ACCG100 Lecture Notes - Lecture 6: Trial Balance, Retained Earnings, Capital Account

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orchidgiraffe317

15 Mar 2020

School

Macquarie University

Department

Accounting and Corporate Governance

Course

ACCG100

Professor

Colly He

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Document Summary

Lecture 6 (03/04/2019) financial accounting for business: closing entries. This week: closing entries, what are they, why we record closing entries, how we record closing entries, post-closing trial balance. Temporary accounts relate to only a given accounting period i. e. revenues, expenses, drawings/dividends. Temporary accounts where the closing balance will be zero at the end of the period, thus the opening balance of the account in the next period will also be zero. Must be closed" to set the account balance to zero balance at the end of each accounting period: revenue or expense accounts. P&l summary account, used to calculate profit and loss. Permanent (real) accounts are carried forward to future accounting periods i. e. assets, liabilities, equity (capital, retained earnings) Used continuously into the future where the closing balance will more than likely not be zero thus the opening balance will be the positional balance from the previous period.

Related Questions

Chandler, Inc. is owned by Roscoe Chandler and providesappraisal services to individuals and companies wishing to purchaseand sell fine art. Chandler, Inc. began business on January 1,2016, and is just completing its first year of business. Roscoeasks for your help in completing the accounting cycle for thecompany by assisting with the closing process.

Before the closing entries are made, you begin with an adjustedtrial balance. The closing entries are essentially the link fromthe adjusted trial balance to the post-closing trial balance.

Chandler, Inc.

ADJUSTED TRIAL BALANCE

December 31, 2016

	ACCOUNTTITLE	DEBIT	CREDIT
1	Cash	76,000.00
2	Accounts Receivable	29,000.00
3	Prepaid Insurance	16,000.00
4	Equipment	60,000.00
5	Accumulated Depreciation-Equipment		40,000.00
6	Accounts Payable		6,000.00
7	Salaries Payable		8,000.00
8	Income Taxes Payable		4,000.00
9	Common Stock		2,000.00
10	Retained Earnings		18,000.00
11	Dividends	5,000.00
12	Income Summary
13	Fees Earned		175,600.00
14	Rent Revenue		92,000.00
15	Interest Revenue		17,200.00
16	Salaries Expense	71,000.00
17	Selling Expense	25,600.00
18	Income Taxes Expense	15,000.00
19	Depreciation Expense-Equipment	47,200.00
20	Insurance Expense	17,000.00
21	Miscellaneous Expense	1,000.00
22	Totals	362,800.00	362,800.00

The final step of the accounting cycle is the closing process.The main goal of this stage of the cycle is to ensure that thebalance of each temporary account is returned to zero and that netincome is transferred to the retained earnings account. The firststep in successfully undertaking the closing process is tounderstand the difference between a temporary account and apermanent account. Roscoe has some questions about the process.

Answer questions (1) - (3) below.

1. If a temporary account has an ending balance of $57,000, whatis its beginning balance for the following accounting period?

2. If a permanent account has an ending balance of $57,000, whatis its beginning balance for the following accounting period?

3. Roscoe will be preparing his yearly financial statementsafter completing Chandler, Inc.âs closing process, and is asomewhat confused about the characteristics of the accounts on hisChart of Accounts. He has started by creating the chart below, andasks for your help in completing it. For each account or type ofaccount listed, choose all descriptions that apply.

Temporary Account

Permanent Account

Closed to Income SummaryAccount

Yes

Revenues

Asset accounts

Retained Earnings account

Expenses

Liability accounts

Dividends account

Roscoe has attempted to prepare the closing entries forChandler, Inc. on this panel. Heâs not sure if heâs entered thejournal entries correctly, and asks you to review them. You findthat two of the entries are correct, but two are incorrect.

Determine which entries are incorrect, and enter all four of theclosing entries for Chandler, Inc. as of Dec. 31 on the Journalpanel.

PAGE 25

JOURNAL

	DATE	DESCRIPTION	DEBIT	CREDIT
1		Closing Entries
2	Dec. 31	Income Summary	284,800.00
3		Fees Earned		175,600.00
4		Rent Revenue		92,000.00
5		Interest Revenue		17,200.00
6	31	Income Summary	176,800.00
7		Salaries Expense		71,000.00
8		Selling Expense		25,600.00
9		Income Taxes Expense		15,000.00
10		Depreciation Expense-Equipment		47,200.00
11		Insurance Expense		17,000.00
12		Miscellaneous Expense		1,000.00
13	31	Retained Earnings	461,600.00
14		Income Summary		461,600.00
15	31	Retained Earnings	5,000.00
16		Dividends		5,000.00

purpleporcupine232

QUESTION 1

Accounting is an information and measurement system thatidentifies, records, and communicates relevant, reliable, andcomparable information about an organization's businessactivities.

True

False

QUESTION 2

We use the accounting equation to identify what a company ownsand owes. The accounting equation is:

Assets = Liabilities + Equity

Assets = Liabilities â Equity

Assets = Liabilities + Revenues

Equity = Liabilities + Revenues

QUESTION 3

______ are beliefs that distinguish right from wrong. Thesebeliefs are accepted standards of gauging good and dishonestbehavior.

Accounting Standards

Ethics

Generally Accepted Accounting Principles

FASB

QUESTION 4

The _____ is a collection of all accounts within a companyâsaccounting system.

We use the accounting equation to identify what a company ownsand owes. _____ are resources a company owns or controls, _____ areclaims creditors have against a companyâs assets, and _____ is theownerâs claim on a companyâs assets.

QUESTION 6

In double entry accounting a credit to an asset account willrepresent an increase in the asset account balance; and a debitwill represent a decrease in the asset account balance.

True

False

QUESTION 7

The purchase of supplies on credit will ____ assets and ____liabilities.

During the accounting cycle, we analyze transactions toprepare statements.

True

False

QUESTION 9

The supplies account for a company has a $1,000 debit balanceat the beginning of the year. Supplies of $2,000 were purchasedduring the year and debited to the Supplies account. A December 31physical count shows $500 of supplies remaining at the end of theyear. Assume no other adjusting entries are made during the year.Using the 3-step process for creating adjusting entries, calculatethe adjustment amount for supplies (no journal entry isrequired).

During the accounting cycle, to complete step 7 youwould:

Prepare post-closing trial balance--Test clerical accuracy ofthe closing procedures.

Prepare adjusted trial balance--Summarize adjusted ledgeraccounts and amounts.

Prepare statements--Use adjusted trial balance to preparefinancial statements.

Close--Journalize and post entries to close temporaryaccounts.

QUESTION 11

The three financial statements that should be prepared duringthe accounting cycle are the:

Balance sheet, adjusted trial balance, income statement

Balance sheet, unadjusted trial balance, Statement of OwnerâsEquity

Income statement, adjusted trial balance, Statement of OwnerâsEquity

Balance sheet, Income statement, Statement of OwnerâsEquity

QUESTION 12

An optional working paper, which is not a required report oran accounting record, but is used to prepare a company's unadjustedtrial balance, adjusting entries, adjusted trial balance, andfinancial statements is a(n):

Adjusted trial balance

Worksheet

Post-closing trial balance

Unadjusted trial balance

General ledger

QUESTION 13

The two goals for completing the closing process are:

To identify accounts for closing and record the closingentries

To journalize and post transactions

To post transactions and prepare post-closing trialbalance

To reset revenues, expenses, and withdrawal account balancesto zero at the end of each period, and help summarize an accountingperiodâs revenues and expenses.

QUESTION 14

Fill in the Blank: The _____ describes a companyâs financialposition â by the types and amounts of assets, liabilities, andequity -- at a point in time.

QUESTION 15

Return on Assets is useful in evaluating management, analyzingand forecasting profits, and planning activities.

True

False

QUESTION 16

The Income Statement:

Identifies cash inflows (receipts) and cash outflows(payments) over a period-of-time.

Summarize adjusted ledger accounts and amounts

Describes a companyâs revenues and expenses along with theresulting net income or net loss -- over a period-of-time due toearnings activities

Resets revenues, expenses, and withdrawal account balances tozero at the end of each period.

QUESTION 17

An internal control system consists of the policies andprocedures used to:

Protect assets and Ensure reliable accounting

Urge adherence to company policies and Promote efficientoperations

All of the above

None of the above.

QUESTION 18

The cost-benefit principle is the second limitation of_______.

Bank reconciliations

Petty cash controls

Voucher system of controls

Internal controls

QUESTION 19

The Unadjusted Trial Balance columns of a company's work sheetshows the Store Supplies account with a balance of $750. TheAdjustments columns shows a credit of $425 for supplies used duringthe period. The amount shown as Store Supplies in the Balance Sheetcolumns of the work sheet is:

A company shows a $600 balance in Prepaid Rent in theUnadjusted Trial Balance columns of the work sheet. The Adjustmentscolumns show expired rent of $200. This adjusting entry resultsin:

$200 decrease to net income

$200 increase to net income

$200 different between the debit and credit columns of theUnadjusted Trial Balance

An error in the Balance Sheet

QUESTION 21

This semester we have discussed four major financialstatements. List the 4 financial statements and describe them. Makesure to include how they flow together.

QUESTION 22

Explain the purpose of adjusting entries at the end of aperiod.

peararmadillo281

Please I need help with the Smithville project full versionChapter 9 and the complete instructions are below. Thank you

Chapter 9 Adjusting and Closing Entries for GovernmentalActivities, Government-wide Level; Preparation of Government-wideand Major Fund Financial Statements

Prior to preparing financial statements at the end of FY 2014,it is necessary to record depreciation expense for the year forgovernmental activities at the government-wide level.

Based on general capital assetsassigned to specific functions, depreciation expense related toequipment and infrastructure is allocated to functions as shownbelow:

Equipment Infrastructure

GeneralGovernment $ 42,348

PublicSafety 220,212

PublicWorks 84,696 $118,344

Health andWelfare 21,168

Culture andRecreation 55,056

Totals $423,480 $118,344

In addition, depreciation expense forbuildings in the amount of $188,000 is allocated to functionsaccording to the percentage of total floor space of buildings usedby each function. The Public Works director has provided thefollowing information for the current year:

Percentage of Building

Floor Space Used

GeneralGovernment 20%

PublicSafety 35

PublicWorks 22

Health andWelfare 10

Culture andRecreation 13

Total 100%

Required:[Para. 9-a] Record depreciation expense for theyear 2014 in the governmental activities general journal at thegovernment-wide level. Round all amounts to the nearest wholedollar. Verify accuracy of the adjusting entries and post to thegeneral ledger by clicking [Post Entries].

b. Although closing entries were made in each fund in Chapters 4through 7 of this cumulative problem, they have not yet beenrecorded at the government-wide level.

Required: ClosingEntries. Record the journal entries required on December31, 2014, to close all temporary accounts for governmentalactivities at the government-wide level. These entries should alsorecognize changes in the accounts Net PositionâNet Investment inCapital Assets, Net PositionâRestricted for Public Safety (seeGeneral Fund), Net PositionâRestricted for Capital Projects, andNet PositionâRestricted for Debt Service. (Note: Be sure todeduct accrued interest on long-term debt in calculating theDecember 31, 2014 balance of Net PositionâRestricted for DebtService.) For each account to be closed or reclassified,be sure and click on the check mark for [ClosingEntry] and that âClosing Entriesâ appears in the[Transaction Description] box. Post the closingentries to the general ledger by clicking on [PostEntries].

Please remember that beforeclosing the City of Smithville, you must click on [File],and [Save/Save As] to save your work. Your work is NOTautomatically saved.

Usethe exportable trial balances used in Chapters 2 through 7 of thisproblem and export the pre-closing trial balance and post-closingtrial balance for governmental activities to prepare allgovernment-wide and fund financial statements that the City ofSmithville must present for its basic financial statements to be inconformity with generally accepted accounting principles. (SeeIllustrations A2-1 through A2-11 of the Reck, Lowensohn, and Wilsontextbook for examples of these statements.) We recommend that youuse Excel to prepare these financial statements; however, yourinstructor may want you to do these manually. Since the Solid WasteDisposal Fund is the only fund in the proprietary funds category,you may reprint the statement of net assets; statement of revenues,expenses, and changes in net assets; and the statement of cashflows prepared for the Solid Waste Disposal Fund as the requiredstatements for the proprietary fund basic financial statements,with appropriate changes to the titles of the statements. Theinformation for the Solid Waste Disposal Fund can also be used tocomplete the Business-type Activities columns of thegovernment-wide financial statements.

(Notes: The City ofSmithville is a primary government and has no other organizationsfor which it is accountable as component units. Also, the FY 2015financial information for the Street Improvement Debt Service Fundis not included in any of the basic financial statements you arepreparing, as the statements you are preparing pertain only to FY2014.)

pucechimpanzee545

ACCG100 Lecture Notes - Lecture 6: Trial Balance, Retained Earnings, Capital Account

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