Sandwich Center

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Sandwich Centre
June 1 : Mr. Donald invested Rs 40,000 cash in Sandwich shop. June 2 : Supplies 10 Parcel sandwich for cash Rs 2000. June 3 : Paid rent Rs 1500. June 4 : Bought equipments from Lotus for Rs 9000 with a down payment of Rs 3000 and agreed to pay the balance in six equal installments on the last day of the month beginning June. June 5 : Signed an agreement with Daisy(Birthday party) for making 5 sandwich parcel . The agreement provide for payment of a Fee of Rs 12000 by Daisy on completion of the work. June 6 : Paid for a one – year fire insurance policy that will expire next May 31, Rs 720. June 5 : Received fee for Sandwich Parcel supplied Rs 2000. June 8 : Collected from a customer , for services to be provide later, Rs 1500. June 9: Bought Raw material supplies on credit from Reliance Fresh, Rs 3500. June10 : Gummy bear co. for Sandwich parcel completed, Rs 9000. June 12: loan from family member of Rs 10000. June 14: Paid Reliance Fresh on account Rs 1000. June 18: Collected from bear co. Rs 4000.

Trial Balance
The trial balance is the list of ledger balances on a specified data. It is a basic check on the bookkeeping process.

Sandwich Centre : Trial Balance , June 30,20XX
Account Equipments and tools Supplies Debtors Cash Prepaid Insurance Creditors Unearned Revenue Electricity Expenses Payable Capital Loan Furniture Revenue from Services Debit 9000 5500 5000 45080 720 Credit

7500 1500 150 40000 10000 2200 11000

Trial Balance
The trial balance is the list of ledger balances on a specified data. It is a basic check on the bookkeeping process.

Account Sandwich Centre : Trial Balance , June 30,20XX Debit Credit Salaries Expenses 800 Electricity Expenses 150 TOTAL Rent Expenses Telephone Expenses 70,150 1500 200 70,150

What is a Worksheet?
• Multiple-column form used for the adjustment process and preparing financial statements • Working tool for the accountant • Not a permanent accounting record • Eases preparation of adjusting entries and financial statements

Example of a Wor k Sheet

To Prepare A Work Sheet:
1 Prepare the trial balance  2 Enter adjustments in the adjustments columns 3 Enter adjusted balances in adjusted trial balance columns  4 Extend adjusted trial balance amounts to the appropriate financial statement columns 5 Total the statement columns, compute net income (loss), and complete the work sheet Now , let ’ s see how this works !

Account Trial Balance Dr. Equipmen 9000 ts and Acc. Dep. tools Supplies 5500 Debtors 5000 Cash 45080 Pre. Ins. 720 Creditors Electricity Exp. payable Unearned Revenue Capital Cr. Dr. Cr.

Adjusted Trial L Account alance Adj. P& B Balance Sheet Dr. Cr. Dr. Cr. Dr. Cr.

7500 150 1500 40000

First ,, enter First enter the the unadjusted unadjusted trial trial balance balance amounts to amounts to the the worksheet !! worksheet

Account Trial Balance Dr. Cr. Dr. Cr.

Adjusted Trial L Account alance Adj. P& B Balance Sheet Dr. Cr. Dr. Cr. Dr. Cr.

Loan 10000 Revenue 11000 from Service Salary 800 exp. Electricity 150 Expenses Telephone200 Expenses Rent 1500 Exp. Furniture 2200 Total 70,150 70,15

First ,, enter First enter the the unadjusted unadjusted trial trial balance balance amounts to amounts to the the worksheet !! worksheet

Account Trial Balance Dr. Cr. Dr. Cr.

Adjusted Trial L Account alance Adj. P& B Balance Sheet Dr. Cr.
Next enter the the Dr. Next ,, enter Cr. Cr. Dr. adjustments !! adjustments

Equipmen 9000 ts and Dep. 150 tools Supplies 5500 2100 Debtors 5000 CashIns. 45080 Pre. 720 60 Creditors 7500 Electricity 150 Exp. payable Unearned 1500 900 Revenue Capital 40000

(a) Depreciation expenses, Rs 150. (b)Consumption of supplies, Rs 2100

(c)Expiration of prepaid Insurance, Rs 60.

(d)Revenue earned out of unearned revenue, Rs 900

Account Trial Balance Dr. Cr. Dr. Cr.

Adjusted Trial L Account alance Adj. P& B Balance Sheet Dr. Cr. Dr. Next ,, enter Cr. Cr. Dr. Next enter the the
adjustments !! adjustments

Loan 10000 Revenue 11000 900 from 700 Service Salary 800 500 exp. Electricity 150 Expenses Telephone200 Expenses Rent 1500 Exp. Furniture 2200 Total 70,150 70,15 0 Insurance 60
expense

(d)Revenue earned out of unearned revenue, Rs 900 (e)Unbilled Revenue, Rs 700 (f)Salary payable, Rs 500

Account Trial Balance Dr. Supplies Expenses Acc. Deprecati on Salary Payable Unbilled Revenue
Total

Cr.

Dr. 2100 150

Cr.

Adjusted Trial L Account alance Adj. P& B Balance Sheet Dr. Cr. Dr. Next ,, enter Cr. Cr. Dr. Next enter the the
adjustments !! adjustments

500 700 4410 4410

Account Trial Balance Dr. Cr. Dr. Cr.

Adjusted TrialP& L Account Adj. Balance Balance Sheet Dr. 9000 150(a) 150 2100(b 3400 5000 ) 60(c) 45080 660 7500 150 600 40000 Cr. Dr. Cr. Dr. Cr.

Equipmen 9000 ts and Dep. tools Supplies 5500 Debtors 5000 CashIns. 45080 Pre. 720 Creditors 7500 Electricity 150 Exp. payable Unearned 1500 900 Revenue (d) Capital 40000

Prepare Prepare the the adjusted adjusted trial trial balance !! balance

Account Trial Balance Dr. Cr.

Adjusted Trial L Account Adj. P& Balance Balance Sheet Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. 900 (d) 700 (e) 1300 150 200 1500 2200 60 10000 12600

Loan 10000 Revenue 11000 from Service Salary 800 500 exp. (f) Electricity 150 Expenses Telephone200 Rent 1500 Exp. Furniture 2200 Total 70,150 70,15 Insurance 0 60
expense

Prepare Prepare the the adjusted adjusted trial trial balance !! balance

Balance Loan Revenue from Service 10000 11000 10000 900 12600 (d) 700 500 (e) 1300 (f) 150 200 1500 2200 60

Sheet

Salary 800 exp. Electricity 150 Expenses Telephone200 Expenses Rent 1500 Exp. Furniture 2200 Total 70,150 70,15 Insurance 0 60
expense

Prepare Prepare the the adjusted adjusted trial trial balance !! balance

Account Trial Balance Dr. Supplies Expenses Acc. Deprecati on Salary Payable Unbilled Revenue
Total

Cr.

Dr. 2100 150

Cr.

Adjusted Trial L Account Adj. P& Balance Balance Sheet Dr. Cr. Dr. Cr. Dr. Cr. 2100 150

500 700 700

500

Prepare Prepare the the adjusted adjusted trial trial balance !! balance

4410 4410 71500 71500

Account Trial Balance

Adjusted TrialP& L Account Adj. Balance Balance Sheet

Dr. Cr. Dr. Dr. Cr. Dr. Cr. Then ,, extend Dr. Cr. Then extend the adjusted Cr. the adjusted trial balance trial balance amounts to the financial statements !! amounts to the financial statements Equipmen 9000 9000 ts and Dep. 150(a) 150 tools Supplies 5500 2100(b 3400 Debtors 5000 5000 ) CashIns. 45080 Pre. 720 60(c) 45080 660 Creditors 7500 7500 Electricity 150 150 Exp. payable Unearned 1500 900 600 Revenue Capital (d) 40000 40000

Account Trial Balance

Adjusted Trial L Account Adj. P& Balance Balance Sheet Dr. Cr. Dr. Cr. Dr. Cr. Then ,, extend Dr. Cr. Dr. Cr. trial balance Then extend the adjusted trial balance the adjusted amounts to the financial statements !! amounts to the financial statements Loan 10000 10000 Revenue 11000 900 12600 12600 from (d) Service 700 Salary 800 500 (e) 1300 1300 exp. (f) Electricity 150 Expenses Telephone200 Expenses Rent 1500 Exp. Furniture 2200 Total 70,150 70,15 Insurance 60 0
expense

150 200 1500 2200 60

150 200 1500

60

Account Trial Balance Dr. Supplies Expenses Acc. Deprecati on Salary Payable Unbilled Revenue
Total

Cr.

Dr. 2100 150

Cr.

Adjusted Trial L Account Adj. P& Balance Balance Sheet Dr. Cr. Dr. Cr. Dr. Cr. 2100 150 2100 150 500 700

500 700

4410 4410 71500 71500

Then ,, extend the adjusted trial balance Then extend the adjusted trial balance amounts to the financial statements !! amounts to the financial statements

Account Trial Balance

Adjusted TrialP& L Account Adj. Balance Balance Sheet

Dr. Cr. Dr. Dr. Cr. Dr. Then ,, extend Dr. Cr. Then extend the adjusted Cr. the adjusted trial balance trial balance Cr. amounts to the financial statements !! amounts to the financial statements Equipmen 9000 9000 9000 ts and Dep. 150(a) 150 150 tools Supplies 5500 2100(b 3400 3400 Debtors 5000 5000 5000 ) CashIns. 45080 45080 Pre. 720 60(c) 45080 660 660 Creditors 7500 7500 7500 Electricity 150 150 150 Exp. payable Unearned 1500 900 600 600 Revenue Capital (d) 40000 40000 40000

Account Trial Balance

Adjusted Trial L Account Adj. P& Balance Balance Sheet Then ,, extend the adjusted trial balance Then extend the adjusted trial balance Dr. Cr. amounts toDr. Cr.financial statements Dr. Cr. amounts to the financial statements!! the Dr. Cr. Dr. Cr. 900 (d) 700 (e) 1300 150 200 1500 2200 60 10000 12600 1300 150 200 1500 2200 60 10000 12600

Loan 10000 Revenue 11000 from Service Salary 800 500 exp. (f) Electricity 150 Expenses Telephone200 Expenses Rent 1500 Exp. Furniture 2200 Total 70,150 70,15 0 Insurance 60
expense

Account Trial Balance Dr. Supplies Expenses Acc. Deprecati on Salary Payable Unbilled Revenue
Total

Cr.

Dr. 2100 150

Cr.

Adjusted Trial L Account Adj. P& Balance Balance Sheet Dr. Cr. Dr. Cr. Dr. Cr. 2100 150 2100 150 500 700 700 500

500 700

4410 4410 71500 71500

Then ,, extend the adjusted trial balance Then extend the adjusted trial balance amounts to the financial statements !! amounts to the financial statements

Account Trial Balance columns ,,Adjusted TrialP& L Account Adj. Total statement columns compute income or loss ,, Total statement compute income Balance or loss and balance columns .. Balance Sheet and balance columns Dr. Cr. Dr. Cr. Dr. 9000 150(a) 150 2100(b 3400 5000 ) 60(c) 45080 660 7500 150 600 40000 Cr. Dr. Cr. Dr. 9000 150 3400 5000 45080 660 7500 150 600 40000 Cr. Equipmen 9000 ts and Dep. tools Supplies 5500 Debtors 5000 CashIns. 45080 Pre. 720 Creditors 7500 Electricity 150 Exp. payable Unearned 1500 900 Revenue (d) Capital 40000

Account Trial Balance columns ,, computeP& L Account loss ,, Adjusted Trial income or Adj. Balance Total statement columns compute income or loss Total statement and balance columns .. Balance Sheet and balance columns Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Loan 10000 Revenue 11000 from Service Salary 800 500 exp. (f) Electricity 150 Expenses Telephone200 Expenses Rent 1500 Exp. Furniture 2200 Total 70,150 70,15 0 Insurance 60
expense

900 (d) 700 (e) 1300 150 200 1500 2200 60

10000 12600 1300 150 200 1500

10000 12600

2200 60

Account Trial Balance Adjusted Trial L AccountBalance Adj. P& Total statement columns ,, compute income Sheetloss ,, Total statement columns compute income or loss or Balance and balance columns .. and balance columns Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Supplies Expense s Acc. Deprecat ion Salary Payable Unbilled Revenue
Total Net Profit

2100 150 500 700

2100 150 500 700

2100 150 500 700

4410 4410 7150 7150 5460 12600 66040 58900 0 0 7140 714 0 12600 12600 66040 66040

Sandwich Centre
Balance Sheet ,June 30, 20XX Amounts are in rupees Particular Assets Equipments and tools supplies Less- Acc. Dep. Debtors Cash Prepaid Insurance Unbilled Revenue Total Assets Liabilities Creditors Electricity Expenses Payable

9000 150

3400 8850 5000 45080 660 700 63690 7500 150

Sandwich Centre
Balance Sheet ,June 30, 20XX Particular Amounts are in rupees 500 600 10000 18750 40000 4940 44940 63690

Salaries expenses

Unearned Revenue Loan Total liabilities Equity Capital Retained Earning Total equity Total liabilities and equity

CLOSING ENTRIES
• Closing entries – Transfer net income (loss) and owner’s drawings to owner’s capital – Journalizing and posting is a required step in the accounting cycle • Income Summary – A temporary account – Used in closing revenue and expense accounts – Minimizes the details in the permanent owner’s capital account

Closing Process
• Resets revenue, expense and withdrawal account balances to zero at the end of the period. • Helps summarize a period’s revenues and expenses in the Income Summary account. Id e n tify a cco u n ts fo r clo sin g .

R e co rd a n d p o st clo sin g e n trie s .

P re p a re p o st- clo sin g tria l b a la n ce .

Temporary and Permanent Accounts
Revenues Assets

Liabilitie s

Withdrawal s

Owner ’ s Capital

Expenses

Te m p o ra r y A cco u n ts

Permanent Accounts

Income Summary

The closing The closing process applies process applies only to temporary only to temporary accounts. accounts.

Recording Closing Entries
Œ Close Revenue accounts to Income Summary.  Close Expense accounts to Income Summary. Ž Close Income Summary account to Owner’s Capital.  Close Withdrawals to
L e t’ s se e h o w th e clo sin g p ro ce ss w o rk s !

FLOWCHART of CLOSING PROCESS
( CLOSE INCOME ACCOUNT ) INCOME ( CLOSE EXPENSE ACCOUNTS ) P & L SUMMARY

28 , 500

12 , 000 7 , 500

4 , 450 24 , 050

28 , 500 24,050
SUMMARY )

SALARY 9 , 000 EXP

( CLOSE P & L

1 , 500 3 1 , 800 , 300
RENT EXP

CAPITAL ACCOUNT

2 , 500 2 , 50 0

24 , 050

800 350

800
EXP

DRAWINGS

SUPPLIES

2 , 500

350

( CLOSE DRAWINGS ACCOUNT )

Closing Revenue Account
Date Particular Lf Debit Credit June Revenue from Services 12600 12600 30 To Profit and Loss account (Being close the Expenses accounts) Closing Expenses Accounts Date Particular Lf Debit June Profit and Loss account 5460 30 To Salaries Expenses To Supplies Expenses To Electricity Expenses To Telephone Expenses To Rent Expenses To Insurances Credit 1300 2100 150 200 1500 60 150

Date Particular Lf Debit June Profit and Loss account 7140 30 To Retained Earnings (Being close the Profit & loss accounts)

Closing Profit and Loss Account

Credit 7140

POST-CLOSING TRIAL BALANCE

After all closing entries have been journalized the post-closing trial balance is prepared from the ledger.

 

The purpose of this trial balance is to  prove the equality of the permanent account balances that are carried forward into the next accounting period.

Post-Closing Trial Balance
• List of permanent accounts and their balances after posting closing entries. • Total debits and credits must be equal. L e t’ s lo o k a t F a stF o rw a rd ’ s p o st- clo sin g tria l b a la n ce .

The Post – closing Trial Balance
The post – closing trial balance the balances in assets ,liability, share capital and retained earning accounts.

Sandwich Centre : Trial Balance , June 30,20XX

Account Equipments and tools Accumulated Depreciation Supplies Debtors Cash Prepaid Insurance Unbilled Revenue Creditors Unearned Revenue Electricity Expenses Payable Capital Loan Retained earning Salaries payable Total

Debit 9000 3400 5000 45080 660 700

Credit 150

63840

7500 600 150 40000 10000 4940 500 63840

Reversing Entries

Reversal of accrual entries – Dated the first day of the subsequent accounting period – Exactly reverse certain adjusting entries – An accounting technique used to simplify the recording of regular transactions in the next period – Most often used to reverse two types of adjusting entries: accrued revenues and accrued expenses – Purpose is to simplify the recording of a subsequent transaction related to an adjusting entry

Reversing Entries

(cont’d)

Adjusting entry : ( 30 June )  Dr Salary Expense 500  Cr Salary Payable 500
Reversing entry :: ((1 July )) Reversing entry 1 July Dr Salary Payable 500 Dr Salary Payable 500 Cr Salary Expense 500 Cr Salary Expense 500
Earlier , we closed Salaries Expenses and transferred the balance to Profit and loss account. Salaries Payable is a balance sheet item and we will carry it to forward to July.

Reversing Entries

(cont’d)

• Not required for all adjusting entries • Only used where adjustment is temporary
– Accrued expenses – Accrued income – Prepayments originally recorded as expenses – Unearned income originally recorded as income

Key points to be Remember
Work sheet When it is used :
financial statements are prepared from the work sheet adjustments are journalized and posted from the work sheet after financial statements, so management can receive the financial statements more quickly.

ABOUT CLOSING ENTRIES
Be Careful! • Avoid doubling revenue and expense balances – watch debits and credits • Remember: owner’s drawing does not move to the Income Summary account. Owner’s drawing is not an expense and it is not a factor in determining net income.

Reference
1) Financial Accounting by R. Narayanaswamy. 2) Accounting by Hoggett Edwards Medlin. 3) Accounting 211 Instructor: Professor John Ahmad
4)

Thank you

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