Chapter 4-1
Chapter 4-2
Chapter 4
Completing the Accounting Cycle
Financial Accounting7th Edition
Weygandt Kimmel Kieso
Chapter 4-3
1. Explain the process of closing the books.
2. Describe the content and purpose of a post-
closing trial balance.
3. State the required steps in the accounting cycle.
4. Identify the sections of a classified balance sheet.
5. Review the worksheet – understand the theory
6. Explain the approaches to preparing correcting
entries.
Study ObjectivesStudy ObjectivesStudy ObjectivesStudy Objectives
Chapter 4-4
Using a Using a WorksheetWorksheet
Using a Using a WorksheetWorksheet
Steps in preparation
Preparing financial statements
Preparing adjusting entries
Current assets
Long-term investments
Property, plant, and equipment
Intangible assets
Current liabilities
Long-term liabilities
Stockholders’ equity
Reversing entries—An optional step
Correcting entries—An avoidable step
Preparing closing entries
Posting closing entries
Preparing a post-closing trial balance
Closing the Closing the BooksBooks
Closing the Closing the BooksBooks
Summary of Summary of Accounting Accounting
CycleCycle
Summary of Summary of Accounting Accounting
CycleCycle
Classified Classified Balance SheetBalance Sheet
Classified Classified Balance SheetBalance Sheet
Completing the Accounting CycleCompleting the Accounting CycleCompleting the Accounting CycleCompleting the Accounting Cycle
Chapter 4-5
The Adjusted Trial BalanceThe Adjusted Trial BalanceThe Adjusted Trial BalanceThe Adjusted Trial Balance
SO 7SO 7
Illustration 3-24Adjusted trial balance
Chapter 4-6
Preparing Financial Statements from a Preparing Financial Statements from a WorksheetWorksheetPreparing Financial Statements from a Preparing Financial Statements from a WorksheetWorksheet
SO 1 Prepare a worksheet.SO 1 Prepare a worksheet.
Illustration 4-4
Chapter 4-7
Preparing Financial Statements from a Preparing Financial Statements from a WorksheetWorksheetPreparing Financial Statements from a Preparing Financial Statements from a WorksheetWorksheet
SO 1 Prepare a worksheet.SO 1 Prepare a worksheet.
Illustration 4-4
Chapter 4-8
Preparing Financial Statements from a Preparing Financial Statements from a WorksheetWorksheetPreparing Financial Statements from a Preparing Financial Statements from a WorksheetWorksheet
Illustration 4-4
Chapter 4-9
At the end of the accounting period, the company makes the accounts ready for the next period.
Closing the BooksClosing the BooksClosing the BooksClosing the Books
SO 2 Explain the process of closing the books.SO 2 Explain the process of closing the books.
Illustration 4-5
Chapter 4-10
Closing entriesClosing entries formally recognize, in the general ledger, the transfer of
net income (or net loss) and
dividends
to Retained Earnings.
Closing the BooksClosing the BooksClosing the BooksClosing the Books
SO 2 Explain the process of closing the books.SO 2 Explain the process of closing the books.
Closing entries are only at the end of the annual accounting period.
Chapter 4-11
Closing the BooksClosing the BooksClosing the BooksClosing the Books
SO 2SO 2
Illustration 4-6
Retained Earnings is a permanent account;
all other accounts are temporary accounts.
Dividends are closed directly to Retained Earnings and not to Income Summary
because Dividends are not an expense.
Note:
Chapter 4-12
Preparing Financial Statements from a Preparing Financial Statements from a WorksheetWorksheetPreparing Financial Statements from a Preparing Financial Statements from a WorksheetWorksheet
SO 1 Prepare a worksheet.SO 1 Prepare a worksheet.
Illustration 4-4
Chapter 4-13
Closing the Revenue AccountClosing the Revenue Account
Transfer ending balance in Service Revenue to Transfer ending balance in Service Revenue to Income SummaryIncome Summary
# DATE Account Titles AND Description Debit Credit1 10/31# DATE Account Titles AND Description Debit Credit1 10/31 Service Revenue 10,600
Income Summary 10,600To close revenue account
Chapter 4-14
Closing the Expense AccountsClosing the Expense Accounts
Transfer ending balance in Transfer ending balance in each each Expense Expense Account to Income SummaryAccount to Income Summary
# DATE Account Titles AND Description Debit Credit
2 10/31 Income Summary 7,740
Advertising Supplies Expense 1,500
Depreciation Expense 40
Insurance Expense 50
Salaries Expense 5,200
Rent Expense 900
Interest Expense 50
To close the Expense Accounts
# DATE Account Titles AND Description Debit Credit
2 10/31
To close the Expense Accounts
Chapter 4-15
Closing the Income Summary Closing the Income Summary AccountAccount
Transfer ending balance in Income Summary Transfer ending balance in Income Summary to Retained Earningsto Retained Earnings
# DATE Account Titles AND Description Debit Credit1 10/31# DATE Account Titles AND Description Debit Credit1 10/31 Income Summary 2,860
Retained Earnings 2,860To close Income Summary to Retained Earnings
HEY! This is profit (credit to
RE) or Loss (debit to RE
Chapter 4-16
Closing the Dividends AccountClosing the Dividends Account
Transfer ending balance in Dividends to Transfer ending balance in Dividends to Income SummaryIncome Summary
# DATE Account Titles AND Description Debit Credit1 10/31# DATE Account Titles AND Description Debit Credit1 10/31 Retained Earnings 500
Dividends 500To close Income Summary to Retained Earnings
Chapter 4-17
Closing the BooksClosing the BooksClosing the BooksClosing the Books
Closing Entries need to be
Posted
Illustration 4-7Closing entries journalized
Chapter 4-18
Posting Closing Entries
Illustration 4-8Posting of closing entries
Closing the BooksClosing the BooksClosing the BooksClosing the Books
Chapter 4-19
Purpose is to prove the equality of the permanent account balances after journalizing and posting of closing entries.
Preparing a Post-Closing Trial Preparing a Post-Closing Trial BalanceBalancePreparing a Post-Closing Trial Preparing a Post-Closing Trial BalanceBalance
Temporary accounts will have zero balances.
Illustration 4-9
SO 3SO 3
Chapter 4-20
Summary of the Accounting CycleSummary of the Accounting CycleSummary of the Accounting CycleSummary of the Accounting Cycle
1. Analyze business transactions
1. Analyze business transactions
2. Journalize the transactions
2. Journalize the transactions
6. Prepare an adjusted trial balance
6. Prepare an adjusted trial balance
7. Prepare financial statements
7. Prepare financial statements
8. Journalize and post closing entries
8. Journalize and post closing entries
9. Prepare a post-closing trial balance
9. Prepare a post-closing trial balance
4. Prepare a trial balance
4. Prepare a trial balance
3. Post to ledger accounts
3. Post to ledger accounts
5. Journalize and post adjusting entries
5. Journalize and post adjusting entries
Illustration 4-12
SO 4 State the required steps in the accounting cycle.SO 4 State the required steps in the accounting cycle.
Chapter 4-21
The Classified Balance SheetThe Classified Balance SheetThe Classified Balance SheetThe Classified Balance Sheet
SO 6 Identify the sections of a classified balance sheet.SO 6 Identify the sections of a classified balance sheet.
Presents a snapshot at a point in time.
To improve understanding, companies group similar assets and similar liabilities together.
Assets Liabilities and Owner’s Equity
Current assets Current liabilitiesLong-term investments Long-term liabilitiesProperty, plant, and equipment Stockholders’ equityIntangible assets
Illustration 4-17Standard Classifications
Chapter 4-22
The Classified Balance SheetThe Classified Balance SheetThe Classified Balance SheetThe Classified Balance Sheet
SO 6 Identify the sections of a classified balance sheet.SO 6 Identify the sections of a classified balance sheet.
Assets that a company expects to convert to
cash or use up within one year or the
operating cycle, whichever is longer.
Operating cycle is the average time it takes
from the purchase of inventory to the
collection of cash from customers.
Current Assets
Chapter 4-23
The Classified Balance SheetThe Classified Balance SheetThe Classified Balance SheetThe Classified Balance Sheet
SO 6 Identify the sections of a classified balance sheet.SO 6 Identify the sections of a classified balance sheet.
Companies usually list current asset accounts in the order they expect to convert them into cash.
Illustration 4-19
Current Assets
Chapter 4-24
Review Question
The Classified Balance SheetThe Classified Balance SheetThe Classified Balance SheetThe Classified Balance Sheet
SO 6 Identify the sections of a classified balance sheet.SO 6 Identify the sections of a classified balance sheet.
Cash, and other resources that are reasonably expected to be realized in cash or sold or consumed in the business within one year or the operating cycle, are called:
a. Current assets.
b. Intangible assets.
c. Long-term investments.
d. Property, plant, and equipment.
Chapter 4-25
The Classified Balance SheetThe Classified Balance SheetThe Classified Balance SheetThe Classified Balance Sheet
SO 6 Identify the sections of a classified balance sheet.SO 6 Identify the sections of a classified balance sheet.
Investments in stocks and bonds of other companies.
Investments in long-term assets such as land or buildings that a company is not currently using in its operating activities.
Long-Term Investments
Illustration 4-20
Chapter 4-26
The Classified Balance SheetThe Classified Balance SheetThe Classified Balance SheetThe Classified Balance Sheet
SO 6 Identify the sections of a classified balance sheet.SO 6 Identify the sections of a classified balance sheet.
Long useful lives.
Currently used in operations.
Depreciation - allocating the cost of assets to a number of years.
Accumulated depreciation - total amount of depreciation expensed thus far in the asset’s life.
Property, Plant, and Equipment
Chapter 4-27
The Classified Balance SheetThe Classified Balance SheetThe Classified Balance SheetThe Classified Balance Sheet
SO 6 Identify the sections of a classified balance sheet.SO 6 Identify the sections of a classified balance sheet.
Illustration 4-21
Property, Plant, and Equipment
Chapter 4-28
The Classified Balance SheetThe Classified Balance SheetThe Classified Balance SheetThe Classified Balance Sheet
SO 6 Identify the sections of a classified balance sheet.SO 6 Identify the sections of a classified balance sheet.
Assets that do not have physical substance.
Intangible Assets
Illustration 4-22
Chapter 4-29
The Classified Balance SheetThe Classified Balance SheetThe Classified Balance SheetThe Classified Balance Sheet
SO 6 Identify the sections of a classified balance sheet.SO 6 Identify the sections of a classified balance sheet.
Obligations the company is to pay within the coming year.
Usually list notes payable first, followed by accounts payable. Other items follow in order of magnitude.
Liquidity - ability to pay obligations expected to be due within the next year.
Current Liabilities
Chapter 4-30
The Classified Balance SheetThe Classified Balance SheetThe Classified Balance SheetThe Classified Balance Sheet
SO 6 Identify the sections of a classified balance sheet.SO 6 Identify the sections of a classified balance sheet.
Illustration 4-23
Current Liabilities
Chapter 4-31
The Classified Balance SheetThe Classified Balance SheetThe Classified Balance SheetThe Classified Balance Sheet
SO 6 Identify the sections of a classified balance sheet.SO 6 Identify the sections of a classified balance sheet.
Obligations a company expects to pay after one year.
Long-Term Liabilities
Illustration 4-24
Chapter 4-32
Which of the following is not a long-term liability?
a. Bonds payable
b. Current maturities of long-term obligations
c. Long-term notes payable
d. Mortgages payable
Review Question
The Classified Balance SheetThe Classified Balance SheetThe Classified Balance SheetThe Classified Balance Sheet
SO 6 Identify the sections of a classified balance sheet.SO 6 Identify the sections of a classified balance sheet.
Chapter 4-33
The Classified Balance SheetThe Classified Balance SheetThe Classified Balance SheetThe Classified Balance Sheet
SO 6 Identify the sections of a classified balance sheet.SO 6 Identify the sections of a classified balance sheet.
Proprietorship - one capital account.
Partnership - capital account for each partner.
Corporation - Capital Stock and Retained Earnings.
Stockholders’ (Owner’s) Equity
Illustration 4-25
Chapter 4-34
A multiple-column form used in preparing financial statements.
Not a permanent accounting record.
Five step process.
Use of worksheet is optional.
Using A WorksheetUsing A WorksheetUsing A WorksheetUsing A Worksheet
SO 1 Prepare a worksheet.SO 1 Prepare a worksheet.
Worksheet
Chapter 4-35
Steps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a Worksheet
SO 1 Prepare a worksheet.SO 1 Prepare a worksheet.
Illustration 4-1
Chapter 4-36
The Adjusted Trial BalanceThe Adjusted Trial BalanceThe Adjusted Trial BalanceThe Adjusted Trial Balance
SO 7SO 7
Illustration 3-24Adjusted trial balance
Chapter 4-37
Illustration:
Steps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a Worksheet
SO 1 Prepare a worksheet.SO 1 Prepare a worksheet.
Illustration 4-2Preparing a trial balance
Chapter 4-38
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.Cash 15,200 Advertising Supplies 2,500 Prepaid Insurance 600 Office Equipment 5,000 Notes Payable 5,000 Accounts Payable 2,500 Unearned Revenue 1,200 Common stock 10,000 Dividends 500 Service Revenue 10,000
Salaries Expense 4,000 Rent 900
Totals 28,700 28,700
Balance SheetAdjusted Income
Trial Balance Adjustments Trial Balance Statement
SO 1 Prepare a SO 1 Prepare a worksheet.worksheet.
Steps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a Worksheet
1. Prepare a Trial Balance on the Worksheet
Trial balance amounts come directly from ledger
accounts.Include all
accounts with balances.
Chapter 4-39
The adjusting entries are prepared from the
adjustments columns of the worksheet.
Journalizing and posting of adjusting entries
follows the preparation of financial statements
when a worksheet is used.
Preparing Adjusting Entries from a Preparing Adjusting Entries from a WorksheetWorksheetPreparing Adjusting Entries from a Preparing Adjusting Entries from a WorksheetWorksheet
SO 1 Prepare a worksheet.SO 1 Prepare a worksheet.
Adjusting Entries
Chapter 4-40
Preparing Adjusting Entries from a Preparing Adjusting Entries from a WorksheetWorksheetPreparing Adjusting Entries from a Preparing Adjusting Entries from a WorksheetWorksheet
SO 1 Prepare a worksheet.SO 1 Prepare a worksheet.
Illustration 3-22General journal showing adjusting entries
Adjusting Journal Entries
(Chapter 3)
Chapter 4-41 SO 1 Prepare a SO 1 Prepare a
worksheet.worksheet.
Steps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a Worksheet
Illustration 3-22General journal showing adjusting entries
Adjusting Journal Entries
(Chapter 3)
Chapter 4-42
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.Cash 15,200 Advertising Supplies 2,500 1,500 Prepaid Insurance 600 50 Office Equipment 5,000 Notes Payable 5,000 Accounts Payable 2,500 Unearned Revenue 1,200 400 Common stock 10,000 Dividends 500 Service Revenue 10,000 400
200 Salaries Expense 4,000 1,200 Rent 900
Totals 28,700 28,700
Advertising Supplies Expense 1,500 Insurance Expense 50 Accumulated Depreciation 40 Depreciation Expense 40 Accounts Receivable 200 Interest Expense 50 Interest Payable 50 Salaries Payable 1,200
Totals 3,440 3,440
Balance SheetAdjusted Income
Trial Balance Adjustments Trial Balance Statement
SO 1 Prepare a SO 1 Prepare a worksheet.worksheet.
Steps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a Worksheet
2. Enter the Adjustments in the Adjustments Columns
(a)(b)
(a)
(g
)
(c)
(d)
(d
)
(e)
(b
)
(e)(f)
(f)(g)
(c)
Enter adjustment amounts, total adjustments columns,
and check for equality.
Add additional accounts as needed.
Adjustments Key:(a) Supplies Used.(b) Insurance Expired.(c) Depreciation Expensed.(d) Service Revenue Earned.(e) Service Revenue Accrued.(f) Interest Accrued.(g) Salaries Accrued.
Chapter 4-43
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.Cash 15,200 15,200 Advertising Supplies 2,500 1,500 1,000 Prepaid Insurance 600 50 550 Office Equipment 5,000 5,000 Notes Payable 5,000 5,000 Accounts Payable 2,500 2,500 Unearned Revenue 1,200 400 800 Common stock 10,000 10,000 Dividends 500 500 Service Revenue 10,000 400 10,600
200 Salaries Expense 4,000 1,200 5,200 Rent 900 900
Totals 28,700 28,700
Advertising Supplies Expense 1,500 1,500 Insurance Expense 50 50 Accumulated Depreciation 40 40 Depreciation Expense 40 40 Accounts Receivable 200 200 Interest Expense 50 50 Interest Payable 50 50 Salaries Payable 1,200 1,200
Totals 3,440 3,440 30,190 30,190
Balance SheetAdjusted Income
Trial Balance Adjustments Trial Balance Statement
SO 1 Prepare a SO 1 Prepare a worksheet.worksheet.
Steps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a Worksheet
3. Complete the Adjusted Trial Balance Columns
(a)(b)
(a)
(g
)
(c)
(d)
(d
)
(e)
(b
)
(e)(f)
(f)(g)
(c)
Total the adjusted trial balance columns and check for equality.
Chapter 4-44
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.Cash 15,200 15,200 Advertising Supplies 2,500 1,500 1,000 Prepaid Insurance 600 50 550 Office Equipment 5,000 5,000 Notes Payable 5,000 5,000 Accounts Payable 2,500 2,500 Unearned Revenue 1,200 400 800 Common stock 10,000 10,000 Dividends 500 500 Service Revenue 10,000 400 10,600 10,600
200 Salaries Expense 4,000 1,200 5,200 5,200 Rent 900 900 900
Totals 28,700 28,700
Advertising Supplies Expense 1,500 1,500 1,500 Insurance Expense 50 50 50 Accumulated Depreciation 40 40 Depreciation Expense 40 40 40 Accounts Receivable 200 200 Interest Expense 50 50 50 Interest Payable 50 50 Salaries Payable 1,200 1,200
Totals 3,440 3,440 30,190 30,190 7,740 10,600
Balance SheetAdjusted Income
Trial Balance Adjustments Trial Balance Statement
SO 1 Prepare a SO 1 Prepare a worksheet.worksheet.
Steps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a Worksheet
4. Extend Amounts to Financial Statement Columns
(a)(b)
(a)
(g
)
(c)
(d)
(d
)
(e)
(b
)
(e)(f)
(f)(g)
(c)
Extend all revenue and expense account balances to the income statement
columns.
Chapter 4-45
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.Cash 15,200 15,200 15,200 Advertising Supplies 2,500 1,500 1,000 1,000 Prepaid Insurance 600 50 550 550 Office Equipment 5,000 5,000 5,000 Notes Payable 5,000 5,000 5,000 Accounts Payable 2,500 2,500 2,500 Unearned Revenue 1,200 400 800 800 Common stock 10,000 10,000 10,000 Dividends 500 500 500 Service Revenue 10,000 400 10,600 10,600
200 Salaries Expense 4,000 1,200 5,200 5,200 Rent 900 900 900
Totals 28,700 28,700
Advertising Supplies Expense 1,500 1,500 1,500 Insurance Expense 50 50 50 Accumulated Depreciation 40 40 40 Depreciation Expense 40 40 40 Accounts Receivable 200 200 200 Interest Expense 50 50 50 Interest Payable 50 50 50 Salaries Payable 1,200 1,200 1,200
Totals 3,440 3,440 30,190 30,190 7,740 10,600 22,450 19,590
Balance SheetAdjusted Income
Trial Balance Adjustments Trial Balance Statement
SO 1 Prepare a SO 1 Prepare a worksheet.worksheet.
Steps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a Worksheet
4. Extend Amounts to Financial Statement Columns
Extend all asset, liability, and equity account balances to the balance sheet
columns.
(a)(b)
(a)
(g
)
(c)
(d)
(d
)
(e)
(b
)
(e)(f)
(f)(g)
(c)
Chapter 4-46
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.Cash 15,200 15,200 15,200 Advertising Supplies 2,500 1,500 1,000 1,000 Prepaid Insurance 600 50 550 550 Office Equipment 5,000 5,000 5,000 Notes Payable 5,000 5,000 5,000 Accounts Payable 2,500 2,500 2,500 Unearned Revenue 1,200 400 800 800 Common stock 10,000 10,000 10,000 Dividends 500 500 500 Service Revenue 10,000 400 10,600 10,600
200 Salaries Expense 4,000 1,200 5,200 5,200 Rent 900 900 900
Totals 28,700 28,700
Advertising Supplies Expense 1,500 1,500 1,500 Insurance Expense 50 50 50 Accumulated Depreciation 40 40 40 Depreciation Expense 40 40 40 Accounts Receivable 200 200 200 Interest Expense 50 50 50 Interest Payable 50 50 50 Salaries Payable 1,200 1,200 1,200
Totals 3,440 3,440 30,190 30,190 7,740 10,600 22,450 19,590
Net income 2,860 2,860 Totals 10,600 10,600 22,450 22,450
Balance SheetAdjusted Income
Trial Balance Adjustments Trial Balance Statement
SO 1 Prepare a SO 1 Prepare a worksheet.worksheet.
Steps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a Worksheet
5. Total Columns, Compute Net Income (Loss)
(a)(b)
(a)
(g
)
(c)
(d)
(d
)
(e)
(b
)
(e)(f)
(f)(g)
(c)
Compute Net Income or Net Loss.
Chapter 4-47
Income statement is prepared from the
income statement columns.
Balance sheet and owner’s equity statement
are prepared from the balance sheet columns.
Companies journalize and post adjusting entries.
Preparing Financial Statements from a Preparing Financial Statements from a WorksheetWorksheetPreparing Financial Statements from a Preparing Financial Statements from a WorksheetWorksheet
SO 1 Prepare a worksheet.SO 1 Prepare a worksheet.
Worksheet
Chapter 4-48
Let’s review: Accrual Basis Let’s review: Accrual Basis AccountingAccounting
•Revenue recorded only when earned not when cash is received
•Expense recorded only when incurred not when cash paid—in the period in which the company benefited from it
Chapter 4-49
Still confused?Still confused?
Do we need another way to learn this Do we need another way to learn this concept?concept?
Chapter 4-50
Revenue Recognition – a Revenue Recognition – a raprap
If you wanna be If you wanna be accrualaccrual Here’s what you gotta do,Here’s what you gotta do, When the When the service is performedservice is performed You book the You book the RevenueRevenue!!
Chapter 4-51
End of Chapter 4End of Chapter 4
Good Bye and Good Luck.Good Bye and Good Luck.
Chapter 4-52
It is often helpful to reverse some of the adjusting entries before recording the regular transactions of the next period.
Companies make a reversing entry at the beginning of the next accounting period.
Each reversing entry is the exact opposite of the adjusting entry made in the previous period.
The use of reversing entries does not change the amounts reported in the financial statements.
SO 7 Prepare reversing entries.SO 7 Prepare reversing entries.
Reversing Entries
Reversing EntriesReversing EntriesReversing EntriesReversing Entries APPENDIX
Chapter 4-53 SO 7 Prepare reversing entries.SO 7 Prepare reversing entries.
Illustration: To illustrate the optional use of reversing entries for accrued expenses, we will use the salaries expense transactions for Pioneer Advertising Agency.
1. October 26 (initial salary entry): Pioneer pays $4,000 of salaries earned between October 15 and October 26.
2. October 31 (adjusting entry): Salaries earned between October 29 and October 31 are $1,200. The company will pay these in the November 9 payroll.
3. November 9 (subsequent salary entry): Salaries paid are $4,000. Of this amount, $1,200 applied to accrued wages payable and $2,800 was earned between November 1 and November 9.
Reversing EntriesReversing EntriesReversing EntriesReversing Entries APPENDIX
Chapter 4-54
With Reversing Entries (per appendix)
SO 7 Prepare reversing entries.SO 7 Prepare reversing entries.
Reversing EntriesReversing EntriesReversing EntriesReversing Entries
Initial Salary Entry
Oct. 26 Same entry
Adjusting Entry
Closing Entry
Reversing Entry
Salaries payable 1,200Salaries expense
1,200Subsequent Salary Entry
Oct. 31 Same entry
Oct. 31 Same entry
Nov. 1
Salaries expense 4,000Cash
4,000
Nov. 9
Illustration 4A-1
APPENDIX
Chapter 4-55 SO 7 Prepare reversing entries.SO 7 Prepare reversing entries.
Reversing EntriesReversing EntriesReversing EntriesReversing Entries
Illustration 4A-2 Postings with reversingentries
APPENDIX
Chapter 4-56
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Chapter 4-57
Net income is shown on a worksheet in the:
a. income statement debit column only.
b. balance sheet debit column only.
c. income statement credit column and balance sheet debit column.
d. income statement debit column and balance sheet credit column.
Review Question
Steps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a Worksheet
SO 1 Prepare a SO 1 Prepare a worksheet.worksheet.
Chapter 4-58
Chapter 4-59
Chapter 4-60
Review Question
The Classified Balance SheetThe Classified Balance SheetThe Classified Balance SheetThe Classified Balance Sheet
SO 6 Identify the sections of a classified balance sheet.SO 6 Identify the sections of a classified balance sheet.
Which of the following is not a long-term liability?
a. Bonds payable
b. Current maturities of long-term obligations
c. Long-term notes payable
d. Mortgages payable
Chapter 4-61
Correcting entries
are unnecessary if the records are error-free.
are made whenever an error is discovered.
must be posted before closing entries.
Instead of preparing a correcting entry, it is possible to reverse the incorrect entry and then prepare the correct entry.
Correcting Entries—An Avoidable Correcting Entries—An Avoidable StepStepCorrecting Entries—An Avoidable Correcting Entries—An Avoidable StepStep
SO 5 Explain the approaches to preparing correcting entries.SO 5 Explain the approaches to preparing correcting entries.
Chapter 4-62
Illustration (Case 1):Illustration (Case 1): On May 10, Mercato Co. journalized and posted a $50 cash collection on account from a customer as a debit to Cash $50 and a credit to Service Revenue $50. The company discovered the error on May 20, when the customer paid the remaining balance in full.
Correcting Entries—An Avoidable Correcting Entries—An Avoidable StepStepCorrecting Entries—An Avoidable Correcting Entries—An Avoidable StepStep
SO 5 Explain the approaches to preparing correcting entries.SO 5 Explain the approaches to preparing correcting entries.
Cash 50Incorrect entry Service revenue
50Cash 50Correct
entry Accounts receivable 50Service revenue 50Correcting Correcting
entryentry Accounts receivable 50
Chapter 4-63
Illustration (Case 2):Illustration (Case 2): On May 18, Mercato purchased on account office equipment costing $450. The transaction was journalized and posted as a debit to Delivery Equipment $45 and a credit to Accounts Payable $45. The error was discovered on June 3.
Correcting Entries—An Avoidable Correcting Entries—An Avoidable StepStepCorrecting Entries—An Avoidable Correcting Entries—An Avoidable StepStep
SO 5 Explain the approaches to preparing correcting entries.SO 5 Explain the approaches to preparing correcting entries.
Delivery equipment 45Incorrect entry Accounts payable
45Office equipment 450Correct
entry Accounts payable 450
Office equipment 450Correcting Correcting entryentry Delivery equipment
45Accounts payable 405
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