Accounting Cycle

Demonstration Problem:
Bob Sample opened the Campus Laundromat on September 1, 2017. During the first month of
operations, the following transactions occurred.
Sept. 1 Bob invested $200,000 cash in the business.
2 The company paid $10,000 cash for store rent for September.
3 Purchased washers and dryers for $250,000, paying $100,000 in cash and signing a
$150,000, 6-month,12% note payable.
4 Paid $1,2000 for a one-year accident insurance policy.
10 Received a bill from the Daily News for online advertising $2,000.
20 Bob withdrew $700 cash for personal use.
30 The company determined that cash receipts for laundry services for the month were $62,000.
Instructions
(a) Journalize the September transactions. (Use J1 for the journal page number.)
(b) Open ledger accounts and post the September transactions.
(c) Prepare a trial balance at September 30, 2017.

Date Description DR CR
1 Cash 200,000
Capital 200,000

2 Rent Expense 10,000

Cash 10,000

3 Equipment 250,000
Cash 100,000
Note Payable 150,000

4 Prepaid Insurance 12,000

Cash 12,000

10 Advertising Expense 2,000

Accounts Payable 2,000

20 Withdrawals 7,000
Cash 7,000

30 Cash 62,000
Service Revenue 62,000

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 DO IT!
Transactions made by Virmari & Co., a public accounting firm, for the month of August are shown
below. Prepare Journal, Ledger, Trial Balance, Income statement , OE Statement, B/SH
1. The owner invested $25,000 cash in the business.
2. The company purchased $7,000 of office equipment on credit.
3. The company received $8,000 cash in exchange for services performed.
4. The company paid $850 for this month’s rent.
5. The owner withdrew $1,000 cash for personal use.

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 Test Your Self
Accounting Exercise: Comprehensive Case for a Service Company

Company Name: ProTech Services

Scenario: ProTech Services was established on January 1, 2025, with the purpose of providing IT support services.
The company recorded the following transactions during January 2025:

1. January 1: Owner invested $30,000 cash into the business.

2. January 3: Purchased office equipment for $7,000, paying $4,000 in cash and the remainder on account.
3. January 5: Paid $1,500 for a one-year insurance policy.
4. January 8: Performed services and received $5,500 in cash.
5. January 10: Performed services on credit for $3,200.
6. January 12: Paid $800 for office supplies.
7. January 15: Received $2,000 cash from credit customers.
8. January 18: Paid $1,500 for utilities.
9. January 22: Paid $1,500 on the outstanding balance for the office equipment purchased.
10. January 25: Owner withdrew $1,200 for personal use.

Required:

1. Record the above transactions using the accounting equation.

2. Prepare the following financial statements:
o Income Statement
o Statement of Owner’s Equity
o Balance Sheet
o Cash Flow Statement

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Demonstration Problem:
Kara Shin is a licensed accountant. During the first month of operations of her business, Kara Shin,
Inc., the following events and transactions occurred.
May 1 Shareholders invested €20,000 cash
2 Hired a secretary-receptionist at a salary of €2,000 per month.
3 Purchased €1,500 of supplies on account from Hartig Supply Company.
7 Paid office rent of €900 cash for the month.
11 Billed client €2,800 for services provided.
12 Received €3,500 advance on a management consulting engagement.
17 Received cash of €1,200 for services completed for Lucille Co.
31 Paid secretary-receptionist €2,000 salary for the month.
31 Paid 40% of balance due Hartig Supply Company.
Instructions
(a) Journalize the transactions.
(b) Post to the ledger accounts.
(c) Prepare a trial balance on May 31, 2014.

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 Date Description DR CR
1- Cash 20,000
Capital 20,000

2- No Entry

3- Supplies 1,500
Accounts Payable 1,500

7- Rent Expense 900

Cash 900

11- Accounts Receivable 2,800

Service Revenue 2,800

12- Cash 3,500

Un Earned Revenue 3,500

17- Cash 1,200

Revenue 1,200
31-
31- Salaries Expense 2,000
Cash 2,000

31- Accounts Payable

Cash

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 Questions:
Question: 1 Credits
A. decrease both assets and liabilities.
B. decrease assets and increase liabilities.
C. increase both assets and liabilities.
D. increase assets and decrease liabilities.
Question: 2 Debits
A. decrease both assets and liabilities.
B. decrease liabilities and increase assets.
C. increase both assets and liabilities.
D. increase liabilities and decrease assets.
Question: 3 A debit is not the normal balance for which account listed below?
A. Owner’s Drawings
B. Cash
C. Accounts Receivable
D. Service Revenue
Question: 4 In the first month of operations, the total of the debit entries to the cash account
amounted to $1,400 and the total of the credit entries to the cash account amounted to $800.
The cash account has a(n)
A. $800 credit balance.
B. $1,400 debit balance.
C. $600 debit balance.
D. $600 credit balance.
Question: 5 Phast Mail Service purchased equipment for $2,000. Phast paid $500 in cash and
signed a note for the balance. Phast debited the Equipment account, credited Cash and
A. nothing further must be done.
B. debited the Capital account for $1,500.
C. credited another asset account for $500.
D. credited a liability account for $1,500.
Question: 6 On January 14, Maxine Industries purchased supplies of $900 on account. The
entry to record the purchase will include
A. a debit to Supplies and a credit to Accounts Payable.
B. a debit to Supplies Expense and a credit to Accounts Receivable.
C. a debit to Supplies and a credit to Cash.
D. a debit to Accounts Receivable and a credit to Supplies.

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Question: 7 On June 1, 2016, Barcelona Inc. reported a cash balance of $11,000. During June,
Barcelona made deposits of $3,000 and made disbursements totalling $9,000. What is the cash
balance at the end of June?
A. $5,000 debit balance
B. $14,000 debit balance
C. $5,000 credit balance
D. $4,000 credit balance
Question: 8 Qwik Company showed the following balances at the end of its first year:
Cash $ 8,700
Prepaid insurance 9,400
Accounts receivable 7,000
Accounts payable 5,800
Notes payable 9,400
Owner’s Capital 2,300
Owner’s Drawings 1,400
Revenues 44,000
Expenses 35,000
What did Qwik Company show as total credits on its trial balance?
A. $52,400
B. $61,500
C. $62,900
D. $70,900
Question: 9 Able2 Company received a cash advance of $800 from a customer. As a result of
this event,
A. assets increased by $800.
B. owner’s equity increased by $800.
C. liabilities decreased by $800.
D. assets and owner’s equity both increased by $800.
Question: 10 Beethoven Company provided consulting services and billed the client $3,600. As
a result of this event,
A. assets remained unchanged.
B. assets increased by $3,600.
C. owner’s equity increased by $3,600.
D. assets and owner’s equity both increased by $3,600.

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Question: 11 Sara Bernheat withdraws $700 cash from her business for personal use. The
entry for this transaction will include a debit of $700 to
A. Owner’s Drawings.
B. Owner’s Capital.
C. Owner’s Salaries Expense.
D. Salaries and Wages Expense.
Question: 12 A list of accounts and their balances at a given time is called a(n)
A. journal.
B. posting.
C. trial balance.
D. income statement.

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 Adjusting Entries
Deferrals:
1. Prepaid expenses: Expenses paid in cash before they are used or consumed.
2. Unearned revenues: Cash received before services are performed.

Accruals:
1. Accrued revenues: Revenues for services performed but not yet received in cash or recorded.
2. Accrued expenses: Expenses incurred but not yet paid in cash or recorded.

Problem: The ledger of Hammond Company, on March 31, 2017, includes these selected
accounts before adjusting entries are prepared.

An analysis of the accounts shows the following.

1. Insurance expires at the rate of $100 per month.
2. Supplies on hand total $800.
3. The equipment depreciates $200 a month.
4. During March, services were performed for one-half of the unearned service revenue.
Prepare the adjusting entries for the month of March.
Answer
Date Description DR CR
1- Insurance Expense 100
Prepaid Insurance 100

2- Supplies Expense 2,000

Supplies 2,000

3- Depreciation Expense 200

Accumulated Depreciatiion 200

4- Un Earned Revenue 4,600

Revenue 4,600

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Problem: Devin Wolf Company has the following balances in selected accounts on December
31, 2017.

All the accounts have normal balances. The information below has been gathered at December 31, 2017.

1. Devin Wolf Company borrowed $10,000 by signing a 9%, one-year note on September 1, 2017.
2. A count of supplies on December 31, 2017, indicates that supplies of $900 are on hand.
3. Depreciation on the equipment for 2017 is $1,000.
4. Devin Wolf Company paid $2,100 for 12 months of insurance coverage on June 1, 2017.
5. On December 1, 2017, Devin Wolf collected $32,000 for consulting services to be performed
from December 1, 2017, through March 31, 2018.
6. Devin Wolf performed consulting services for a client in December 2017. The client will be billed
$4,200.
Instructions: Prepare adjusting entries for the seven items described above.
Solution
Date Description DR CR
1- Interest Expense
Interest Payable
10,000 x 9% x 4/12
2- Supplies Expense 1,550
Supplies 1,550

3- Depreciation Expense 1,000

Accumulated Depreciation 1,000

4- Insurance Expense 1,225

Accumulated Depreciation 1,225
2,100 x 7/12
5- Un Earned Revenue 8,000
Revenue 8,000
32,000 x 1/4
6- Accounts Receivable 4,200
Revenue 4,200

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Problem: The ledger of Passehl Rental Agency on March 31 of the current year includes the
selected accounts, shown below, before adjusting entries have been prepared.

An analysis of the accounts shows the following.

1. The equipment depreciates $400 per month.
2. One-third of the unearned rent revenue was earned during the quarter.
3. Interest of $500 is accrued on the notes payable.
4. Supplies on hand total $750.
5. Insurance expires at the rate of $300 per month.
Instructions: Prepare the adjusting entries at March 31,
Solution

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 Questions:
Question: 1 Monthly and quarterly time periods are called
A. calendar periods.
B. fiscal periods.
C. interim periods.
D. quarterly periods.
Question: 2 The time period assumption states that
A. a transaction can only affect one period of time.
B. estimates should not be made if a transaction affects more than one time period.
C. adjustments to the company’s accounts can only be made in the time period when the business
terminates its operations.
D. the economic life of a business can be divided into artificial time periods
Question: 3 Expenses incurred but not yet paid or recorded are called
A. prepaid expenses.
B. accrued expenses.
C. interim expenses.
D. unearned expenses.
Question: 4 Prepaid expenses are
A. paid and recorded in an asset account before they are used or consumed.
B. paid and recorded in an asset account after they are used or consumed.
C. incurred but not yet paid or recorded.
D. incurred and already paid or recorded.
Question: 5 Unearned revenues are
A. cash received and a liability recorded before services are performed.
B. revenue for services performed and recorded as liabilities before they are received.
C. revenue for services performed but not yet received in cash or recorded.
D. revenue for services performed and already received in cash and recorded.
Question: 6 Wallowa Company purchased supplies costing $6,000 and debited Supplies for
the full amount. At the end of the accounting period, a physical count of supplies revealed
$1,800 still on hand. The appropriate adjusting journal entry to be made at the end of the
period would be
A. Debit Supplies Expense, $1,800; Credit Supplies, $1,800.
B. Debit Supplies, $4,200; Credit Supplies Expense, $4,200.
C. Debit Supplies Expense, $4,200; Credit Supplies, $4,200.
D. Debit Supplies, $1,800; Credit Supplies Expense, $1,800.

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Question: 7 The balance in the supplies account on June 1 was $5,000, supplies purchased
during June were $3,000, and the supplies on hand at June 30 were $3,500. The amount to be
used for the appropriate adjusting entry is
A. $4,000.
B. $4,500.
C. $6,500.
D. $11,500.
Question: 8 Accumulated Depreciation is
A. an expense account.
B. an owner’s equity account.
C. a liability account.
D. a contra asset account.
Question: 9 Bichon Company purchased equipment for $6,720 on December 1. It is estimated
that annual depreciation on the equipment will be $1,680. If financial statements are to be
prepared on December 31, the company should make the following adjusting entry:
A. Debit Depreciation Expense, $1,680; Credit Accumulated Depreciation, $1,680.
B. Debit Depreciation Expense, $140; Credit Accumulated Depreciation, $140.
C. Debit Depreciation Expense, $5,040; Credit Accumulated Depreciation, $5,040.
D. Debit Equipment, $6,720; Credit Accumulated Depreciation, $7,200.
Question: 10 What is the proper adjusting entry at June 30, the end of the fiscal year, based
on a prepaid insurance account balance before adjustment, $15,400, and unexpired amounts
per analysis of policies of $5,000?
A. Debit Insurance Expense, $5,000; Credit Prepaid Insurance, $5,000.
B. Debit Insurance Expense, $15,400; Credit Prepaid Insurance, $15,400.
C. Debit Prepaid Insurance, $10,400; Credit Insurance Expense, $10,400.
D. Debit Insurance Expense, $10,400; Credit Prepaid Insurance, $10,400.
Question: 11 The balance in the Prepaid Rent account before adjustment at the end of the
year is $24,000, which represents three months’ rent paid on December 1. The adjusting entry
required on December 31 is to
A. debit Rent Expense, $8,000; credit Prepaid Rent, $8,000.
B. debit Rent Expense, $16,000; credit Prepaid Rent $16,000.
C. debit Prepaid Rent, $8,000; credit Rent Expense, $8,000.
D. debit Prepaid Rent, $16,000; credit Rent Expense, $16,000.

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Question: 12 Unearned revenue is classified as
A. an asset account.
B. a revenue account.
C. a contra-revenue account.
D. a liability account.
Question: 13 Grand Slam Company purchased equipment for $9,600 on January 1, 2016. The
company expects to use the equipment for 4 years. It has no salvage value. Monthly
depreciation expense on the asset is
A. $0.
B. $200.
C. $2,400.
D. $9,600.
Question: 14 Ultramega Company collected $19,600 in May of 2016 for 5 months of service
which would take place from October of 2016 through February of 2017. The revenue
reported from this transaction during 2016 would be
A. 0.
B. $3,920.
C. $11,760.
D. $19,600.

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Problem: Mac’s Motel opened for business on May 1, 2017. Its trial balance before adjustment on
May 31 is as follows.

In addition to those accounts listed on the trial balance, the chart of accounts for Mac’s Motel also
contains the following accounts and account numbers: No. 142 Accumulated Depreciation—
Buildings, No. 150 Accumulated Depreciation—Equipment, No. 212 Salaries and Wages Payable,
No. 230 Interest Payable, No. 619 Depreciation Expense, No. 631 Supplies Expense, No. 718
Interest Expense, and No. 722 Insurance Expense.
Other data:
1. Prepaid insurance is a 1-year policy starting May 1, 2017.
2. A count of supplies shows $750 of unused supplies on May 31.
3. Annual depreciation is $3,000 on the buildings and $1,500 on equipment.
4. The mortgage interest rate is 12%. (The mortgage was taken out on May 1.)
5. Two-thirds of the unearned rent revenue has been earned.
6. Salaries of $750 are accrued and unpaid at May 31.
Instructions
(a) Journalize the adjusting entries on May 31.
(b) Prepare a ledger using the three-column form of account. Enter the trial balance amounts
and post the adjusting entries. (Use J1 as the posting reference.)
(c) Prepare an adjusted trial balance on May 31.
(d) Prepare an income statement and an owner’s equity statement for the month of May and a
balance sheet at May 31.

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(a)
J1
Date Account Titles Ref. Debit Credit
May 31 Insurance Expense ........................ 722 200
Prepaid Insurance
($2,400 X 1/12) ................... 130 200

31 Supplies Expense .......................... 631 1,330

Supplies ($2,080 – $750) ....... 126 1,330

31 Depreciation Expense
($3,000 X 1/12) + ($1,500 X 1/12) 619 375
Accumulated Depreciation—
Buildings............................ 142 250
Accumulated Depreciation—
Equipment ......................... 150 125

31 Interest Expense............................ 718 400

Interest Payable
[($40,000 X 12%) X 1/12] ..... 230 400

31 Unearned Rent Revenue ............... 208 2,200

Rent Revenue
(2/3 X $3,300) .................... 429 2,200

31 Salaries and Wages Expense ....... 726 750

Salaries and Wages Payable 212 750
(b)
Cash No. 101
Date Explanation Ref. Debit Credit Balance
May 31 Balance  3,500

Supplies No. 126

Date Explanation Ref. Debit Credi Balance
t
May 31 Balance  2,080
31 Adjusting J1 1,330 750

Prepaid Insurance No. 130

Date Explanation Ref. Debit Credit Balance
May 31 Balance  2,400
31 Adjusting J1 200 2,200

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Land No. 140
Date Explanation Ref. Debit Credit Balance
May 31 Balance  12,000

Buildings No. 141

Date Explanation Ref. Debit Credit Balance
May 31 Balance  60,000

Accumulated Depreciation—Buildings No. 142

Date Explanation Ref. Debit Credit Balance
May 31 Adjusting J1 250 250

Equipment No. 149

Date Explanation Ref. Debit Credit Balance
May 31 Balance  15,000

Accumulated Depreciation—Equipment No. 150

Date Explanation Ref. Debit Credit Balance
May 31 Adjusting J1 125 125

Accounts Payable No. 201

Date Explanation Ref. Debit Credit Balance
May 31 Balance  4,800

Unearned Rent Revenue No. 208

Date Explanation Ref. Debit Credit Balance
May 31 Balance  3,300
31 Adjusting J1 2,200 1,100

Salaries and Wages Payable No. 212

Date Explanation Ref. Debit Credit Balance
May 31 Adjusting J1 750 750

Interest Payable No. 230

Date Explanation Ref. Debit Credit Balance
May 31 Adjusting J1 400 400

Mortgage Payable No. 275

Date Explanation Ref. Debit Credit Balance
May 31 Balance  40,000

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Owner’s Capital No. 301
Date Explanation Ref. Debit Credit Balance
May 31 Balance  41,380

Rent Revenue No. 429

Date Explanation Ref. Debit Credit Balance
May 31 Balance  10,300
31 Adjusting J1 2,200 12,500

Advertising Expense No. 610

Date Explanation Ref. Debit Credit Balance
May 31 Balance  600

Depreciation Expense No. 619

Date Explanation Ref Debit Credit Balance
.
May 31 Adjusting J1 375 375

Supplies Expense No. 631

Date Explanation Ref Debit Credit Balance
.
May 31 Adjusting J1 1,330 1,330

Interest Expense No. 718

Date Explanation Ref. Debit Credit Balance
May 31 Adjusting J1 400 400

Insurance Expense No. 722

Date Explanation Ref Debit Credit Balance
.
May 31 Adjusting J1 200 200

Salaries and Wages Expense No. 726

Date Explanation Ref Debit Credit Balance
.
May 31 Balance  3,300
31 Adjusting J1 750 4,050

Utilities Expense No. 732

Date Explanation Ref Debit Credit Balance
.
May 31 Balance  900

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(c) MAC’S MOTEL
Adjusted Trial Balance
May 31, 2017
Debit Credit
Cash ......................................................... $ 3,500
Supplies ................................................... 750
Prepaid Insurance ................................... 2,200
Land ......................................................... 12,000
Buildings ................................................. 60,000
Accumulated Depreciation—Buildings . $ 250
Equipment ............................................... 15,000
Accumulated Depreciation— 125
Equipment ...................................................... 600 4,800
Accounts Payable ................................... 375 1,100
Unearned Rent Revenue ........................ 1,330 750
Salaries and Wages Payable.................. 400 400
Interest Payable ...................................... 200 40,000
Mortgage Payable ................................... 4,050 41,380
Owner’s Capital....................................... 900 12,500
Rent Revenue .......................................... $101,305
Advertising Expense ..............................
Depreciation Expense ............................
Supplies Expense ...................................
Interest Expense .....................................
Insurance Expense .................................
Salaries and Wages Expense ................
Utilities Expense ..................................... $101,305

(d) MAC’S MOTEL

Income Statement
For the Month Ended May 31, 2017
Revenues
Rent revenue .............................................. $12,500
Expenses
Salaries and wages expense..................... $4,050
Supplies expense ....................................... 1,330
Utilities expense......................................... 900
Advertising expense .................................. 600
Interest expense......................................... 400
Depreciation expense ................................ 375
Insurance expense ..................................... 200
Total expenses .................................... 7,855
Net income ......................................................... $ 4,645

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 MAC’S MOTEL
Owner’s Equity Statement
For the Month Ended May 31, 2017
Owner’s capital, May 1 ....................................................... $ 0
Investment by owner ......................................................... 41,380
41,380
Add: Net income............................................................... 4,645
Owner’s capital, May 31 ..................................................... $46,025

MAC’S MOTEL
Balance Sheet
May 31, 2017
Assets
Cash ............................................................... $ 3,500
Supplies ......................................................... 750
Prepaid insurance ......................................... 2,200
Land ............................................................... 12,000
Buildings ........................................................ $60,000
Less: Accumulated depreciation—
buildings ............................................. 250 59,750
Equipment ..................................................... 15,000
Less: Accumulated depreciation—
equipment ............................................ 125 14,875
Total assets ..................................... $93,075

Liabilities and Owner’s Equity

Liabilities
Accounts payable .................................. $ 4,800
Unearned rent revenue .......................... 1,100
Salaries and wages payable.................. 750
Interest payable...................................... 400
Mortgage payable .................................. 40,000
Total liabilities ................................. 47,050
Owner’s equity
Owner’s capital ...................................... 46,025
Total liabilities and owner’s equity .. $93,075

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 Classifications of Assets and Liabilities
Assets
Current assets Current assets are assets that a company expects to convert to cash or use up
within one year or its operating cycle, whichever is longer.
(1) cash
(2) investments (such as short-term U.S. government securities),
(3) receivables (notes receivable, accounts receivable, and interest receivable),
(4) inventories,
(5) prepaid expenses (supplies and insurance).
Long term investment Long-term investments
(1) investments in stocks and bonds of other companies that are normally held for many years,
(2) long-term assets such as land or buildings that a company is not currently using in its
operating activities,
(3) long-term notes receivable.
Property, Plant and Property, plant, and equipment are assets with relatively long useful lives that a company
Equipment (PPE) is currently using in operating the business.
This category includes land, buildings, machinery and equipment, delivery equipment, and
furniture.
Intangible Assets Intangible Assets long-lived assets that do not have physical substance
such as goodwill. Others include patents, copyrights, and trademarks
Liabilities
Current Liabilities Current liabilities are obligations that the company is to pay within the coming year or its
operating cycle, whichever is longer.
Such as accounts payable, salaries and wages payable, notes payable, interest
payable, and income taxes payable. Also included as current liabilities are
current maturities of long-term obligations—payments to be made within the
next year on long-term obligations
Long term Liabilities Long-term liabilities are obligations that a company expects to pay after one
year.
Such as bonds payable, mortgages payable, long-term notes payable,

 Users of financial statements look closely at the relationship between current assets and
current liabilities.
 This relationship is important in evaluating a company’s liquidity.
 liquidity: its ability to pay obligations expected to be due within the next year. When current
assets exceed current liabilities, the likelihood for paying the liabilities is favorable.

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Questions:
Question: 1 The following information is for Central Avenue Real Estate:
Balance Sheet
December 31, 2016
Cash $ 25,000 Accounts Payable $ 60,000
Prepaid Insurance 40,000 Salaries and Wages Payable 25,000
Accounts Receivable 50,000 Mortgage Payable 85,000
Inventory 80,000 Total Liabilities 170,000
Land Held for Investment 75,000
Land 120,000
Building $110,000
Less Accumulated Owner’s Capital 380,000
Depreciation (20,000) 90,000
Trademark 70,000 Total Liabilities and
Total Assets $550,000 Owner’s Equity $550,000

The total dollar amount of assets to be classified as current assets is

A. $115,000.
B. $195,000.
C. $200,000.
D. $270,000.
The total dollar amount of assets to be classified as property, plant, and equipment is
A. $210,000.
B. $230,000.
C. $285,000.
D. $315,000.

The total dollar amount of liabilities to be classified as current liabilities is

A. $25,000.
B. $60,000.
C. $85,000.
D. $170,000.

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Question: 2 A current asset is
A. the last asset purchased by a business.
B. an asset which is currently being used to produce a product or service.
C. usually found as a separate classification in the income statement.
D. an asset that a company expects to convert to cash or use up within one year.
Question: 3 An intangible asset
A. does not have physical substance, yet often is very valuable.
B. is worthless because it has no physical substance.
C. is converted into a tangible asset during the operating cycle.
D. cannot be classified on the balance sheet because it lacks physical substance.
Question: 4 Which of the following liabilities are not related to the operating cycle?
A. Salaries and wages payable
B. Accounts payable
C. Utilities payable
D. Bonds payable
Question: 5 The relationship between current assets and current liabilities is important in
evaluating a company’s
A. profitability.
B. liquidity.
C. market value.
D. accounting cycle.
Question: 6 Items are taken from the financial statements of the Freight Service for the year ending December
31, 2016:
Accounts payable $ 19,000
Accounts receivable 13,000
Accumulated depreciation – equipment 26,000
Advertising expense 21,200
Cash 15,000
Owner’s capital (1/1/16) 104,000
Owner’s drawings 11,000
Depreciation expense 12,000
Insurance expense 3,800
Note payable, due 6/30/17 72,000
Prepaid insurance (12-month policy) 7,200
Rent expense 16,000
Salaries and wages expense 32,000
Service revenue 135,000
Supplies 5,000
Supplies expense 6,000
Equipment 210,000

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What are total current assets at December 31, 2016?
A. $28,000
B. $35,200
C. $40,200
D. $46,200
What are total current liabilities at December 31, 2016?
A. $19,000
B. $72,000
C. $91,000
D. $102,000

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 Closing Entry

 Closing entries formally recognize in the ledger the transfer of net income (or net loss) and
Dividends to Capital. The owner equity statement shows the results of these entries.
 Closing entries also produce a zero balance in each temporary account.
 The temporary accounts are then ready to accumulate data in the next accounting period
separate from the data of prior periods.
 Permanent accounts are not closed.
 companies generally journalize and post-closing entries only at the end of the annual
accounting period. Thus, all temporary accounts will contain data for the entire year.
Problem: Victoria Lee Company had the following adjusted trial balance

Instructions
(a) Prepare closing entries at June 30, 2017.
(b) Prepare a post-closing trial balance.

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