University of Agriculture Faisalabad

Institute of Business Management and Science

• BBA-4th Section.# (A)

• BBA-408 Financial Accounting-II
• Mam: Muqads Sehr
• Cr. Ali Abbas
 Chapter 5
Completion of the Accounting Cycle
 5-1 Work Sheet Form and Procedure
Work Sheet
Trial Adjustments Adjusted Income Balance
Balance Trial Statement Sheet
Account Titles
Balance
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.

(Ledger account titles)

(Additional account
titles for adjustments)

1. Prepare a 2. Enter 3. Enter 4. Extend adjusted balances

trial balance adjustment adjusted to appropriate statement
on the work data. balances. columns.
sheet.
5. Total the statement columns,
compute net income, (or net
loss), and complete work sheet.
5-2 Step 1: Prepare a Trial Balance on the
Work Sheet
INTERNATIONAL TRAVEL AGENCY, INC.
Work Sheet
For Month Ended March 31, 2008

Trial Balance
Account Titles Dr. Cr.
Cash 15
Accounts Receivable 5 Step 1
Prepaid Insurance 4
Trial balance
Office Equipment 20
amounts are taken
Accumulated Depreciation
directly from
Accounts Payable 4
ledger accounts.
Common Stock 10

Dividends 2 20
Travel Service Revenue 26
Depreciation Expense 2
Rent Expense 2
Salaries Expense 10
Totals 60 60
 5-3 Step 2: Enter the Adjustments in the
Adjustments Column
INTERNATIONAL TRAVEL AGENCY, INC.
Work Sheet
For Month Ended March 31, 2008
Step 2
Trial Balance Adjustments
Account Titles Dr. Cr. Dr. Cr. Enter adjustment amounts in
Cash 15 appropriate columns, total
Accounts Receivable 5
adjustments columns and check
Prepaid Insurance 4 (a) 1
Office Equipment 20
for equality.
Accumulated Depreciation 4 (b) 2
Accounts Payable 10
Common Stock 20 ADJUSTMENT DATA:
Dividends 2 (a) Prepaid Insurance expired
Travel Service Revenue 26 during March, $1.
Depreciation Expense 2 (b) 2
Rent Expense 2
(b) Depreciation expense on
office equipment for March,
Salaries Expense 10 (c) 5
$2.
Totals 60 60
Insurance Expense (a) 1 (c) Salaries expense incurred at
Salaries Payable (c) 5 the end of March but not yet
Totals 8 8
paid, $5.
5-4 Step 3: Enter the Adjusted Balances in the
Adjusted Trial Balance
INTERNATIONAL TRAVEL AGENCY, INC.
Work Sheet
For Month Ended March 31, 2008

Trial Balance Adjustments Adjusted Trail Balance

Step 3
Account Titles Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15 15
Combine trial balance
Accounts Receivable 5 5
amounts with
Prepaid Insurance 4 (a) 1 3 adjustment amounts
Office Equipment 20 20 to obtain the adjusted
Accumulated 4 (b) 2 6 trail balance.
Depreciation
Accounts Payable 10 10
Common Stock 20 20
Dividends 2 2
Travel Service Revenue 26 26
Depreciation Expense 2 (b) 2 4
Rent Expense 2 2
Salaries Expense 10 (c) 5 15
Totals 60 60
Insurance Expense (a) 1 1
Salaries Payable (c) 5 5
Totals 8 8 67 67
5-5 Step 4: Extend the Adjusted Trial Balance to
the Appropriate Financial Statements
INTERNATIONAL TRAVEL AGENCY, INC.
Work Sheet
For Month Ended March 31, 2008

Trial Balance Adjustments Adjusted Trail Income Balance

Balance Statement Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15 15 15
Accounts Receivable 5 5 5
Prepaid Insurance 4 (a) 1 3 3
Office Equipment 20 20 20
Accumulated Depreciation 4 (b) 2 6 6
Accounts Payable 10 10 10
Common Stock 20 20 20
Dividends 2 2 2
Travel Service Revenue 26 26 26
Depreciation Expense 2 (b) 2 4 4
Rent Expense 2 2 2
Salaries Expense 10 (c) 5 15 15
Totals 60 60
Insurance Expense (a) 1 1 1
Salaries Payable (c) 5 5 5
Totals 8 8 67 67 22 26 45 41
 5-6 Step 5: Total the Statement Columns,
Compute Net Income, and Complete the Work
Sheet
INTERNATIONAL TRAVEL AGENCY, INC. Step 5 Net Income is extended to the credit column
Work Sheet of the balance sheet columns. (Net loss
For Month Ended March 31, 2008 would be extended to the debit column.)
Trial Balance Adjustments Adjusted Trail Balance Income Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15 15 15
Accounts Receivable 5 5 5
Prepaid Insurance 4 (a) 1 3 3
Office Equipment 20 20 20
Accumulated Depreciation 4 (b) 2 6 6
Accounts Payable 10 10 10
Common Stock 20 20 20
Dividends 2 2 2
Travel Service Revenue 26 26 26
Depreciation Expense 2 (b) 2 4 4
Rent Expense 2 2 2
Salaries Expense 10 (c) 5 15 15
Totals 60 60

Insurance Expense (a) 1 1 1

Salaries Payable (c) 5 5 5

Totals 8 8 67 67 22 26 45 41

Net Income 4 4

Totals 26 26 45 45
5-7 Financial Statements

INTERNATIONAL TRAVEL AGENCY INTERNATIONAL TRAVEL AGENCY

Income Statement Balance Sheet
For the Month Ended March 31, 2008 March 31, 2008
Revenue Assets
Travel service revenue $26 Cash $ 15
Expenses Accounts receivable 5
Salaries expense $15 Prepaid insurance 3
Depreciation expense 4 Office Equipment $ 20
Rent expense 2 Less: Accumulated depreciation 6 14
Insurance expense 1 Total assets 37
Total expenses 22
Net Income $4 Liabilities and Stockholders’ Equity
Liabilities
INTERNATIONAL TRAVEL AGENCY Accounts payable $ 10
Retained Earnings Statement Salaries payable 5
For the Month Ended March 31, 2008
Total liabilities $15
Retained earnings, March 1 $0
Stockholders’ equity
Add: Net Income 4
Common Stock 20
4
Retained earnings 2
Less: Dividends 2
Total liabilities and stockholders’ equity $ 37
Retained Earnings, March 31 $ 2
5-8 Closing Process

(Individual) (Individual)
Expenses Revenues Dividends
Dr. Bal. To Income To Income Cr. Bal. Dr. Bal. To Retained
Summary Summary Earnings

Temporary 1
2
Accounts Income Summary
Expenses Revenues

Net Income to Net Loss to

Retained Earnings Retained Earnings 4

3
Retained Earnings
Permanent Net Loss Net Income
Accounts Dividends
5-9 Closing Entries
GENERAL JOURNAL Page 4
Date Account Titles and Explanation Ref. Debit Credit
Closing Entries
(1) 26
March 31 Travel Service Revenue 26
Income Summary
(To close revenue account)
(2)
March 31 Income Summary 22
Depreciation Expense 4
Rent Expense 2
Salaries Expense 15
Insurance Expense 1
(To close expense accounts)

(3)
31 Income Summary 4
Retained Earnings 4
(To close net income to retained earnings)
(4)
31 Retained Earnings 2
Dividends 2
(To close dividends to retained earnings)
 5-10 Accounting Cycle
(9) (1) (2)
Prepare a post-closing Analyze business Journalize the
trial balance transactions transactions

(8) (3)
Journalize and post Post to ledger
closing entries Steps in the accounts
Accounting
(7) Cycle (4)
Prepare financial Prepare a trial balance
statements:
Income statement Work sheet
Retained earnings (5)
Optional
statement Journalize and post
Balance sheet adjusting entries:
(6) Prepayments/Accruals
Prepare an adjusted
trial balance
(The steps in the accounting cycle are performed in sequence and are repeated in each accounting period.)
 5-11 Standard Classifications
CLASSIFIED BALANCE SHEET
ASSETS LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT ASSETS CURRENT LIABILITIES

1. Cash 1. Notes Payable
2. Short-term Investments 2. Account Payable
3. Receivables 3. Unearned Revenue
4. Prepaid Expenses 4. Salaries Payable
5. Taxes Payable
LONG-TERM ASSETS
1. Stocks LONG-TERM LIABILITIES
2. Bonds
1. Long-term Notes Payable
2. Mortgage Payable
PROPERTY, PLANT, AND EQUIPMENT 3. Bonds Payable

>
1. Land
2. Buildings Less:
3. Equipment Accumulated STOCKHOLDERS’ EQUITY
4. Furniture Depreciation 1. Common Stock
2. Retained Earnings
INTANGIBLE ASSETS
1. Patents
2. Copyrights
3. Trademarks