ACG-2021 Lecture Notes - Lecture 5: Trial Balance, Deferral, Retained Earnings

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harlequinchinchilla54

28 Apr 2017

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Lecture 5 the difference between the cost of a depreciable asset and its related accumulated depreciation cash-basis accounting. A company records revenue only when it receives cash, and an expense only when it pays cash closing entries. Entries at the end of an accounting period to transfer balances of temporary accounts to a permanent stockholders" equity account, retained earnings contra asset account. An account that is offset against an asset account on the balance sheet depreciation the process of allocating the cost of an asset to expense over its useful life fiscal year. An accounting period that is one year long income summary. A temporary account used in closing revenue and expense accounts matching principle the principle that dictates that companies match efforts (expenses) with accomplishments (revenues) permanent accounts. Balance sheet accounts whose balances are carried forward to the next accounting period post-closing trial balance.

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Account Tracking form provided:

Account Title -> copy the name of the accounts from the listbelow

Account Major Classification -> Asset (A), Liability (L),Ownerâs Equity (OE), Revenue (R) or Expense (E) or Not Applicable(NA)

Contra account -> place a check mark in this column if theitem is a contra account

Account Sub Classification -> only to be used with Asset andLiability accounts; Current Asset (CA); Property, Plant &Equipment (PPE); Current Liability (CL), Long-term Liability (LTL)or Not Applicable (NA)

Normal Balance -> debit (DR), credit (CR) or Not Applicable(NA)

Financial Statement-> Income Statement (IS), Statement ofOwnerâs Equity (SOE), Balance Sheet (BS) or Not Applicable (NA)

Temporary or Permanent -> T for temporary (nominal) accountsand P for permanent (real) accounts

Accounts Payable

Accounts Receivable

Accumulated Depreciation

Advertising Expense

Buildings

Cash

Depreciation Expense

Fees Earned

Income Summary

Insurance Expense

Interest Payable (due in 1 month)

Interest Receivable (due in 2 months)

Joey Bee, Capital

Joey Bee, Drawing

Land

Notes Payable (due in 3 years)

Notes Receivable (due in 2 months)

Office Equipment

Prepaid Insurance

Prepaid Rent

Rent Expense

Notes Payable (due in 2 months)

Store Equipment

Supplies

Supplies Expense

Taxes Payable (due in 4 months)

Unearned Fees

Unearned Rent

Unearned Revenue

Wages Payable

goldkangaroo10

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

In one (1) page or less, choose 5 financial accounting topicsthat weâve covered this semester and relate them to yourpersonal life or the real world(outside of accounting, or course). I have provided a listbelow to give you some ideas, but please feel free to think outsidethe box.

Income Statement

Balance Sheet

Statement of Cash Flows

Bank Reconciliation

Liabilities

Bonds

Notes

Assets

Equity

Chart of Accounts

Debits and Credits

Lower of Cost or Market

Bookkeeping

Payroll

Taxes

Inventory and Cost of Goods Sold

Depreciation

Accumulated Depreciation

Adjusting Entries

Journal Entries

General Ledger

Closing Entries

Receivables

Bad Debt Expense

Interest

Prepaid Expenses

Unearned Revenue

Sales

Sales Returns and Allowances

Sales Discounts

Inventory Valuation

FIFO â First in, First out

LIFO â Last in , First out

Specific Identification

Weighted Average

Sole Proprietorship

Corporation

Conservatism

Creditors

Equipment

T-Accounts

Net Income

Trial Balance

Temporary Accounts

Permanent Accounts

Audit report

Ratios

Debt-to-assets

Asset Turnover

Net Profit Margin

Sarbanes-Oxley Act

IFRS

Segregation of duties

Unqualified Opinion

ACG-2021 Lecture Notes - Lecture 5: Trial Balance, Deferral, Retained Earnings

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