8/5/2023

Learning Objectives
1.Prepare an accounting worksheet
2.Use the worksheet to prepare financial
statements
Chapter 3: Completing the
3.Close the revenue, expense, and drawing
accounting cycle accounts
4.Prepare the post-closing trial balance
5.Classify assets and liabilities as current or
long-term
6.Describe the effect of various transactions
on the current ratio and the debt ratio

Chapter’s content 3.1 The Worksheet

3.1 The Worksheet • a document with several columns
3.2 Completing the Accounting Cycle
3.3 Closing the Accounts • to summarize data for the financial
3.4 Post-Closing Trial Balance statements.
3.5 Classifying Assets and Liabilities
3.6 Accounting Ratios

3.1 The Worksheet 3.1 The Worksheet

Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet
Account Titles Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit

1. Prepare 4. Extend adjusted

2. Enter 3. Enter
trial balance balance to appropriate
adjustment adjusted
on the columns.
data. balances
worksheet. 5. Calculate income/loss
and complete the
worksheet.

1
 8/5/2023

3.1 The Worksheet 3.1 The Worksheet

A step-by-step description of the worksheet
follows:
1. Enter the account titles and their unadjusted
balances in the Trial Balance columns of the
worksheet, and total the amounts.
2. Enter the adjusting entries in the Adjustments
columns, and total the amounts.
3. Compute each account’s adjusted balance by
combining the trial balance and adjustment
figures. Enter each account’s adjusted amount
in the Adjusted Trial Balance columns
A step-by-step description of the worksheet
follows:
4. Draw an imaginary line above the first revenue
account (in this case, Service revenue). Every account
above that line (assets, liabilities, and equity accounts)
is copied from the Adjusted Trial Balance to the Balance
Sheet columns. Every account below the line (revenues
and expenses) is copied from the Adjusted Trial Balance
to the Income Statement columns.

3.1 The Worksheet 3.1 The Worksheet

A step-by-step description of the worksheet
follows:
5. On the income statement, compute net income or
net loss as total revenues minus total expenses. Enter
net income (loss) as the balancing amount on the
income statement. Also enter net income (loss) as the
balancing amount on the balance sheet. Then total the
financial statement columns.
A step-by-step description of the worksheet
follows:
5. On the income statement, compute net income or
net loss as total revenues minus total expenses. Enter
net income (loss) as the balancing amount on the
income statement. Also enter net income (loss) as the
balancing amount on the balance sheet. Then total the
financial statement columns.

HA Company
3.2 Completing the Accounting Cycle Unadjusted trial balance
June 6, 2016
• Preparing the Financial Statements from a
Worksheet Account Debit Credit
• Recording the Adjusting Entries from a Worksheet Cash 12.000
Accounts receivable 3.000
Supplies 2.000
Prepaid rent 3.000
Building 30.000
Accounts payable 5.000
Unearned service revenues 6.000
Notes payable 8.000
HA, capital 22.000
HA Drawing 1.000
Service revenue 10.000
Total 51.000 51.000
12

2
 8/5/2023

HA at June 30
Information for adjustments at June
30, 2016:
a) Prepaid rent expired, $600.
b) Supplies used, $500.
c) Depreciation on building, $2.500.
d) Accrued salary expense, $1000.
e) Service revenue that was collected in
advance and now has been earned, $500.
13

3.3 Closing the Accounts

Requirements
1) Prepare the Worksheet of HA
Company for the month end June 30,
2016.
2) Prepare the Financial Statements
from a Worksheet

15

3.3 Closing the Accounts 3.3 Closing the Accounts

3

3.3 Closing the Accounts
3.4 Post-Closing Trial Balance
3.5 Classifying Assets and Liabilities
• Current assets will be converted to
cash, sold, or used up during the next
12 months, or within the business’s
operating cycle if the cycle is longer
than a year.
• Long-term assets are all the assets
that will not be converted to cash
within the business’s operating cycle.
8/5/2023
3.4 Post-Closing Trial Balance
• This optional step lists the accounts
and their adjusted balances after
closing.
• Only assets, liabilities, and capital
accounts appear on the post-closing
trial balance. No temporary accounts—
revenues, expenses, or drawing—are
included because they have been
closed (their balances are zero).
3.5 Classifying Assets and Liabilities
• classified as either current or long-term
to show their relative liquidity.
• Liquidity measures how quickly and
easily an account can be converted to
cash.
3.5 Classifying Assets and Liabilities
• Current liabilities must be paid either
with cash or with goods and services
within one year, or within the entity’s
operating cycle if the cycle is longer
than a year
• Long-term liabilities do not need to
be paid within the entity’s operating
cycle.
4
 8/5/2023

Financial statements-Balance sheet form Financial statements-Balance sheet form

3.6 Accounting Ratios

Financial statements
1) Prepare The Income statements
2) Prepare Statements of Owner’s Equity
3) Prepare The Balance sheet
• The current ratio measures a
company’s ability to pay its current
liabilities with its current assets.
Current ratio = Total current assets/
Total current liabilities
• The debt ratio measures an
organization’s overall ability to pay its
total liabilities.(debt).
Debt ratio = total liabilities / Total assets

Home work
Continue the practice above
2) Prepare the income statement, the
statement of owner’s equity, and the
classified balance sheet in account
format.
3. Prepare closing journal entries from
the worksheet.
Thank for your attention!
4. Post –Closing the trial balances
5. Did the company have a good or a bad
year during 6 month in 2016? Give the
reason for your answer. (Challenge)