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Chapter 04 - Completing the Accounting Cycle
VISUAL #4-1
THE ACCOUNTING CYCLE
STEPS PURPOSE TIMING
1. Analyze
transactions
To determine accounts to be debited
and credited
During the period
2. Journalize To record the daily transactions During the period
3. Post To transfer the amounts from journal
entries to the individual accounts
affected by the recorded transaction
During the period
4. Prepare
unadjusted trial
balance
To summarize unadjusted ledger
accounts and amount.
End of period
5. Journalizing and
posting of
adjusting entries
To bring the ledger accounts to
adjusted balances
End of year
6. Prepare adjusted
trial balance
To summarize adjusted ledger
accounts and amounts
End of year
7. Preparing the
statements
To report financial information End of period*
8. Journalizing and
posting of
closing entries
To bring all temporary accounts to
zero and the capital account up-to-
date
End of year
9. Post-closing
trial balance
To prove the accuracy of the
adjusting and closing procedures
End of year
10. Reversing
entries
(optional)
To provide for recording in new fiscal
period without consideration of
accruals from previous periods
adjustments.
Beginning of new
year
*If statements are to be prepared for interim period (less than a year), a worksheet
is generally used to project adjusted numbers for statements.
Steps 4 and 6 can be done on a worksheet.
4-1
Chapter 04 - Completing the Accounting Cycle
VISUAL #4-2
MUSIC WORLD
Short-Term Investments 2,000
Notes Receivable 8,000
Accounts Receivable 35,300
Merchandise Inventory 60,400
Prepaid Insurance 6,600
Supplies 1,696
Total Current Assets $144,356
Investments
Land Held for Future Use 13,950
Property, Plant, and Equipment
Land $ 4,500
Building $20,650
Less Accumulated Depreciation 8,640 12,010
Office Equipment $ 8,600
Less Accumulated Depreciation 5,000 3,600
Current Liabilities
Notes Payable $15,000
Accounts Payable 25,683
Salaries Payable 2,000
Mortgage Payable 10,200
Joy Melody, Capital 98,433
Total Liabilities and Owner’s Equity $178,916
4-2
Chapter 04 - Completing the Accounting Cycle
Alternate Demo Problem Four
The trial balance of Large Company, Inc. at the end of its annual accounting
period is as follows:
LARGE COMPANY, INC.
Trial Balance
December 31, 2013
Cash.......................................................................... $ 4,000
Prepaid Insurance................................................... 1,600
Supplies .................................................................. 2,100
Equipment ............................................................... 20,000
Accumulated Depreciation—Equipment............... $ 2,000
C. Large, Capital ..................................................... 19,000
C. Large, Withdrawals............................................. 2,000
Revenue................................................................... 33,000
Salaries Expense..................................................... 18,300
Rent Expense .......................................................... 6,000 ______
Totals........................................................................ $54,000 $54,000
Additional information:
1. Expired insurance, $600.
2. Unused supplies, per inventory, $800.
3. Estimated depreciation, $1,000.
4. Earned but unpaid salaries, $700
Required
1. Prepare adjusting entries.
2. Prepare closing entries.
3. Prepare a post-closing trial balance.
4-3
Chapter 04 - Completing the Accounting Cycle
Solution: Alternate Demo Problem Four
Insurance Expense............................................ 600
Prepaid Insurance....................................... 600
Supplies Expense.............................................. 1,300
Supplies....................................................... 1,300
Income Summary............................................... 27,900
Salaries Expense........................................ 19,000
Rent Expense.............................................. 6,000
Insurance Expense..................................... 600
Supplies Expense....................................... 1,300
Solution continued next page
4-4
Chapter 04 - Completing the Accounting Cycle
LARGE COMPANY, INC.
Post-Closing Trial Balance
December 31, 2013
Dr. Cr.
Cash.................................................................... $4,000
Prepaid Insurance............................................. 1,000
Supplies.............................................................. 800
Totals................................................................... $25,800 $25,800
4-5
