This is an example of the accounting cycle for ABC Corporation, a hypothetical

company. Recall that the starting point of the accounting cycle is the beginning
balance sheet (which is the same as last period’s ending balance sheet). To
complete this example, we will use a trial balance that summarizes all the
company’s accounts. The trial balance presented below is ABC Corporation’s post-
closing trial balance from December 31, 2021. We will use this to complete the
Accounting Cycle for ABC Corp. in 2022.

ABC Corporation
Trial Balance
31-Dec-21
debit credit
Cash 22,000
Accounts Receivable 20,000
Inventories 18,000
PP&E 90,000
Accumulated Depreciation 10,500
Accounts Payable 11,000
Wages Payable -
Common Stock 20,000
Retained Earnings 108,500
Sales Revenue -
Cost of goods sold -
Depreciation Expense -
Wages Expense -
Dividends -
Total 150,000 150,000

ABC Corporation
Balance Sheet
As of December 31, 2021

Assets
Current Assets
Cash $ 22,000
Accounts Receivable 20,000
Inventories 18,000
Total Current Assets 60,000
Property, Plant, and Equipment (net) 79,500
Total Assets $ 139,500

Liabilities and Stockholders' Equity

Current Liabilities
Accounts Payable $ 11,000
Total Liabilities 11,000
Stockholders' Equity
Common Stock 20,000
Retained Earnings 108,500
Total Stockholders' Equity 128,500
Total Liabilities and Stockholders' Equity $ 139,500
Balance Sheet Accounts

Cash:

Debit Credit
Beginning 22,000
1 6,000
2,000 2
2,000 4
Unadjusted End 24,000

Adjusted End 24,000

End 24,000

Inventories:

Debit Credit
Beginning 18,000
12,000 3
Unadjusted End 6,000

Adjusted End 6,000

End 6,000

Accumulated Depreciation:

Debit Credit
10,500 Beginning

10,500 Unadjusted End

1,500 6
 12,000 Adjusted End

12,000 End

Wages Payable:

Debit Credit
- Beginning

- Unadjusted End
5,000 5

5,000 Adjusted End

5,000 End

Retained Earnings:

Debit Credit
108,500 Beginning

108,500 Unadjusted End

108,500 Adjusted End

8 18,500 24,000 7
9 2,000
112,000 End

Income Statement Accounts

Sales Revenue:

Debit Credit
- Beginning
 24,000 3
24,000 Unadjusted End

24,000 Adjusted End

7 24,000

0 End

Depreciation Expense:

Debit Credit
Beginning -

Unadjusted End -
6 1,500

Adjusted End 1,500

1,500 8

End 0

Dividends

Dividends:

Debit Credit
Beginning -
4 2,000
Unadjusted End 2,000

Adjusted End 2,000

2,000 9
End 0
 Accounts Receivable:

Debit Credit
Beginning 20,000
6,000 1
3 24,000

Unadjusted End 38,000

Adjusted End 38,000

End 38,000

Property, Plant, and Equipment:

Debit Credit
Beginning 90,000

Unadjusted End 90,000

Adjusted End 90,000

End 90,000

Accounts Payable:

Debit Credit
11,000 Beginning
2 2,000
9,000 Unadjusted End
 9,000 Adjusted End

9,000 End

Common Stock:

Debit Credit
20,000 Beginning

20,000 Unadjusted End

20,000 Adjusted End

20,000 End

Cost of goods sold:

Debit Credit
Beginning -
 3 12,000
Unadjusted End 12,000

Adjusted End 12,000

12,000 8

End 0

Wages Expense:

Debit Credit
Beginning -

Unadjusted End -
5 5,000

Adjusted End 5,000

5,000 8

End 0
Journal Entries:

External Journal Entries:

ABC Corporation had the following external transactions during 2022. Record the transactions in the space provided

1. ABC Corporation collected $6,000 of accounts receivable.

Transaction # Account Debit Credit
1 cash 6,000 assets
accounts receivable 6,000 assets

2. ABC paid $2,000 of accounts payable

Transaction # Account Debit Credit
2 Accounts payable 2,000 liabilites
cash 2,000 assets

3. ABC sold merchandise costing $12,000 to customers for $24,000, on account.

Transaction # Account Debit Credit
3 Accounts receivable 24,000 assets
Sales revenue 24,000 revenue

Cost of goods sold 12,000 expense

Inventories 12,000 assets

4. ABC declared and paid a cash dividend of $2,000.

Transaction # Account Debit Credit
4 Dividends 2,000 equity
Cash 2,000 assets

Adjusting Journal Entries:

At the end of each accounting period, revenue and expense accounts are adjusted to
reflect the accrual method of accounting properly. Both revenue and expense
accounts are updated to make accounting earnings better reflect the company’s
operating performance. Because we are using an accrual accounting system,
revenues and expenses will often be recognized in a different period from cash
inflows and outflows. There are two main types of adjusting entries: (1)
prepayments are when the cash flow occurs before the associated revenue/expense,
and (2) accruals are when the cash flow occurs after the associated
revenue/expense. Record the adjusting journal entries below.

5. $5,000 of staff wages were earned but not yet paid.

Transaction # Account Debit Credit
5 Wages expense 5,000
Wages payable 5,000

6. Record depreciation of $1,500.

Transaction # Account Debit Credit
6 Depreciation expense 1,500
accumulated depreciation 1,500 contra - asset : (es negativo

Closing Entries:
All temporary accounts (revenues, gains, expenses, losses, and dividends) are
closed to retained earnings. Notice that we close the accounts after the
financial statements are prepared. Before we record closing entries, we should
address two questions:

Question 1: What does “close” temporary accounts mean?

Transfer the temporary account balances to retained earnings.

Question 2: Why do we close temporary accounts?

Reset the temporary accounts to zero, so we can begin to record in the next
period.

7. Close revenues.
Transaction # Account Debit Credit
7 Sales revenue 24,000
Retained earnings 24,000

8. Close expenses
Transaction # Account Debit Credit
8 retained earnings 18,500
Costs of goods sold 12,000
Depreciation expense 1,500
Wages expense 5,000

9. Close dividends.
Transaction # Account Debit Credit
9 retained earnings 2,000
Dividends 2,000
tions in the space provided below.
contra - asset : (es negativo, asi que funciona al reves)
ABC Trial Balances

Beginning Trial Balance to Unadjusted Trial Balance

ABC Corporation
Trial Balance

31-Dec-21
Year 2 Beginning Trial Balance Sum of External Transactions
debit credit debit
Cash 22,000 2,000
Accounts Receivable 20,000 18,000
Inventories 18,000
PP&E 90,000
Accumulated Depreciation 10,500
Accounts Payable 11,000 2,000
Wages Payable -
Common Stock 20,000
Retained Earnings 108,500
Sales Revenue -
Cost of goods sold - 12,000
Depreciation Expense -
Wages Expense -
Dividends - 2,000
Total 150,000 150,000 36,000

Unadjusted Trial Balance to Adjusted Trial Balance

ABC Corporation
Trial Balance

31-Dec-22
Unadjusted Trial Balance Sum of Adjusting Entries
debit credit debit
Cash 24,000
Accounts Receivable 38,000
Inventories 6,000
PP&E 90,000
Accumulated Depreciation 10,500
Accounts Payable 9,000
Wages Payable -
Common Stock 20,000
Retained Earnings 108,500
Sales Revenue 24,000
Cost of goods sold 12,000
Depreciation Expense - 1,500
Wages Expense - 5,000
Dividends 2,000
Total 172,000 172,000 6,500
Adjusted Trial Balance to Post-Closing Trial Balance
ABC Corporation
Trial Balance

31-Dec-22
Adjusted Trial Balance Sum of Closing Entries
debit credit debit
Cash 24,000
Accounts Receivable 38,000
Inventories 6,000
PP&E 90,000
Accumulated Depreciation 12,000
Accounts Payable 9,000
Wages Payable 5,000
Common Stock 20,000
Retained Earnings 108,500
Sales Revenue 24,000 24,000
Cost of goods sold 12,000
Depreciation Expense 1,500
Wages Expense 5,000
Dividends 2,000
Total 178,500 178,500 24,000
 31-Dec-22
External Transactions Unadjusted Trial Balance
credit debit credit
24,000
38,000
12,000 6,000
90,000
10,500
9,000
-
20,000
108,500
24,000 24,000
12,000
-
-
2,000
36,000 172,000 172,000

31-Dec-22
Adjusting Entries Adjusted Trial Balance
credit debit credit
24,000
38,000
6,000
90,000
1,500 12,000
9,000
5,000 5,000
20,000
108,500
24,000
12,000
1,500
5,000
2,000
6,500 178,500 178,500
 31-Dec-22
Closing Entries Post-Closing Trial Balance
credit debit credit
24,000
38,000
6,000
90,000
12,000
9,000
5,000
20,000
3,500 112,000
-
12,000 -
1,500 -
5,000 -
2,000 -
24,000 158,000 158,000
Financial Statements
In the space below, prepare the Income Statement, the Statement of Stockholders’ Equity, and
the Balance Sheet. When preparing the Income Statement, ignore taxes. The complete
income statement will be presented in Chapter 4. For our purposes, we will assume that
operating income equals net income.

ABC Corporation
Income Statement
Year Ended December 31, 2022

Sales Revenue $ 24,000

Cost of goods sold 12,000
Gross profit 12,000
Operating expenses:
Depreciation expense 1,500
Wages expense 5,000
Total operating expenses 6,500
Operating income $ 5,500

ABC Corporation
Statement of Stockholders' Equity
Year Ended December 31, 2022

Total
Common Retained Stockholders'
Stock Earnings Equity
Beginning balance, January 1, 2022 $ 20,000 $ 108,500 $ 128,500
Net Income 5,500 5,500
Dividends (2,000) (2,000)
Ending balance, December 31, 2022 $ 20,000 $ 112,000 $ 132,000

ABC Corporation
Balance Sheet
As of December 31, 2022

Assets
Current Assets
Cash $ 24,000
Accounts Receivable 38,000
Inventories 6,000
Total Current Assets 68,000
Property, Plant, and Equipment (net) 78,000
Total Assets $ 146,000

Liabilities and Stockholders' Equity

Current Liabilities
Accounts Payable $ 9,000
Wages Payable 5,000
Total Liabilities 14,000
Stockholders' Equity
Common Stock 20,000
Retained Earnings 112,000
Total Stockholders' Equity 132,000
Total Liabilities and Stockholders' Equity $ 146,000