ACC-201 (Financial Accounting)
Working Papers – Chapter 04
BRIEF EXERCISE 4-2
KEO Company
Worksheet
Trial Balance
Dr
Prepaid
Insurance
Service
Revenue
Sal. & Wage
Exp
Insurance
Expense
Accts
Receivable
Sal. & Wage
Paybl
Cr
Adjustments
Dr
Cr
Adjusted Trial Balance
Dr
Cr
Income Statement
Dr
Cr
Balance
Sheet
Dr
Cr
PPD INS (Asset)
on the BAL SHT.
3,000
61,000
REV and EXP on
the INC ST only.
Not on BAL SHT
25,000
ACC REC (Asset)
on the BAL SHT.
Any PAYBL (Liab)
to the BAL SHT.
A “worksheet” is NOT a financial statement … WHY? Because it is not given to those outside the company.
IT IS NOT public knowledge. To complete the worksheet enter data for journal entries into the 2
“adjustment” columns. The debit colum should = the credit column.
1st adjustment is to the 3,000 in Prepaid Insurance. Part of the $3,000 was “used up” but has not been
entered into the accounting records. We need to figure out what the journal entry will be (hence this
worksheet). Text says $1,300 “expiored” (means it is used up). Therefore, we need to increase (debit)
INSURANCE EXP and credit (decrease) PREPAID INSURANCE.
2nd adjustment is to the 61,000 in Revenue. Text says an additional 1,100 was billed but not yet collected.
We want to increase ACCT REC (since it is uncollected meaning no cash yet received). To increase the asset
ACC REC we debit. The credit is to increase SERVICE REVENUE by the 1,100.
3rd adjustment is for salaries that I owe but they are not yet due to be paid (definition of accrued is owed, not
yet paid). (Example: if you worked yesterday – your company has “accrued salary or wages” of what they
owe you from yesterday. You will get the money on your next paycheck.). The 800 was “used up” since the
employees already worked the hours so I enter an increase (debit) SAL & WAGES EXP. The credit will increase
what I owe SAL & WAGES PAYBL.
TOTAL the adjustment columns to make sure the amounts are equal (they “balance”).
Then, in the “Adjusted Trial Balance” columns enter the result of the 4 columns to there left to EITHER the
“Adj T.B.” debit OR credit column … (Trial Balance “Dr” + Trial Balance “CR” + Adjustments “DR” +
Adjustments “CR”).
Adjusted Trial Balance columns calculations:
PREPAID INS … TB has a debit of 3,000 to be combined with a credit of 1,300 (3,000-1,300 = 1,700 DR or CR?).
SER REVENUE: TB has a credit of 61,000 combined with a credit of 1,100 (61,000 + 1,100 = 62,100 DR or CR?).
SAL WAGE EXP: TB has a debit of 25,000 combined with a debit of 800 (25,000 + 800 = 25,800 DR or CR?).
INS EXP: TB has zero combined with the debit (from 1st adj) of 1,300 ( 0 + 1,300 = 1,300 DR or CR?).
ACC REC: TB has zero combined with the debit of 1,100 (from 2nd adj) (0 + 1,100 = 1,100 DR or CR?).
SAL WAGE PAYBL: TB is zero combined with credit of 800 (3rd adj) (0 + 800 = 800 DR or CR?).
TOTAL the adjusted Trial Balance columns to make sure they balance (are equal).
To complete the worksheet TRANSFER (do not add or subtract) the amounts from the debit OR credit
“Adjusted Trial Balance” column to EITHER “Dr” or “Cr” Income Statenment column OR the “Dr” or “Cr”
Balance Sheet column … (depending on which statement the account appears … Remember: Rev & Exp on
Income Statement … Everything else is on the Balance sheet) … (each account total is in ONE of the 4 financial
statement columns). Notice that the debit column of the Income Statement does NOT equal the credit
column of the Income Statement … KNOW WHY?
(IF only REV and EXP amounts are on the INC ST how much profit or loss would you have if your REV = EXP?…
None, Nada, Zip, Break-even, Sucks. (The same thing applies to the 2 Balance Sheet columns because a profit
will increase equity while a loss will decrease it.) So these last 4 columns of the worksheet will almost never
equal each other.
BRIEF EXERCISE 4-3
Income Statement
Account
Dr.
Cr.
Balance Sheet
Dr.
Accumulated Depreciation
Depreciation Expense
Common Stock
Dividends
Service Revenue
Supplies
Accounts Payable
BRIEF EXERCISE 4-4
Accounts Name
Dec 31
Debit
Credit
Cr.
BRIEF EXERCISE 4-8
The proper sequencing of the required steps in the accounting cycle is as follows:
Journalize and post closing entries.
Prepare a trial balance.
Post to ledger accounts.
Prepare an adjusted trial balance.
Prepare a post-closing trial balance.
Prepare financial statements.
Journalize the transactions.
Journalize and post adjusting entries.
Analyze business transactions
BRIEF EXERCISE 4-11
Accounts payable
Accounts receivable
Accum. depreciation—buildings
Buildings
Cash
Copyrights
Income taxes payable
Debt investments (long-term)
Land
Inventory
Patents
Supplies
Remember that the ADJ. T.B. amounts (below) will go into EITHER the INC ST columns OR the BAL SHT
columns … NOT BOTH. Make sure that if the ADJ. T.B. amount is a debit it goes into the INC ST OR BAL SHT
debit column. Same thing for a credit amount, into INC ST OR BAL SHT credit column.
EXERCISE 4-2
Adjusted Trial Balance
Dr
Cash
Accounts Receivable
Prepaid Rent
Equipment
Accum Deprec - Equip
Notes Payable
Accounts Payable
Common Stock
Retained Eanrings
Dividends
Service Revenue
Salaries & Wage Expense
Rent Expense
Depreciation Expense
Interest Expense
Interest Payable
Cr
Income Statement
Dr
7,442
7,840
2,280
23,000
4,800
5,700
5,672
22,000
4,000
3,000
12,590
9,840
760
600
57
57
Cr
Balance Sheet
Dr
Cr
Column Totals
Net Income
Column Totals
54,819
54,819
1,333
12,590
43,562
1,333
43,562
The 1,333 is “plugged into” the INC ST “Net Income” debit column. WHY? Because REVENUES were greater
than total EXPENSES … which means I had a profit. A debit amount is need to make the INC ST columns
balance. (With a loss, EXP are bigger than REV so the amount would be in the credit column to make things
balance). Basically I am just “pluggin in” the number to make the two columns equal. BUT, that “plug-in”
amount is the profit or loss … depending on if it is in the debit column (since REV were larger than EXP
meaning a profit) or the credit column (since EXP were larger than REV meaning a loss). The nice part is that I
don’t have to “know” that … I just “plug-in” the amount in the columns where it is needed to make the 2 INC
ST columns equal (balance).
So WHY is the 1,333 “Net Income” in the BAL SHT credit column? Think back. What does a credit do to
CAPITAL (also called equity)? A credit INCRESASES Capital (equity). What does a profit do for a business?
Does a profit increase or decrease your equity (Capital) in the business? A profit INCREASES your equity hence
the credit amount. (If you had a loss it would have decreased your equity … remember that Capital (equity) is
decreased by a debit)
In Ex 4-3 (below) you are “copying” amounts from the Ex 4-2 worksheet (above). For the INC ST (below) you
copy the amounts from the (above) INC ST worksheet columns. Same thing for the BAL SHT.
EXERCISE 4-3
Albanese Company
Income Statement
For the Month Ended April 30, 2014
Revenues:
Expenses:
Total Expenses
Net Income
1,333
Albanese Company
Retained Earnings Statement
For the Month Ended April 30, 2014
Retained Earnings, April 1
ADD: Net Income
LESS: Dividends
Retained Earnings, April 30
4,000
1,333
5,333
3,000
2,333
Albanese Company
Balance Sheet
April 30, 2014
Current Assets
Total Current Assets
Property Plant & Equipment
Total Assets
Liabilities & Stockholders Equity
Liabilities:
35,762
Total Current Liabilities
Stockholders Equity
Total Stockholders Equity
Total Liabilities & Stockholders Equity
35,762
In case you have not yet figured it out, it is called a “Balance Sheet” because it presents the “balances” of the
Asset = Liability + Owners Equity accounts … AND … the totals MUST equal (as in “Balance”). If Assets do NOT
= Liabilities + Owners Equity … then something is WRONG !
Notice that a post-closing Trial Balance (means “after” the closing) should NOT have any amounts for items
that is closed. Since ALL REV and EXP are closed any INC ST account should have a zero balance after closing.
If there is a balance – then you did not close ALL of the REV and EXP accounts.
IF ANY Revenue, Expense or Withdraw (or Dividend if the business is a corporation) account has a balance –
and shows up in the Post-Closing Trial Balance … then your closing was WRONG (you forgot to close an
account). After closing ALL Revenue, Expense and Dividend (Withdraw) accounts should have a ZERO Balance.
Should the CAPITAL (Equity) account have a balance or are they closed during the closing process. Think it
through. If your CAPITAL (which represents your ownership in the business) has a ZERO balance then your
investment in the business is gone … you are out of business.
Given the above – KNOW WHY the “Accumulated Depreciation” account correctly still has a balance (hint –
on which financial statement does it appear?
).
During the closing process you do NOT close all accounts – only the Revenue, Expense and Dividend
(Withdrawal) accounts are closed – NOT ANY OTHERS !
Closing Entries ALWAYS follow these 4 steps … in this order:
1. Close ALL Revenue accounts to INCOME SUMMARY
(The KEY is knowing “Revenue” accounts. Cash, Accounts Receivable are NOT Revenue accounts – they are
assets. Unearned Revenue is NOT a revenue account – it is a liability).
2. Close ALL Expense accounts to INCOME SUMMARY.
(The Income Summary account now has all of the Revenues (credits to Income Summary) AND all of the Expense
accounts (debits to Income Summary). If the REV amount is larger than the EXP amount the company has a Net
Profit. If the EXP amount is larger than the REV amount then the company has a NET LOSS (The “balance” of the
Income Summary account is the companies Profit or Loss)
3. Close the INCOME SUMMARY account to RETAINED EARNINGS (called “Capital” in a sole prop.)
4. Close the DIVIDEND account to RETAINED EARNINGS (called “Capital” in a sole prop.)
EXERCISE 4-11
Accounts Name
June 30
Income Summary
Apr 30
Income Summary
Apr 30
Income Summary
Apr 30
Retained Earnings
(b)
Income Summary
June 30
June 30
EXERCISE 4-15
June 30
Debit
Credit
Accounts payable
Accounts receivable
Cash
Common stock
Patents
Salaries and wages payable
Inventory
Investments
Problem 4-1B (page 151)
(See the blue box below for help in completing this worksheet)
Trial Balance
Cash
Accts Receivable
Supplies
Equipment
Acc Deprec - Equip
Accounts Payable
Unearned Svc Rev
Common Stock
Dividends
Service Revenue
Sal & Wage Exp
Misc Expense
Totals
Supplies Expense
Deprec Expense
Sal & Wages Payble
Totals
Net Income
Accumulated depreciation
Buildings
Land
Long-term debt
Supplies
Equipment
Prepaid expenses
2,720
2,700
1,500
11,000
Sherlock Holmes, P.I., Inc.
Worksheet
For the Quarter Ended March 31, 2014
Adjusted Trial
Adjustments
Balance
2,720
2,700
950
550
Income
Statement
Balance
Sheet
1,250
2,500
550
10,000
1,100
6,300
1,300
280
20,600
20,600
950
1,940
1,940
Totals
Complete the worksheet (above) as follows:
Adjustment columns: Not every line will have an amount. Only the adjusting entry amounts will go on the
appropriate line. For example, the 1st adjustment is a debit (an increase) to SUPPLIES EXP and a credit (a
decrease) to SUPPLIES.
Adjusted Trial Balance columns: For each line (account name) you combine the four columns to its left and
place the resulting “balance” in EITHER the debit or the credit column – NOT both columns. For example the
SUPPLIES account has a debit of 1,500 and a credit of 950. When I combine those two I get 1,500 – 950 = 550
which is placed in the debit column (of the adjusted trial balance columns) since the debit amount is larger.
(If both amounts had been debits I would have added them for a total debit amount of 2,450).
Income Statement columns: ONLY for the accounts that appear on an income statement, carry over the
amounts in the Adjusted Trial Balance columns to the Income Statement columns (copy them from the Adj TB
cols to Inc St cols).
The debit columns and debit columns will NOT be equal (the totals in the yellow boxes) UNTIL you “plug-in”
the difference between them (into the pink box) … which is the Net Income amount (basically REV – EXP = NET
INC) (If the debit amounts (expenses) had been larger than the credit amounts (revenues) you would have a
“minus” net income (NET LOSS) and the “plug-in” number would be in the credit column).
Balance Sheet columns: ONLY for those accounts that appear on a Balance Sheet, carry over the amounts in
the Adjusted Trial Balance columns to the Balance Sheet columns (copy them from the Adj TB cols to BS cols).
Once again, the debit columns and debit columns will NOT be equal (the totals in the yellow boxes) UNTIL you
“plug-in” the difference between them (into the pink box) … which is the Net Income amount (basically REV –
EXP = NET INC).
Note: If there is a profit (positive net income), the “plug-in” amount will be a debit in the Income Statement
columns and a credit in the Balance Sheet columns. If there is a Net Loss (net income is negative) then the
“plug-in” will be a credit in the Inc St cols and a debit in the Bal Sht cols)
Firmament Roofing
Income Statement
For the Quarter Ended March 31, 2014
Revenues:
Service Revenue
Expenses:
Salaries & Wage Exp
Travel Expense
Rent Expense
Depreciation Expense
Total Expense
Net Income
3,300
Firmament Roofing
Retained Earnings Statement
For the Quarter Ended March 31, 2014
Retained Earnings, Mar 1, 2014
Add Net Income
Less Dividends
Retained Earnings Mar 31, 2014
Firmament Roofing
Balance Sheet
March 31, 2014
Assets
Current Assets
Total Current Assets
0
3,300
1,100
2,200
Property, Plant & Equipment
Total Assets
15,470
Liabilities & Stockholders Equity
Current Liabilities:
Total Current Liabilities
Stockholders Equity:
Total Stockholders Equity
Total Liability & Stockholders Equity
Accounts Name
Adjusting Entries
Mar 31
31
31
31
Closing Entries
31
31
31
31
15,470
Debit
Credit