Problem 17
Accounting Procedures
The accounting procedures that are to be followed are:
Recording the transactions in the journal by means of source documents
Post them in the special ledgers or in the general ledgers
Worksheet preparation
Preparation of trial balance
Taking into consideration adjustments
Recording them in the journal and post them in the ledger
Preparation of adjusted trial balance
Preparation of Income Summary
Preparation of Balance Sheet
Preparation of Closing trial balance
In the closing process all the temporary accounts would be closed by transferring
them to the income summary. Every year such accounts are to be started afresh.
The assets, liability and owner’s equity are permanent accounts that are being
continued from year to year. These accounts are also known as real accounts.
Explanations
1. The equipment has to be shown at the original cost in the asset side of the
balance sheet. The accumulated depreciation is the contra account generally
would be shown under the current liabilities. But to arrive at the net value of the
equipment, the accumulated depreciation is deducted from the original cost of
the asset.
2. The beginning inventory of office supplies is equal to 3
The ending inventory of the office supplies is equal to 1
Therefore the actual office supplies expense is equal to (3-1) = 2
Problem 17
30 points
Instructions:
Additional Data:
1. Complete the worksheet
2. Make adjusting and closing entries
a. Remaining Office Supplies $1
b. Depreciation expense not yet recorded $1
c. Salaries expense not yet recorded $3
Mid-Night Auto Supply
Work Sheet
as of December 31, 2012
Cash
Account Receivable
Trail Balance
Dr
Cr
1
2
Merchandise Inventory
Office Supplies
Equipment
5
3
9
Adjusted
Trial Balance
Dr
Cr
1
2
Adjustments
Dr
Cr
a)
2
b)
1
Income
Dr
5
1
9
Balance Sheet
Dr
Cr
1
2
5
1
9
Accumulated Depreciation
2
Accounts Payables
I. M. Honest, Capital
Sales
Sales Returns & Allowance
2
13
32
1
1
1
Sales Discount
2
2
2
Utility Expense
Freight Expense
7
1
7
1
7
1
Salaries Expense
Rent Expense
Advertising Expense
10
6
2
Total
49
Depreciation expense
supplies expense
Statement
Cr
3
3
2
13
32
2
13
32
c)
3
13
6
2
13
6
2
b)
a)
1
2
1
2
1
2
49
salary payable
c)
6
3
6
3
53
53
3
35
Net loss
35
32
21
3
18
3
35
21
21
Problem 17
B
Midnight Auto Supply
Income statement for the yeat ending December 31,2012
Accounting items
Sales Revenue less sales return and
allowances
Sales discount
Utility expense
Freight expense
Salaries expense
Rent expense
Advertisement expense
Depreciation expense
Supplies expense
Total expenses
Net loss
Debit
Credit
2
7
1
13
6
2
1
2
31
34
-3
Mid night Auto Supply
Owner's Equity Statement for the year ended December 31st, 2012
Beginning capital
I.M.Honest's capital
Less:Net loss
0
13
3
Less: Drawings
I.M.Honest's ending capital
10
0
10
Midnight Auto Supply
Balance Sheet as on December 31st, 2012
Assets
Current Assets
Cash
Accounts Receivables
Merchandise Inventory
Office supplies
Total Current Assets
Property, plant and equipment
Equipment
Less:Accumulated depreciation
Total Assets
Liabilities and Owner's Equity
Current Liabilities
Accounts payable
Salary payable
Total current liabilities
Owner's Equity
Owner's Capital
Total liabilities and Owner's equity
9
3
1
2
5
1
9
6
15
2
3
5
10
15
Notes:
The equipment has to be shown in the original cost.
But it will lose its value over the years and has to be replaced after
certain years. The depreciation is provided and it is accumulated
over the years to replace the assets.
Accumulated depreciation is the contra asset account , to be shown in
the liabilities side of the balance sheet.
But to show the net asset value, the accumulated depreciation has been
reduced from the original cost of the asset.
Problem 17 continued
C
Adjusting Entries
Date
Dec.31st
a
Dec.31st
b
Dec.31st
c
D
Particulars
Office supplies expenses
Office supplies
2
Depreciation expense
Accumulated depreciation
1
Salary expense
Salary payable
3
Closing Entries
Date
Particulars
Dec.31st, Sales Revenue
Income summary
Dec 31st. Income summary
Sales return and allowances
Sales discount
Utility expense
Freight expense
Salary expense
Rent expense
Advertisement expense
Depreciation expense
Supplies expense
Dec.31st
Debit
Owner's capital
Income summary
Debit
32
35
3
Credit
2
Notes The beginning office supplies inventory = 3
The ending office supplies inventory
=1
Therefore the office supplies expense
3-1 =2
1
3
Credit
32
1
2
7
1
13
6
2
1
2
3
Each individual account has to be closed as these are all
temporary accounts at the end of the year.