4
The Accounting Cycle
Continued
ANSWERS TO DISCUSSION QUESTIONS AND
CRITICAL THINKING/ETHICAL CASE
2. The purpose of adjusting is to update accounts to the latest balance before financial
3. The internal transactions make it necessary to make adjustments.
Example: Prepaid Rent expiring over a period of time.
5. We need the Accumulated Depreciation account because it records a history of
8. Accrued salaries are salaries that have been earned but are unpaid and unrecorded
9. The balances of accounts, which appear on formal statements, were accumulated
10. The worksheet provides all the data to prepare the financial statements. The
accountant rearranges the data from the worksheet to prepare the financial
statements. Remember: The worksheet has the old figure for capital, which is
11. All expenses that are incurred in the old year (whether paid or not) should be
SOLUTIONS TO CONCEPT CHECKS
1.
a.
$1,400.00
Computer Supplies
b.
1
Accounts Affected
2
Category
3
↑ ↓
4
Rules
5
T-Accounts
b.
1
Accounts Affected
2
Category
3
↑ ↓
4
Rules
5
T-Accounts
c.
1
Accounts Affected
2
Category
3
↑ ↓
4
Rules
5
T-Accounts
Depr. Expense, Equip.
SOLUTIONS TO CONCEPT CHECKS (CONTINUED)
4.
a.
1
Accounts Affected
2
Category
3
↓ ↑
4
Rules
5
T-Accounts
5.
A.
IC
H.
BD
6.
The worksheet shows individual account balances within the debit and credit
SOLUTIONS TO SET A EXERCISES
4A–1.
Account
Category
Normal
Balance
Financial
Statement(s)
Found on
Depreciation Expense,
Expense
Dr.
Income Statement
T. Nguyen, Capital
Capital
Cr.
Statement of Owner’s Equity
Accumulated Depr., Office
Contra-Asset
Cr.
Balance Sheet
4A–2.
(a)
1
Accounts Affected
2
Category
3
↑ ↓
4
Rules
5
T-Accounts
Depr. Exp., Equip.
↑
Dr.
Acc. Depr., Equip.
Asset
↑
Cr.
(b)
1
Accounts Affected
2
Category
3
↑ ↓
4
Rules
5
T-Accounts
Dr.
Rent Expense
4A-3.
4-5
EXERCISES (CONTINUED)
4A-4.
J. TRENT
WORKSHEET
FOR MONTH ENDED JULY 31, 201X
Balance Sheet
Income
Statement
2
Adjusted Trial
Balance
2
Adjustments
(a) 2
Trial Balance
Account Titles
Dep. Exp., Store Equip.
Wage Expense
EXERCISES (CONTINUED)
4A-5. (a)
J. TRENT
INCOME STATEMENT
FOR MONTH ENDED JULY 31, 201X
Revenue:
Revenue from Clients
$
2
8
00
Operating Expenses:
Rent Expense
$
5
00
Insurance Expense
1
00
2
1
00
$
7
(b)
J. TRENT
STATEMENT OF OWNER’S EQUITY
FOR MONTH ENDED JULY 31, 201X
J. Trent, Capital, July 1, 201X
$
1
9
00
Net Income for July
$
7
00
Increase in Capital
J. Trent, Capital, July 31, 201X
$
2
4
00
4-7
EXERCISES (CONTINUED)
Liabilities and Owner’ s Equity
J. TRENT
BALANCE SHEET
JULY 31, 201X
Assets
(c)
SOLUTIONS TO SET B EXERCISES
4B–1.
Account
Category
Normal
Balance
Financial
Statement(s)
Found on
Accounts Payable
Liability
Cr.
Balance Sheet
Prepaid Insurance
Asset
Dr.
Balance Sheet
Computer Equipment
Asset
Dr.
Balance Sheet
Salaries Payable
Liability
Cr.
Balance Sheet
4B–2.
(a)
1
Accounts Affected
2
Category
3
↑ ↓
4
Rules
5
T-Accounts
(b)
1
Accounts Affected
2
Category
3
↑ ↓
4
Rules
5
T-Accounts
Rent Expense
4B-3.
a)
4-9
EXERCISES (CONTINUED)
4B-4.
J. TREN
WORKSHEET
FOR MONTH ENDED MAY 31, 201X
Balance Sheet
Income
Statement
4
Adjusted Trial
Balance
4
Adjustments
(a) 4
Trial Balance
Account Titles
Dep. Exp., Store Eq.
Wage Expense
EXERCISES (CONTINUED)
4B-5. (a)
J.TREN
INCOME STATEMENT
FOR MONTH ENDED MAY 31, 201X
Revenue:
Revenue from Clients
$
3
2
00
Operating Expenses:
Rent Expense
$
2
00
Insurance Expense
9
00
3
1
00
$
1
(b)
J. TREN
STATEMENT OF OWNER’S EQUITY
FOR MONTH ENDED MAY 31, 201X
J. Tren, Capital, May 1, 201X
$
2
0
00
Net Income for May
$
1
00
J. Tren, Capital, May 31, 201X
$
1
6
00
4-11
EXERCISES (CONTINUED)
(C)
LIABILITIES AND OWNER’ S EQUITY
J. TREN
BALANCE SHEET
MAY 31, 201X
ASSETS
©
4-12
PROBLEM 4A-1
ADJ. TRIAL BALANCE
00
0
0
4
JAMES’ FITNESS CENTER
WORKSHEET
FOR MONTH ENDED JULY 31, 201X
3
ADJUSTMENTS
00
0
0
4
(a) 3
TRIAL BALANCE
Account Titles
Fitness Supplies Expense
0
5
7
7
0
0
0
(b) 1
0
0
5
3
7
6
9
0
0
0
0
5
4
1
7
7
5
5
9
Fitness Supplies
PROBLEM 4A-2
LEAH‘S LANDSCAPING SERVICE
WORKSHEET
FOR MONTH ENDED DECEMBER 31, 201X
Balance Sheet
Credit
Debit
Income Statement
Credit
Debit
750
Adjusted Trial Balance
Credit
Debit
750
Adjustments
Credit
Debit
(a) 750
Trial Balance
Credit
Debit
Account Titles
Cash in Bank
Rent Expense
PROBLEM 4A-3 (1)
KOLE’ S MOVING COMPANY
WORKSHEET
FOR MONTH ENDED JULY 31, 201X
Balance Sheet
Credit
Debit
Income Statement
Credit
Debit
800
300
Adjusted Trial Balance
Credit
Debit
800
300
Adjustments
Credit
Debit
(a) 800
(b) 300
Trial Balance
Credit
Debit
Account Titles
Insurance Expense
Moving Supplies Expense
(b) 300
Moving Supplies
Acc. Dep., Moving Truck
PROBLEM 4A-3 (CONTINUED)
(2)
KOLE’S MOVING CO.
INCOME STATEMENT
FOR MONTH ENDED JULY 31, 201X
Revenue:
Revenue from Moving
$ 8
6
0
0
00
Operating Expenses:
Wage Expense
$ 3
0
0
Insurance Expense
0
0
6
0
4
0
00
Net Income
KOLE’S MOVING CO.
STATEMENT OF OWNER’S EQUITY
FOR MONTH ENDED JULY 31, 201X
(2)
K. Hues, Capital, July 1, 201X
$
7
2
0
00
PROBLEM 4A-3 (CONCLUDED)
(2)
KOLE’ S MOVING COMPANY
BALANCE SHEET
JULY 31, 201X