Chapter 4 COMPLETING THE ACCOUNTING CYCLE I. Prepare a worksheet. 1. Steps in preparing a worksheet Step 1: Prepare a trial balance on the worksheet Step 2: Enter the adjustments in the adjustments columns Step 3: Enter adjusted balances in the adjusted trial balance columns Step 4: Extend adjusted trial balance amounts to appropriate financial statement columns Step 5: Total the statement columns, compute the net income (or net loss), and compate the worksheet SS * Teese ed PIONEER ADVERTISING Worksheet et the Month Ended Getober 31,2017 ‘TWial Balance Adjustments yy Testeatnee Adherent rat alee ‘Account Titles Be) be eee s\am 5200 5200 Supplies 2500 (a) 500 1.000 Prepaid iurance 20 © S050 Equipment 000 5,000 Notes Payable 5.000 000 ‘Accounts Payable 2500 2500 Unearmed Series Reverse 11200 (6) 400 200 ‘Owners Capital 131000 1000 10000 nner Drawings 00 500 00 Service Revenue 10.000 (00 10600 ——10,600 © 20 Saves ond Wages Expense 4.000 (g) 1.200 5200 5200 ent Expense 300 ‘00 ‘00 ‘Tota 700 7H 24 Supplies Expense @) 1500 1.500 1.500 25) insurance Expense ® 80 30 ° 36) Accum Oeprecation— 23) Equipment ©» ~ « 28) Depreciation Expense @~ a 2 23] accounts Receivable ‘200 200 200 So tterest expense © 50 ° 0 3 interes Payable oo 0 so 32) Salaries and Wages Payable (9) 1205200 1.200 | rome ae Et ws90 585380 7.780 TRO eA S80 t t t t t Benefits of a Work Sheet: © Aids the preparation of financial statements. © Reduces possibility of errorsLinks accounts and their adjustments. Assists in planning and organizing an audit. Helps in preparing interim financial statements ©. Shows the effects of proposed transactions. 2. Preparing financial statements from a worksheet > The income statement is prepared from the income statement columns. coo Poveetccs ‘Service revenue $10,600 Expenses Salaries and wages expense ‘$5,200 ‘Supplies expense 1.500 Rent expense ‘900 Insurance expense 50. Interest expense 50 Depreciation expense 40, Total expenses 7.740 Net income 52.860 > The balance sheet and owner’s equity statement are prepared from the balance sheet columns. PIONEER ADVERTISING Ere aa “Owners capital 12,3603. Preparing adjusting entries from a worksheet The adjusting entries are prepared from the adjustments columns of the worksheet. I. Closing process 1. Identify accounts for closing. 2. Record and post closing entries. 3. Prepare post-closing trial balance Resets revenue, expense and withdrawal account balances to zero at the end of the period. Closing process helps summarize a period’s revenues and expenses in the Income Summary account TEMPORARY AND PERMANENT ACCOUNTS, - Temporary Accounts: Revenues, Income Summary, Expenses, Withdrawals - Permanent Accounts: Assets, Liabilities, Capital Owner’s Note: The closing process applies only to temporary accounts. Recording Closing Entries 1. Close Revenue accounts to Income Summary. 2. Close Expense accounts to Income Summary 3. Close Income Summary account to Owner’s Capital 4. Close Withdrawals to Owner’s Capital. Caer Oct. 31 Income Summary {To close revenue account) 2 31 | Income Summary ‘Supplies Expense Depreciation Expense Insurance Expense Salaries and Wages Expense Rent Expense Interest Expense (To close expense accounts) e 31| Income Summary ‘Owner's Capital {To close net income to capital) w 31 | Owner's Capital ‘Owner's Drawings (To close drawings to capital)