Credit (S) 5000 7000 2535 460 480 345 Accounting Step 6: Adjusted Trial Balance Account Name Debit (S) Cash 3,920 Matt' Capital Loan Equipment Purchase 1,925 Advertising Expense 1,050 Sales Accounts Receivable 510 Accounts Payable Prepaid Insurance 410 Wages Expense Unearned Revenue Activity Courses 5620 Mowing Expenses 75 Supplies 182 Matt' Withdrawls 800 Insurance Expense Interest Expense Accrued Interest Depreciation Expense (139 Accumulated Dep on Equipment Accumulated Dep on Activity Courses Accumulated Dep on Sign Supplies Expense 278 Outstanding Wages Total 15,669 205 70 70 32 94 13 120 15,669 ACCOUNTING CYCLE STEP 7: Use the accounts and balances on the adjusted trial balance to prepare financial statements. Refer to Exhibit 3.14 in your textbook for an illustration of how the numbers from an adjusted trial balance flow to the financial statements. No working papers have been provided for this step, so you may either handwrite your solution or prepare it electronically. If you prepare your solution electronically, be sure to bring a hardcopy to class. Helpful Hints The income statement is always prepared first because we need the output of the income statement (net income) to prepare the second financial statement, the statement of owner's equity. The statement of owner's equity must be prepared second because we need the output of the statement of owner's equity (the ending capital account balance) to prepare the third financial statement, the balance sheet. The fact that all three financial statements tie together in this way is referred to as articulation. Recall that the accounts on the adjusted trial balance are listed in financial statement order (assets, liabilities, owner's equity, revenues, and expenses), so the accounts you need for each statement are effectively grouped together. Each account is reported on only ONE financial statement. Specifically note the difference between the format of a trial balance and a balance sheet. Many beginning accounting students frequently confuse these two due to the naming similarity, but they are two very distinct documents! Check Figures: Net income = $983 Total Assets = $13,178 Chapter 4 (Accounting Cycle Steps 8 & 9) *** ACCOUNTING CYCLE STEP 8: Prepare lournal entries to close all the temporary accounts. This step includes journalizing the closing entries in the general journal and posting them to the appropriate general ledger accounts, using the cross-reference procedure described in Step 3. Use the same general journal and general ledger that you used in the previous steps. Helpful Hints The temporary accounts to be closed are the revenue accounts, expense accounts, and the owner's withdrawal (a.k.a. drawing) account. Note that the owner's capital account before the closing process does not equal the ending owner's capital we reported on the statement of owner's equity and on the balance sheet. The closing process, when properly completed, will update the owner's capital account balance in the general ledger so that it reconciles with the ending owner's equity balance we reported on the financial statements. The closing process will also reduce all temporary accounts to a zero balance clearing the way for the accumulation of revenues, expenses, and withdrawals for the next accounting period. Revenue accounts must be DEBITED to remove their credit balances and expense accounts and the owner's withdrawal account must be CREDITED to remove their debit balances. ACCOUNTING CYCLE STEP 9: Prepare a post-closing trial balance. Just like the unadjusted trial balance and the adjusted trial balance, this trial balance is simply a listing of the general ledger accounts and their balances in financial statement order with the debit and credit columns summed. See Exhibit 4.6 in your textbook for an example of a post-closing trial balance. No working papers been provided for this step, so you may either handwrite your solution or prepare it electronically, If you prepare your solution electronically, be sure to bring a hardcopy to class Helpful Hints This trial balance confirms that general ledger debits and credits are equal before beginning a new accounting cycle. Given that all the temporary account balances were reduced to zero during the closing process, the temporary accounts may be omitted from this trial balance. Check Figure: Debits and Credits must each equal $13,317. ACCOUNTING CYCLE STEP 10: Preparing reversing entries is an optional step in the accounting cycle that will not be covered in this course