CLOSING ENTRIES POSTED TO LEDGER ACCOUNTS

CONSULTING FEES EARNED

DATE DEBIT CREDIT BALANCE
126410 CR
126410 0

SALARIES EXPENSE
DATE DEBIT CREDIT BALANCE
69100 DR
69100 0

TELEPHONE EXPENSE
DATE DEBIT CREDIT BALANCE
2550 DR
2550 0

RENT EXPENSE
DATE DEBIT CREDIT BALANCE
12100 DR
12100 0

MISCELLANEOUS EXPENSE
DATE DEBIT CREDIT BALANCE
4200 DR
4200 0

SUBSCRIPTION EXPENSE
DATE DEBIT CREDIT BALANCE
710 DR
710 0

SUPPLIES EXPENSE
DATE DEBIT CREDIT BALANCE
750 DR
750 0

DEPRECIATION EXPENSE-EQUIPMENT
DATE DEBIT CREDIT BALANCE
2000 DR
2000 0

INTEREST EXPENSE
DATE DEBIT CREDIT BALANCE
100 DR

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 100 0
INCOME SUMMARY
DATE DEBIT CREDIT BALANCE
126410 CR
91610 34800 CR
34800 0

DRAWINGS
DATE DEBIT CREDIT BALANCE
27000 DR
27000 0

CAPITAL
DATE DEBIT CREDIT BALANCE
17040 CR
34800 51840 CR
27000 24840 CR

AFTER CLOSING TRIAL BALANCE:

REED GEOPHYSICAL COMPANY

After closing Trial Balance
As at December 31, 19-
TITLE OF ACCOUNT DEBIT $ CREDIT $
Cash 12540
Prepaid office rent 2200
Prepaid subscription 250
Supplies 450
Consulting fees receivable 3000
Equipment at cost 20000
Accumulated depreciation-Equipment (Contra concept) 3200
Notes Payable 5000
Unearned consulting fees 3100
Salaries Payable 2200
Interest Payable 100
Glenn Reed Capital 24840
38440 38440

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