Prepare an accounting

work sheet.
 The accounting cycle is the process by which
accountants prepare financial statements for an
entity for a specific period of time.
 For a new business, begin by setting up ledger
accounts.
 For an established business, begin with account
balances carried over from the previous period.
Accounts Receivable Accounts Receivable 1,700
1,350 Service Revenue 1,700

Accounts Receivable
Accounts Receivable
1,350
1,350
1,700
1,700 3,050
 Work Sheet
Cash 12,100
Accounts
receivable 3,050

Balance Income
Sheet Statement
Adjusting entries Closing entries

Cash Accounts Receivable

12,100 3,050

Postclosing Trial Balance

Cash 12,100
Accounts
receivable 3,050
 What is the work sheet?
 A work sheet is a multi-columned document used
by accountants to help move data from the trial
balance to the financial statements.
 It is an internal document.
 Adjusted
Trial Balance Adjustments Trial Balance
Account Title Dr. Cr. Dr. Cr. Dr. Cr.
Cash 12,100
Accounts receivable 1,350
Supplies 250
Equipment 15,500
Accum. depreciation 7,500
Accounts payable 1,200
Salary payable 1,100
Unearned revenue 1,500
Capital 7,200
Withdrawals 1,000
Revenue 23,700
Salary expense 12,000
Supplies expense
Depreciation expense
Totals 42,200 42,200

©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber 4-9
a The company has earned revenue of $1,700
which will be collected next month.
b Inventory of supplies at month end totaled $150.
c Depreciation for the period was calculated as
$200.
 Adjusted
Trial Balance Adjustments Trial Balance
Account Title Dr. Cr. Dr. Cr. Dr. Cr.
Cash 12,100 12,100
Accounts receivable 1,350 a) 1,700 3,050
Supplies 250 b) 100 150
Equipment 15,500 15,500
Accum. depreciation 7,500 c) 200 7,700
Accounts payable 1,200 1,200
Salary payable 1,100 1,100
Unearned revenue 1,500 1,500
Capital 7,200 7,200
Withdrawals 1,000 1,000
Revenue 23,700 a) 1,700 25,400
Salary expense 12,000 12,000
Supplies expense b) 100 100
Depreciation expense c) 200 200
Totals 42,200 42,200 2,000 2,000 44,100 44,100
 Adjusted Income Balance
Trial Balance Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr.
Cash 12,100 12,100
Accounts receivable 3,050 3,050
Supplies 150 150
Equipment 15,500 15,500
Accum. depreciation 7,700 7,700
Accounts payable 1,200 1,200
Salary payable 1,100 1,100
Unearned revenue 1,500 1,500
Capital 1,000 7,200 7,200
Withdrawals 1,000
Revenue 25,400
Salary expense 12,000
Supplies expense 100
Depreciation expense 200
Totals 44,100 44,100 31,800 18,700
 Adjusted Income Balance
Trial Balance Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr.
Cash 12,100 12,100
Accounts receivable 3,050 3,050
Supplies 150 150
Equipment 15,500 15,500
Accum. depreciation 7,700 7,700
Accounts payable 1,200 1,200
Salary payable 1,100 1,100
Unearned revenue 1,500 1,500
Capital 7,200 7,200
Withdrawals 1,000 1,000
Revenue 25,400 25,400
Salary expense 12,000 12,000
Supplies expense 100 100
Depreciation expense 200 200
Totals 44,100 44,100 12,300 25,400 31,800 18,700
 Adjusted Income Balance
Trial Balance Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr.
Cash 12,100 12,100
Accounts receivable 3,050 3,050
Supplies 150 150
Equipment 15,500 15,500
Accum. depreciation 7,700 7,700
Accounts payable 1,200 1,200
Salary payable 1,100 1,100
Unearned revenue 1,500 1,500
Capital 7,200 7,200
Withdrawals 1,000 1,000
Revenue 25,400 25,400
Salary expense 12,000 12,000
Supplies expense 100 100
Depreciation expense 200 200
Totals 44,100 44,100 12,300 25,400 31,800 18,700
Net income 13,100 13,100
25,400 25,400 31,800 31,800
Use the work sheet
to complete the
accounting cycle.
The work sheet Actual adjustment
helps identify of the accounts
the accounts requires
that need journalizing
adjustments. and posting
the entries.
 The adjusting entries may be recorded in the
journal when they are entered on the work sheet.
 Many accountants journalize and post the
adjusting entries just before they make the
closing entries.
Close the revenue, expense, and
withdrawal accounts.
 Closing the accounts is the end of period process
that prepares the accounts for recording
transactions during the next period.
 Closing Entries

Expenses
Revenues and
increase Withdrawals
Owner’s decrease
Equity. Owner’s
Equity.
 Revenues and Expense accounts are closed to
Income Summary.
 Income Summary is closed to Capital.
 Withdrawals are closed to Capital.
 In a corporation, Dividends are closed to
Retained Earnings.
 Income Summary

A debit A credit
balance balance
represents represents
net loss. net income.
 (Close Revenue
Account) Income
Revenue Summary
28,500 12,000 (Close Expense
7,500 Accounts) 4,450 28,500
9,000 24,050
Salary Exp (Close Income
Summary)
1,500 3,300 Capital
1,800 Account
Rent Exp
2,500 24,050
800 800 (Close
Supplies Exp Withdrawals Withdrawals
Account) 2,500 2,500
350 350
 The accounting cycle ends with the postclosing
trial balance.
 The postclosing trial balance is dated as of the
end of the period for which the statements have
been prepared.
 What accounts never close?
– Assets
– Liabilities
– Owner’s equity
 Balances of permanent accounts carry over to the
next period.
Classify assets and liabilities
as current or long-term.
 This is a measure of how quickly an item can be
converted into cash.
 On the balance sheet, assets and liabilities are
classified as either current or long-term to
indicate their relative liquidity.
 Current assets are cash, or will be converted to
cash, in one year or within the normal business
operating cycle.
 What are some other examples?
– short-term receivables
– inventory
– prepaid expenses
 Current liabilities are debts or obligations due
within one year or within the operating cycle.
 What are some examples?
– accounts and salary payables
– short-term notes payable
– unearned revenue
 Long-term assets include all other assets.
– property, equipment, and intangibles
 Long-term liabilities are all other debts due in
longer than one year or the entity’s operating
cycle.
 Debit side Credit side
Current assets Current liabilities
Long-term assets Long-term liabilities

Listed in the order Listed in the order

of decreasing of how soon they
liquidity must be paid
 XYZ Services
January 31, 20XX
Assets Liabilities
Current assets: Current liabilities:
Cash 12,100 Accounts payable 1,200
Accounts receivable 3,050 Salary payable 1,100
Supplies 150 Unearned revenue 1,500
Total current assets 15,300 Total liabilities 3,800
Plant assets Owner’s equity
Equipment 15,500 Capital 19,300
Less Accum. deprec. 7,700 7,800
Total liabilities and
Total assets 23,100 owner’s equity 23,100
Report Format Account Format
Assets Assets = Liabilities +
Liabilities Owner’s Equity
Owner’s Equity
Use the current ratio and the debt
ratio to evaluate a company.
 They enhance the user’s ability to analyze a
company’s past performance.
 What are two common ratios used to measure
liquidity?
1 Current ratio
2 Debt ratio
  This measures the ability of a business to
pay its current liabilities with its current
assets.

Current ratio = Current assets ÷ Current liabilities

 It indicates the proportion of a business’s assets
that are financed with debt.
 It measures their ability to pay both current and
long-term debt.

Total liabilities ÷ Total assets

 Decision makers compare various ratios over a
period of time.