Professional Documents
Culture Documents
5
The Accounting Cycle
Reporting Financial Results
McGraw-Hill/Irwin
Learning Objective
To prepare an income
statement, a statement
of retained earnings,
and a balance sheet.
LO1
McGraw-Hill/Irwin
This is the
Adjusted Trial
Balance for JJs.
Accounts receivable
3,925
75
2,650
$
Truck
15,000
250
Notes payable
13,000
Accounts payable
150
Capital stock
8,000
Dividends
200
Sales revenue
750
Gasoline expense
50
50
McGraw-Hill/Irwin
50
250
$
22,200
22,200
Now, lets
prepare the
financial
statements for
JJs Lawn Care
Service for May.
The McGraw-Hill Companies, Inc., 2008
750
Operating expenses:
Gasoline expense
Depreciation: tools & equipment
Depreciation: truck
Net income
McGraw-Hill/Irwin
50
50
250
350
$
400
McGraw-Hill/Irwin
Dividends
Business
Losses
400
$ 400
200
$ 200
McGraw-Hill/Irwin
3,925
75
2,600
14,750
$ 21,350
$ 13,000
150
$ 13,150
8,200
$ 21,350
Learning Objective
To explain how the
income statement and
the statement of
retained earnings relate
to the balance sheet.
LO2
McGraw-Hill/Irwin
McGraw-Hill/Irwin
3,925
75
2,600
14,750
$ 21,350
$ 13,000
150
$ 13,150
Sales revenue
Operating expenses:
Gasoline expense
Depreciation: tools & equipment
Depreciation: truck
Net income
$ 750
$
50
50
250
350
$ 400
400
$ 400
200
$ 200
8,200
$ 21,350
The McGraw-Hill Companies, Inc., 2008
Learning Objective
LO3
McGraw-Hill/Irwin
Lawsuits pending
Scheduled plant closings
Governmental investigations
Significant events occurring
after the balance sheet date
Specific customers that
account for a large portion of
revenue
Unusual transactions and
related party transactions
McGraw-Hill/Irwin
Learning Objective
LO4
McGraw-Hill/Irwin
Close Dividends to
Retained Earnings.
McGraw-Hill/Irwin
Debit
Credit
750
750
McGraw-Hill/Irwin
Income Summary
750
Sales Revenue
750
750
750
McGraw-Hill/Irwin
Debit
350
Gasoline Expense
50
50
McGraw-Hill/Irwin
Credit
250
The McGraw-Hill Companies, Inc., 2008
Income Summary
350
750
400
Net Income
The McGraw-Hill Companies, Inc., 2008
Debit Credit
400
400
McGraw-Hill/Irwin
Retained Earnings
400
Income Summary
350
750
400
400
McGraw-Hill/Irwin
Debit Credit
200
200
McGraw-Hill/Irwin
McGraw-Hill/Irwin
Retained Earnings
200
400
200
Learning Objective
LO5
McGraw-Hill/Irwin
McGraw-Hill/Irwin
After all
closing
entries are
made, JJs
After-Closing
Trial Balance
looks like
this.
Learning Objective
To use financial
statement information to
evaluate profitability and
liquidity.
LO6
McGraw-Hill/Irwin
Evaluating
Liquidity
Evaluating
Liquidity
Net Income
Net Income
=
Percentage
Total Revenue
Working
Current Assets
=
Capital
Current Liabilities
Return on
Equity
Current
Current Assets
=
Ratio
Current Liabilities
McGraw-Hill/Irwin
Net Income
Avg. Stockholders
Equity
Learning Objective
To explain how interim
financial statements are
prepared in a business
that closes its accounts
only at year-end.
LO7
McGraw-Hill/Irwin
Quarterly
Monthly
Jan. 1
McGraw-Hill/Irwin
Dec. 31
The McGraw-Hill Companies, Inc., 2008
Learning Objective
To prepare a worksheet
and explain its uses.
LO8
McGraw-Hill/Irwin
The Worksheet
OVERNIGHT AUTO SERVICES
Worksheet
For the Year Ended December 31, 2007
Trial Balance
Dr
Cr
18,592
6,500
1,800
Adjustments
Dr
Cr
(h)
750
(a)
600
Adjusted Trial
Balance
Dr
Cr
18,592
7,250
1,200
Income Statement
Dr
Cr
Balance Sheet
Dr
Cr
18,592
7,250
1,200
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes Payable
Accounts Payable
4,000
2,690
4,000
2,690
4,000
2,690
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Statement Accounts
Repair Service Revenue
Advertising Expense
Wages Expense
171,250
3,900
56,800
(h)
750
172,000
3,900
(f)
1,950
58,750
172,000
3,900
58,750
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
272,000
Net Income
Totals
McGraw-Hill/Irwin
272,000
12,200
12,200
279,100
279,100
135,058
39,942
175,000
175,000
144,042
175,000
144,042
104,100
39,942
144,042
End of Chapter 5
McGraw-Hill/Irwin