Ref. Debit Credit Debit Credit
30 J3 5,500 5,500
30 J3 3,576 1,924
Ref. Debit Credit Debit Credit
15 J1 1,600 1,600
30 J2 3,900 5,500
Ref. Debit Credit Debit Credit
1 J1 1,700 1,700
Ref. Debit Credit Debit Credit
8 J1 240 240
2014
June
Advertising Expense Account No. 512
Post.
Date Item
Balance
P10. The Complete Accounting Cycle Without a Work Sheet: Two Months (second month optional)
(Continued)
2014
June
Store Rent Expense
Post.
Date Item
Balance
Account No. 511
Date Item
2014
June
Repair Revenue Account No. 411
Post.
Balance
Date Item
June Closing entry
Closing entry
Income Summary Account No. 314
Post. Balance
2014
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Ref. Debit Credit Debit Credit
30 J2 160 160
Ref. Debit Credit Debit Credit
30 J2 1,196 1,196
Ref. Debit Credit Debit Credit
30 J2 280 280
P10. The Complete Accounting Cycle Without a Work Sheet: Two Months (second month optional)
(Continued)
Balance
Date Item
2014
June Adjustment
Post.
2014
Depreciation Expense—Repair Equipment Account No. 515
June Adjustment
Date Item Post.
Repair Supplies Expense Account No. 514
Balance
2014
June Adjustment
Balance
Date Item Post.
Insurance Expense Account No. 513
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10.
17,324
1,600
Lutz Repair Service
Cash
P10. The Complete Accounting Cycle Without a Work Sheet: Two Months (second month optional)
(Continued)
Adjusted Trial Balance
July 31, 2014
Prepaid Insurance
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$6,924
$20,724
2,068
Lutz Repair Service
Revenue
Repair revenue
P10. The Complete Accounting Cycle Without a Work Sheet: Two Months (second month optional)
(Continued)
Expenses
For the Month Ended July 31, 2014
B. Lutz, capital, June 30, 2014
Net income
Income Statement
For the Month Ended July 31, 2014
Lutz Repair Service
Statement of Owner’s Equity
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$17,324
1,600
13.
17,324
1,600
P10. The Complete Accounting Cycle Without a Work Sheet: Two Months (second month optional)
(Concluded)
Lutz Repair Service
Post-Closing Trial Balance
July 31, 2014
Cash
Prepaid Insurance
Assets
Cash
Prepaid insurance
Lutz Repair Service
Balance Sheet
July 31, 2014
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interest income is accrued at the end of the next period or received as the loans mature
is automatically offset by what has been accrued previously, leaving a balance that repre-
sents the correct interest income for the period.
crued to date. Third, the use of reversing entries is very helpful because they simplify the
process of tracking the interest accrued to date. Each month the amount of the accrual is
reversed, becoming a negative amount in the Interest Income account. Thus, whatever
This case offers rich material for discussion. First, students are usually eager to discuss
the type of business, the nature of loans, and the method of financing sales. Second,
many students will suggest the development of a computer program in which each loan
is entered along with its duration, amount, and interest rate. The program would auto-
matically compute the accrued interest each month and keep track of the amount ac-
the effort and cost of doing so, but the cost is usually more than offset by the valuable
information the financial statements provide management, investors, and creditors, such
C3. Conceptual Understanding: Accounting Efficiency
C2. Conceptual Understanding: Purpose of Closing Entries
as National Bank of New Orleans in this case.
reversing entries must be recorded in the general journal and posted to the ledger ac-
counts. A disadvantage of preparing financial statements more often than once a year is
When financial statements are prepared, it is usually necessary to prepare adjusting
entries and use a work sheet or computer to prepare the financial statements. In addition,
Cases
C1. Conceptual Understanding: Interim Financial Statements
Closing entries prepare the accounts for the next accounting period by clearing the rev-
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The notes to consolidated financial statements in the annual report present quarterly fi-
nancial data, so the company prepares interim financial statements at least every three
months. This means the company must go through the end-of-period procedures of pre-
paring adjusting entries, closing entries, and financial statements at least four times per
year. Although such interim procedures are usually not as extensive as the year-end pro-
cedures, they must still be done with care to produce financial statements that reflect
generally accepted accounting principles.
close the books and do other year-end procedures just as the company was making its
final frantic push for sales.
CVS ends its fiscal year on December 31 in 2011. There are several advantages to choos-
ing this date for the end of the fiscal year. First, inventory levels are low, which makes
counting the inventory less costly. Second, it coordinates well with the business’s natural
error by introducing another error. The consequences to the individual and the company
C4. Ethical Dilemma: Ethics and Time Pressure
Although an accountant facing a deadline may find it frustrating and potentially embar-
rassing to admit that the trial balance will not balance, it is unethical to compound one
that the final statements will be delivered later. Although the bank’s loan officers may not
be happy with this situation, at least they would know that the company is being honest.
C5. Annual Report Case: Fiscal Year, Closing Process, and Interim Reports
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1st 2nd 3rd 4th
Net Revenues $25,695 $26,414 $26,674 $28,317 $107,100
Operating
Revenues $3,103 $4,136 $4,311 $4,108 $15,658
C7. Continuing Case: Annual Report Project
C6. Comparison Analysis: Interim Financial Reporting and Seasonality
Southwest—2011
Total
Quarter
Note to Instructor: Answers will vary depending on the company selected by the students.
(in millions)
CVS—2011
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