6e Accounting Cycle Page 235 Chapter 7
ACTIVITY 83 CHAPTER 7 CROSSWORD PUZZLE
Across
2. Left-side entries, usually representing a use of funds
6. List of all ledger accounts and their balances (2 words)
12. Step _____ Posting AJEs to the Ledger
15. Journal entries bringing all temporary accounts to a zero
balance
18. Account increased by revenues and decreased by
expenses and dividends (2 words)
each
23. Accounts including all income statement accounts and
dividends
26. Step _____ Posting TJEs to the Ledger
Down
1. Goal of the accounting system is to transform
5. Step _____ Posting CJEs to the Ledger
credit
balances of the next accounting period
10. Step _____ Preparing the Post-Closing Trial Balance
statement account and one balance sheet account;
never cash
20. The sales revenue account is closed using a _____
24. Step _____ Preparing the Adjusted Trial Balance
6e Accounting Cycle Page 236 Chapter 7
ACTIVITY 84 THE CHART OF ACCOUNTS
Purpose: • Understand the chart of accounts.
A chart of accounts is a list of all accounts used by a company. Following is the chart of accounts for
Doogie’s Dog Grooming Corporation.
Doogie’s Dog Grooming Corporation
Chart of Accounts
100 Cash (A / L / SE / Rev / Exp)
210 Rent payable (A / L / SE / Rev / Exp)
220 Wages payable (A / L / SE / Rev / Exp)
Q1 Identify each of the above accounts as either a(n) (A)sset, (L)iability, (S)tockholders’ (E)quity,
(Rev)enue, or (Exp)ense account by circling the appropriate response.
Q2 In what order are the accounts within a chart of accounts organized?
First (A / L / SE / Rev / Exp)
Q3 Within Doogie’s Chart of Accounts, account numbers for:
a. (A)sset accounts ………start with (100 / 200 / 300 / 400 / 500)
ACTIVITY 85 ANALYZE TRANSACTIONS AND EVENTS
Purpose: • Analyze transactions and events using the accounting equation
Q1 A transaction is an event that affects the financial position of an enterprise; it changes an asset (A),
liability (L), or stockholders’ equity (SE) account. A company is not liable for payment of supplies
Q3 “Investors contribute $30,000 of cash in exchange for the common stock of a company” (is / is not)
Q4 Revenue, expense, and dividend account data are recorded in the Retained Earnings Column.
common stock), the revenue portion of this transaction is listed under the Retained Earnings
Column.
Q5 Doogie’s Dog Grooming Corporation started business in July. The chart on the following page lists
eight events that occurred during July for Doogie’s. For each transaction, indicate which accounts
increased or decreased and identify the amount and account title under the appropriate heading. If
an event is not a transaction, record “No Transaction.” In the Retained Earnings Column record
revenue, expense, and dividend account data. Use the Chart of Accounts on the previous page.
Transaction #1 is completed for you.
Q6 For each of the six columns in the chart, compute the ending balance for July and record in the
bottom row of the chart.
Q7 For each balance sheet classification listed below, compute the ending balance for July.
Doogie’s Dog Grooming Corporation
TRANSACTIONS – July
ASSETS
=
LIABILITIES +
STOCKHOLDERS’ EQUITY
Cash
Other
Assets
Accounts
Payable
Other
Liabilities
Common
Stock
Retained
Earnings
#1 July 1 Doogie’s Dog Grooming Corporation began by issuing 1,000 shares of common stock
in exchange for $30,000 cash.
+ 30,000
+ 30,000
#2 July 1 Doogie purchased a grooming table and other equipment for $18,000 cash.
#3 July 1 Doogie purchased a one-year insurance policy for $2,400 cash.
#4 July 1 Doogie ordered doggie treats and other supplies totaling $1,200.
No Transaction
#5 July 6 The doggie treats and other supplies arrived along with a bill for $1,200.
#6 July Doogie’s provided dog grooming services for $20,000 cash.
+ 20,000
#7 July 31 Doogie paid employee wages of $2,000 and rent of $1,500 for July.
#8 July 31 Doogie paid a $400 cash dividend to shareholders.
Compute the BALANCE in each account at the end of July.
6e Accounting Cycle Page 239 Chapter 7
ACTIVITY 86 DOOGIE’S…STEPS 1, 2, AND 3 USING DEBITS AND CREDITS
Purpose: • Prepare journal entries using debits and credits
• Post transaction journal entries to the general ledger
• Prepare an unadjusted trial balance
To record a large volume of accounts, we use the debit/credit system, which builds off of the accounting
equation.
ASSETS = LIABILITIES + STOCKHOLDERS’ EQUITY
DEBITS = CREDITS
Debit Accounts
Credit Accounts
Assets
Liabilities
Stockholders’ Equity
DEBIT ACCOUNTS CREDIT ACCOUNTS
Debit
Credit
Debit
Credit
Increase
Decrease
Decrease
Increase
To increase a debit account, debit it.
To decrease a debit account, credit it.
To increase a credit account, credit it.
To decrease a credit account, debit it.
Q1 When amounts are correct, the accounting equation, Assets = Liabilities + Stockholders’ Equity,
ASSETS = LIABILITIES + STOCKHOLDERS’ EQUITY
STOCKHOLDERS’ EQUITY = COMMON STOCK + RETAINED EARNINGS
Beginning RETAINED EARNINGS + NET INCOME – DIVIDENDS = Ending RETAINED EARNINGS
Beginning R/E + (REVENUE – EXPENSES) – DIVIDENDS = Ending RETAINED EARNINGS
Debit Accounts
Credit Accounts
Expenses
Stockholders’ Equity
Dividends
Revenue
Q5 Retained Earnings is increased by net income (revenues – expenses) and decreased by dividends.
6e Accounting Cycle Page 240 Chapter 7
Q6 Retained Earnings is a Stockholders’ Equity account. Because revenue increases stockholders’
with a credit and expenses and dividends are increased with a debit.
Debit Accounts
Credit Accounts
Assets
Liabilities
STEP 1: ANALYZE AND PREPARE TRANSACTION JOURNAL ENTRIES (TJES)
Q7 The events below occurred during July for Doogie’s Dog Grooming Corporation. For each
transaction, record the appropriate journal entry. If an event is not a transaction, record “No
Transaction.” Use the Chart of Accounts introduced in the previous Activity. Transaction #1 is
completed for you.
Doogie’s Dog Grooming Corporation
GENERAL JOURNAL – JULY
Date
Accounts
Debit
Credit
TJE #1 July 1 Doogie’s Dog Grooming Corporation began by issuing 1,000 shares of common stock
in exchange for $30,000 cash.
July 1
Cash
30,000
Common stock
30,000
TJE #2 July 1 Doogie purchased a grooming table and other equipment for $18,000 cash.
Cash
TJE #3 July 1 Doogie purchased a one-year insurance policy for $2,400 cash.
TJE #4 July 1 Doogie ordered doggie treats and other supplies totaling $1,200.
TJE #5 July 6 The doggie treats and other supplies arrived along with a bill for $1,200.
TJE #6 July Doogie’s provided dog grooming services for $20,000 cash.
July
TJE #7 July 31 Doogie paid employee wages of $2,000 and rent of $1,500 for July.
Rent expense
6e Accounting Cycle Page 241 Chapter 7
STEP 2: POST TJES TO THE LEDGER
Recall that a ledger is a book with one page for each account, keeping track of the balance or amount in
each account. Posting is copying each of the journal entries to the appropriate ledger account, noting
whether the account is debited or credited. A T-account is used to represent each account in the general
ledger; each account from the Chart of Accounts for Doogie’s Dog Grooming Corporation.
Q8 Post each transaction recorded in the General Journal on the previous page to the General Ledger
below, noting whether the account is debited or credited. Transaction #1 is completed for you.
Q9 Compute the ending balance of the cash account below, noting whether the balance is debited or
credited.
Doogie’s Dog Grooming Corporation
GENERAL LEDGER – JULY
100 Cash
200 Accounts
Payable
300 Common Stock
500 Depreciation
Expense
(T2)
400 (T8)
25,700
110 Accounts
Receivable
210 Rent
Payable
350 Retained
Earnings
510 Insurance
Expense
120 Supply Inventory
220 Wages
Payable
360 Dividends
520 Rent
Expense
130 Equipment
Income Summary
530 Supply
Expense
140 Accumulated
Depreciation
150 Prepaid
Insurance
400 Revenue
540 Wage
Expense
(A1)300
(A2)
20,000(T6)
Bal
2,200
18,000
1,200(T5)
30,000(T1)
(A1)300
2,400 (T3)
3,500 (T7)
6e Accounting Cycle Page 242 Chapter 7
STEP 3: PREPARE THE UNADJUSTED TRIAL BALANCE
A trial balance is a list of all accounts in the general ledger, with their debit or credit balances.
Q10 In the unadjusted trial balance below, record the ending balance of each account in the General
Ledger of Doogie’s Dog Grooming Corporation on the previous page. The ending balance in cash is
completed for you.
Q11 Compute total debits and total credits and record in the last row below. Total debits are completed
for you.
Q12 As a check to the accuracy of the postings, make certain that total debits equal total credits. If not,
Doogie’s Dog Grooming Corporation
UNADJUSTED TRIAL BALANCE – July 31
No.
Account
Debit
Credit
100
Cash
$25,700
110
Accounts receivable
-0-
120
Supply inventory
130
Equipment
140
Accumulated depreciation
150
Prepaid insurance
200
Accounts payable
210
Rent payable
-0-
220
Wages payable
-0-
300
Common stock
350
Retained earnings
360
Dividends
400
Revenue
500
Depreciation expense
-0-
510
Insurance expense
-0-
520
Rent expense
530
Supply expense
540
Wage expense
6e Accounting Cycle Page 243 Chapter 7
ACTIVITY 87 DOOGIE’S…STEPS 4, 5, AND 6 USING DEBITS AND CREDITS
Purpose: • Prepare adjusting journal entries using debits and credits
• Post adjusting journal entries to the general ledger
• Prepare an adjusted trial balance
STEP 4: PREPARE ADJUSTING JOURNAL ENTRIES (AJES)
Q1 At the end of the accounting period, accountants adjust accounts to reflect accrued amounts and
unrecorded transactions. This entails recording more journal entries, like in Step 2, and posting
them, like in Step 3.
Review the accounts in Doogie’s unadjusted trial balance on the previous page. There are three
balance sheet accounts that need to be adjusted (updated to the correct ending balance), which
Q2 Use the information below to prepare general journal entries needed to record the adjustments for
Doogie’s Dog Grooming Corporation on July 31. The Chart of Accounts for Doogie’s is presented
in a previous activity.
Doogie’s Dog Grooming Corporation
GENERAL JOURNAL – July
Date
Accounts
Debit
Credit
AJE #1 Doogie purchased a grooming table and other equipment for $18,000 cash on July 1. This
equipment has a five-year life with no residual value. Straight-line depreciation is used. Record
depreciation expense for July.
AJE #2 Doogie purchased a one-year insurance policy for $2,400 cash on July 1. On July 31, one month
of insurance coverage has been used. Record insurance expense for July.
AJE #3 Doggie treats and other supplies arrived along with a bill for $1,200 on July 6. On July 31 there
were $500 of doggie treats and other supplies remaining. What amount of supplies were used during
July? Record supply expense for July.
6e Accounting Cycle Page 244 Chapter 7
STEP 5: POST AJES TO THE LEDGER
Q3 Post each adjusting journal entry recorded in the General Journal on July 31 for Doogie’s Dog
Grooming Corporation (on the previous page) to the General Ledger on Page 241, noting
whether the account is debited or credited.
Q4 After posting adjustments compute the ending balance for Supply Inventory and Prepaid Insurance,
recording it as a debit or credit balance in the General Ledger on Page 241.
STEP 6: PREPARE THE ADJUSTED TRIAL BALANCE
A trial balance is a list of all accounts in the general ledger, with their debit or credit balances.
Just like in Step 3, list all accounts in the general ledger, with their balances. The difference is that the
adjusted trial balance includes the adjustments in Step 4.
Q5 In the adjusted trial balance below, record the ending balance of each account in the General
Ledger of Doogie’s Dog Grooming Corporation (Question 4). The ending balance in cash is
completed for you.
Q6 Compute total debits and total credits and record below. As a check to the accuracy of the
postings, make certain that total debits equal total credits. If not, please find the error and correct.
Do total debits equal total credits? (Yes / No)
Doogie’s Dog Grooming Corporation
ADJUSTED TRIAL BALANCE – July 31
No.
Account
Debit
Credit
100
Cash
$25,700
110
Accounts receivable
-0-
120
Supply inventory
130
Equipment
140
Accumulated depreciation
150
Prepaid insurance
200
Accounts payable
210
Rent payable
220
Wages payable
300
Common stock
350
Retained earnings
360
Dividends
400
Revenue
500
Depreciation expense
510
Insurance expense
520
Rent expense
530
Supply expense
540
Wage expense
6e Accounting Cycle Page 245 Chapter 7
ACTIVITY 88 DOOGIE’S…STEP 7 USING DEBITS AND CREDITS
Purpose: • Prepare the financial statements
• Post transaction journal entries to the general ledger
• Prepare an unadjusted trial balance
STEP 7: PREPARE THE FINANCIAL STATEMENTS
Q1 Use the information from Activity 3 and Activity 4 and prepare the…
a. Income Statement
b. Statement of Stockholders’ Equity
c. Balance Sheet
d. Statement of Cash Flows
Doogie’s Dog Grooming Corporation
INCOME STATEMENT – July
Doogie’s Dog Grooming Corporation
STATEMENT OF STOCKHOLDERS’ EQUITY – July
Common Stock
Retained
Earnings
Total
SEquity
Balance, July 1
$ 0
$ 0
$ 0
Stock issued
Net income
Dividends
6e Accounting Cycle Page 246 Chapter 7
Doogie’s Dog Grooming Corporation
BALANCE SHEET – July 31
ASSETS
Doogie’s Dog Grooming Corporation
STATEMENT OF CASH FLOWS – July
CASH FROM OPERATING ACTIVITIES
Cash from customers
$20,000
Rent paid
Wages paid
CASH FROM INVESTING ACTIVITIES
Cash from issuing common stock
Dividends paid
Net change in cash
Ending cash balance
Cash
Supply Inventory
Accumulated Depreciation
Prepaid Insurance
LIABILITIES
Accounts Payable
Common Stock
Retained Earnings
6e Accounting Cycle Page 247 Chapter 7
ACTIVITY 89 DOOGIE’S…STEPS 8, 9, AND 10 USING DEBITS AND CREDITS
Purpose: • Prepare closing journal entries using debits and credits
• Post closing journal entries to the general ledger
• Prepare a post-closing trial balance
STEP 8: PREPARE CLOSING JOURNAL ENTRIES (CJES)
Q1 Record closing journal entries that zero out temporary accounts. Temporary accounts include all
income statement accounts and dividends. These need to be zeroed out or closed so that, at the
beginning of the year, new amounts for that year can accumulated.
Doogie’s Dog Grooming Corporation
GENERAL JOURNAL – July
Date
Accounts
Debit
Credit
CJE #1 Close all revenue and gain accounts to income summary.
July 31
Revenue
20,000
Income Summary
20,000
CJE #2 Close all expense and loss accounts to income summary.
STEP 9: POST CJES TO THE LEDGER
Closing Entries are journal entries, like in Steps 2 and 5, which need to be posted to the general ledger.
Q2 Post each closing journal entry recorded in the General Journal on July 31 for Doogie’s Dog
July 31
Rent Expense
July 31
Income Summary
CJE #4 Close the dividends account to retained earnings.
STEP 10: PREPARE THE POST–CLOSING TRIAL BALANCE
One last trial balance, this one shows that all temporary accounts (accounts appearing on the income
statement and dividends) have been brought down to zero, and permanent accounts (balance sheet
accounts), are reported at their correct ending balances. This trial balance will start the next year,
returning the company to Step 1.
Doogie’s Dog Grooming Corporation
POST-CLOSING TRIAL BALANCE – July 31
No.
Account
Debit
Credit
100
Cash
$25,700
110
Accounts receivable
-0-
130
Equipment
150
Prepaid insurance
200
Accounts payable
210
Rent payable
220
Wages payable
300
Common stock
360
Dividends
400
Revenue
500
Depreciation expense
510
Insurance expense
520
Rent expense
540
Wage expense
6e Accounting Cycle Page 249 Chapter 7
ACTIVITY 90 ANALYZE MERCHANDISING TRANSACTIONS
Purpose: • Analyze merchandising transactions
• Prepare journal entries using debits and credits
• Understand how merchandising transactions affect the income statement
and the balance sheet
Recording the sale of merchandise involves four different accounts. Two of the accounts, sales revenue
and cash (or accounts receivable), record the amount paid by the customer at retail. The other two
accounts record the amount paid by the retailer to the supplier, cost of goods sold and merchandise
inventory. The difference between sales revenue (amount @ retail) and cost of goods sold (amount @
wholesale) is gross profit, the amount of profit or markup on the goods sold.
Q1 Prepare general journal entries for the following transactions.
Scott King’s Sporting Goods Retailer
GENERAL JOURNAL – AUGUST
Date
Accounts
Debit
Credit
TJE #1 Aug 1 Sold 2,000 shares of no-par common stock for cash of $12,000.
Aug 1
Cash
12,000
Common stock
12,000
TJE #4 Aug 10 Sold merchandise that cost $3,000 for $5,000 in cash.
Merchandise Inventory
3,000
TJE #5 Aug 30 Sold merchandise that cost $2,000 for $4,000 on account.
Q2 The general ledger reported $10,000 as the August 1 balance for cash. On August 31, the general
TJE #2 Aug 3 Purchased store equipment for $3,000 cash.
TJE #3 Aug 3 Purchased merchandise inventory on account for $9,000.
6e Accounting Cycle Page 250 Chapter 7
ACTIVITY 91 ADJUSTING JOURNAL ENTRIES
Purpose: • Analyze adjusting journal entries
• Prepare adjusting journal entries using debits and credits
Q1 Prepare general journal entries to record the adjustments below as of December 31 for the Perry
Corporation.
Perry Corporation
GENERAL JOURNAL
Date
Accounts
Debit
Credit
AJE #1 The accountant completed the depreciation schedule that showed total depreciation expense
of $10,520 for the year. The depreciation expense account already has a balance of $8,500. Record the
remaining depreciation expense for the year.
AJE #2 Commissions for December of $22,000 will be paid to Perry’s sales staff on January 5 of
next year. The commissions payable account has a zero balance. Record commission expense for
December.
AJE #3 The company loaned $20,000 to a customer on July 1 for one year at 8% interest. The
customer will pay the principal and interest on the loan on June 30 of next year. No interest in
connection with this loan has been recorded. Record interest expense for the year.
AJE #4 On July 1 Perry paid an entire year’s rent of $14,000 for a warehouse, which the
bookkeeper recorded as Prepaid Rent. Record rent expense for the year.
cash account.
Q3 Prepare part of the December 31 adjusted trial balance for the expense accounts below.
ADJUSTED TRIAL BALANCE – Dec 31
No.
Account
Debit
Credit
Depreciation expense
Commission expense
Interest expense
Rent expense
6e Accounting Cycle Page 251 Chapter 7
ACTIVITY 92 PREPARE AN ADJUSTED TRIAL BALANCE
Purpose: • Prepare an adjusted trial balance
The following account information from Lelescu Corporation’s adjusted trial balance at December 31 is
arranged in alphabetical order by account:
Accounts Receivable $18,000
Accounts Payable 7,000
Accumulated Depreciation, Equipment 3,000
Additional Paid-in Capital 31,000
Equipment 22,000
Loss on Sale of Equipment 5,800
Interest Expense 100
Required: Prepare an adjusted trial balance in proper form using the above information.
Lelescu Corporation
ADJUSTED TRIAL BALANCE – December 31
Account
Debit
Credit
Cash
$ 9,000
Accounts Payable
7,000
Sales Revenue
20,000
ACTIVITY 93 PREPARE CLOSING ENTRIES
Purpose: • Prepare closing entries
The following account information from Oza Corporation’s adjusted trial balance at December 31 is
arranged in alphabetical order by account:
Accounts Receivable $18,000
Additional Paid-in Capital 31,000
Cash 9,000
Common Stock 5,000
Q1 Prepare closing entries for the year ended December 31.
Oza Corporation
GENERAL JOURNAL – December 31
Date
Accounts
Debit
Credit
CJE #1 Close all revenue and gain accounts to income summary.
CJE #2 Close all expense and loss accounts to income summary.
Dec 31
Income Summary
Cost of Goods Sold
Supply Expense
CJE #3 Close the income summary account to retained earnings.
Dec 31
Income Summary
1,900
Retained Earnings
CJE #4 Close the dividends account to retained earnings.