Course Packet 05

Completion of Accounting Cycle

COMPLETION OF ACCOUNTING CYCLE

After a Trial Balance is prepared at the end of the year, the final steps to be followed are :

1.) Prepare a worksheet.

WORKSHEET – a columnar device prepared at the end of the year to facilitate the preparation of financial
statements. Accountants often use a worksheet to help transfer data from the unadjusted trial balance to the
financial statements. This multi-column document provides an efficient way to summarize the data for financial
statements.

Clear Copy Co.

Worksheet
For month ended December 31, 2019

Unadjusted Trial
Account Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet
No Title Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
101 Cash 7,950.00 7,950.00 7,950.00
102 Store Supplies 3,720.00 1,500.00 2,220.00 2,220.00
103 Prepaid Insurance 2,400.00 1,600.00 800.00 800.00
104 Copy Equipment 26,000.00 26,000.00 26,000.00
105 Accumulated Depreciation 1,300.00 1,300.00 1,300.00
201 Accounts Payable 6,200.00 6,200.00 6,200.00
202 Salaries Payable 200.00 200.00 200.00
203 Unearned Copy Services Revenue 3,000.00 1,000.00 2,000.00 2,000.00
301 Terry Dow, Capital 30,000.00 30,000.00 30,000.00
302 Terry Dow, Withdrawals 400.00 400.00 400.00
401 Copy Services Revenue 3,900.00 1,000.00 4,900.00 4,900.00
501 Depreciation Expense 1,300.00 1,300.00 1,300.00
502 Salaries Expense 1,400.00 200.00 1,600.00 1,600.00
503 Insurance Expense 1,600.00 1,600.00 1,600.00
504 Rent Expense 1,000.00 1,000.00 1,000.00
505 Store Supplies Expense 1,500.00 1,500.00 1,500.00
506 Utilities Expense 230.00 230.00 230.00
Totals 43,100.00 43,100.00 5,600.00 5,600.00 44,600.00 44,600.00 7,230.00 4,900.00 37,370.00 39,700.00
Net Income 2,330.00 2,330.00
Totals 7,230.00 7,230.00 39,700.00 39,700.00

Adjustment Data : a.) Insurance Expense 1,600.00

a.) Expired insurance is P 1,600. Prepaid Insurance 1,600.00
b.) Store supplies remaining is P 2,220.
c.) Depreciation on copy equipment is 5% of cost. b.) Store Supplies Expense 1,500.00
d.) Accrued Salaries is P 200. Store Supplies 1,500.00
e.) 1/3 of the unearned copy services revenue is already earned.
c.) Depreciation Expense 1,300.00
Accumulated Depreciation 1,300.00

d.) Salaries Expense 200.00

Salaries Payable 200.00

e.) Unearned Copy Services Revenue 1,000.00

Copy Services Revenue 1,000.00
2.) Prepare the basic financial statements : Income Statement & Balance Sheet
BALANCE SHEET – a formal statement which shows the financial condition of a business as of a given date. It
reports the resources of the business (assets), its obligations (liabilities) and the residual ownership (capital or
owner’s equity)

INCOME STATEMENT – shows the results of operations during a given period of time. It summarizes business
activities for a given period and reports the net income or loss resulting from operations. It contains the nominal
accounts or the revenue and expense accounts.

Clear Copy Co.

Income Statement
For the year ended December 31, 2019

Copy Services Revenue 4,900

Less : Expenses
Depreciation Expense 1,300
Salaries Expense 1,600
Insurance Expense 1,600
Rent Expense 1,000
Store Supplies Expense 1,500
Utilities Expense 230 7,230

Net Income (Net Loss) (2,330)

Clear Copy Co.

Balance Sheet
As of December 31, 2019

Assets
Cash 7,950
Store Supplies 2,220
Prepaid Insurance 800
Copy Equipment 26,000
Less : Accumulated Depreciation (1,300) 24,700

TOTAL ASSETS 35,670

Liabilities & Capital

Accounts Payable 6,200
Salaries Payable 200
Unearned Copy Services Revenue 2,000
TOTAL LIABILITIES 8,400

Terry Dow, Capital 30,000

Add : Net Income (2,330)
Less : Terry Dow, Withdrawals ( 400) 27,270
TOTAL LIABILITIES & CAPITAL 35,670
3.) Journalize & post adjusting entries
4.) Journalize & post closing entries

The closing entries are recorded in the general journal immediately following the adjusting entries in order to
prepare the books for the next accounting period. These are entries prepared at the end of the accounting period
to reduce to zero all of the balances of the nominal accounts (revenue, expense and drawing). Nominal accounts
are temporary accounts that accumulate information related to a specific accounting period. After closing, the
balance of the capital at the end of the period should agree with the amount of the capital in the Balance Sheet.
Only the real accounts (assets liabilities and capital) remain open and their balances are carried forward to the
next accounting period.

To close the income account :

Income xx
Income Summary xx

To close the expense account :

Income Summary xx
Expense xx

To close the income summary account:

Net Income : I >E Net Loss: I < E

Income Summary xx Capital xx

Capital xx Income Summary xx

To close the drawing account:

Capital xx
Drawing xx

CLOSING ENTRIES :

To close the income account :

Copy Services Revenue 4,900
Income Summary 4,900
To close the expense account :
Income Summary 7,230
Depreciation Expense 1,300
Salaries Expense 1,600
Insurance Expense 1,600
Rent Expense 1,000
Store Supplies Expense 1,500
Utilities Expense 230

To close the income summary account:

Terry Dow, Capital 2,330
Income Summary 2,330
To close the drawing account:
Terry Dow, Capital 400
Terry Dow, Withdrawals 400

5.) Rule the real and nominal accounts.

6.) Prepare a Post-Closing Trial Balance.

 The final step to complete the end-of-period work is the preparation of the post-closing trial balance. The purpose
of the post-closing trial balance is to check the equality of the debits and credits in the ledger after the adjusting
and closing entries are recorded and posted. At this point, the only accounts with balances are the assets, contra-
assets, liabilities and capital or the balance sheet accounts.

POST CLOSING TRIAL BALANCE

Clear Copy Co.

Post-Closing Trial Balance
December 31, 2019
Debit Credit
Cash 7,950
Store Supplies 2,220
Prepaid Insurance 800
Copy Equipment 26,000
Accumulated Depreciation 1,300
Accounts Payable 6,200
Salaries Payable 200
Unearned Copy Services Revenue 2,000 Terry Dow, Capital
27,270

Total 36,970 36,970

7.) Journalize & post reversing entries

Reversing entries are prepared at the beginning of a new accounting period, before any of the regular transactions
are recorded. These are the exact opposite of some of the adjusting entries made at the close of the accounting
period just ended. It is to be noted, however, that the recording of reversing entries is an optional step in the
bookkeeping process. It is not strictly required to prepare these entries but is preferred by bookkeepers because
it:

1.) brings about a segregation of items between accounting periods and it simplifies the recording of
regular transactions in the new accounting period.
2.) restores the ledger accounts to their normal status.

Reversing entries are prepared for the following adjusting entries:

1.) Adjustment for accrued expenses

2.) Adjustment for accrued income
3.) Adjustment for prepaid expenses when the expense method is used
4.) Adjustment for deferred income when the income method was used.

REVERSING ENTRIES (Refer to adjusting entries in worksheet)

a.) No reversing entry

b.) No reversing entry

c.) No reversing entry

d.) Salaries Payable 200.00

Salaries Expense 200.00

e.) No