Chapter 4
Completing the
Accounting Cycle
Accounting, 21st Edition
Warren Reeve Fess
PowerPoint Presentation by Douglas Cloud
Professor Emeritus of Accounting
Pepperdine University
© Copyright 2004 South-Western, a division
of Thomson Learning. All rights reserved.
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Objectives
1. Review the seven basic steps of the accounting
cycle.
After studying this
2. Prepare a work
sheet.you should
chapter,
3. Prepare financial be
statements
able to: from a work sheet.
4. Prepare adjusting and closing entries from a
work sheet.
5. Explain what is meant by the fiscal year and the
natural business year.
6. Analyze and interpret the financial solvency of a
business by computing working capital and the
current ratio.
Seven Basic Steps of the
Accounting Cycle
1. Transactions are analyzed and recorded in the journal.
2. Transactions are posted to the ledger.
3. A trial balance is prepared, adjustment data are
assembled, and an optional work sheet is completed.
4. Financial statements are prepared.
5. Adjusting entries are journalized and posted.
6. Closing entries are journalized and posted.
7. A post-closing trial balance is prepared.
Assets are commonly divided into classes
and that two of these classes are current
assets and property, plant, and equipment.
That’s correct. Cash and other
assets that are expected to be
converted into cash, sold, or
used up usually in less than a
year are current assets.
For example?
Well… besides cash, there’s
notes receivable, accounts
receivable, supplies, and other
prepaid items.
There are some exceptions, but
that’s basically correct. Assets such
So,
assets
that
have
a
life
as office equipment, machinery,
over
a
year
are
listed
under
buildings, and land would appear
property,
plant,
and
under that heading.
equipment.
Liabilities due usually within one
year or less and that are to be paid
out of current assets are called
current liabilities.
 Accounts payable
 Wages payable
 Interest payable
 Unearned fees
Liabilities not due for
more than a year usually
are long-term liabilities.
Mortgage note
payable
Mortgage payable
Bond payable
The work sheet is a useful device
for understanding the flow of
accounting data from the
unadjusted trial balance to the
financial statements.
The Work Sheet
Trial Balance
Accounts
Dr
Cr
Adjustments
Adjusted TB
Dr
Dr
Cr
Cr
Prepared from the general ledger.
Accounts are listed in the following
order: assets, liabilities, owner’s
equity, revenues, and expenses.
The Work Sheet
Trial Balance
Accounts
Dr
Cr
Adjustments
Adjusted TB
Dr
Dr
Cr
Cr
Adjustments are entered here. Two
possibilities:
1. Deferrals – Existing balances are
changed.
2. Accruals – New information is
entered.
The Work Sheet
Trial Balance
Accounts
Dr
Cr
Adjustments
Adjusted TB
Dr
Dr
Cr
Cr
Adjustments are combined with
the trial balance. Account
balances are now adjusted.
NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Trial Balance
Account Title
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Miscellaneous Expense
Debit
Credit
Adjustments
Debit
Credit
Adjusted
Trial Balance
Debit
2,065
2,220
2,000
2,400
20,000
1,800
900
360
25,000
4,000
16,340
4,275
1,600
985
800
455
42,600
42,600
The Unadjusted
Trial Balance
Credit
(a) The Supplies account has a debit of
$2,000. A count of supplies at the end of
the period reveals that $760 is on hand.
Therefore, $1,240 in supplies was used
during the two-month period.
NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Trial Balance
Account Title
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Miscellaneous Expense
Debit
Credit
Adjustments
Debit
2,065
2,220
2,000
2,400
20,000
1,800
(a) 1,240
900
360
25,000
4,000
16,340
4,275
1,600
985
800
455
42,600
Credit
(a) 1,240
42,600
Adjusted
Trial Balance
Debit
Credit
(b)The Prepaid Insurance account has a
debit balance of $2,400, which
represents prepayment of insurance for
24 months beginning December 1.
Thus, the insurance expense for this
month is $100 ($2,400 ÷ 24).
NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Trial Balance
Account Title
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Miscellaneous Expense
Insurance Expense
Debit
Adjustments
Credit
Debit
2,065
2,220
2,000
2,400
20,000
1,800
(a) 1,240
(b) 100
900
360
25,000
4,000
16,340
4,275
1,600
985
800
455
42,600
Credit
(a) 1,240
42,600
(b) 100
Accounts are added as needed.
Adjusted
Trial Balance
Debit
Credit
(c) The Unearned Rent account has a credit
balance of $360, which represents the
receipt of three-months’ rent beginning
with December 1. Thus, the rent revenue
for December is $120.
FOR
RENT
NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Trial Balance
Account Title
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Miscellaneous Expense
Insurance Expense
Rent Revenue
Debit
Credit
Adjustments
Debit
2,065
2,220
2,000
2,400
20,000
1,800
Credit
(a) 1,240
(b) 100
900
360
25,000
(c) 120
4,000
16,340
4,275
1,600
985
800
455
42,600
(a) 1,240
42,600
(b) 100
(c) 120
Adjusted
Trial Balance
Debit
Credit
(d) Wages accrued but not paid at
the end of December total $250.
NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Trial Balance
Account Title
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Miscellaneous Expense
Insurance Expense
Rent Revenue
Wages Payable
Debit
Credit
Adjustments
Debit
2,065
2,220
2,000
2,400
20,000
1,800
Credit
(a) 1,240
(b) 100
900
360
25,000
(c) 120
4,000
16,340
4,275
1,600
985
800
455
42,600
(d)
250
(a) 1,240
42,600
(b) 100
(c) 120
(d) 250
Adjusted
Trial Balance
Debit
Credit
(e) Fees accrued at the end of
December, but not recorded, total
$500.
NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Trial Balance
Account Title
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Miscellaneous Expense
Insurance Expense
Rent Revenue
Wages Payable
Debit
Adjustments
Credit
2,065
2,220
2,000
2,400
20,000
1,800
Adjusted
Trial Balance
Debit
(e)
Credit
500
(a) 1,240
(b) 100
900
360
25,000
(c) 120
4,000
16,340
4,275
1,600
985
800
455
42,600
(e)
500
(d) 250
(a) 1,240
42,600
(b) 100
(c) 120
(d) 250
Debit
Credit
(f) Depreciation of the office
equipment is $50 for December.
NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Trial Balance
Account Title
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Miscellaneous Expense
Insurance Expense
Rent Revenue
Wages Payable
Depreciation Expense
Accum. Depreciation
Debit
Credit
2,065
2,220
2,000
2,400
20,000
1,800
Adjusted
Trial Balance
Adjustments
Debit
Credit
(e) 500
(a) 1,240
(b) 100
900
360
25,000
(c) 120
4,000
16,340
4,275
1,600
985
800
455
42,600
(e) 500
(d) 250
(a) 1,240
42,600
(b) 100
(c) 120
(d) 250
(f)
50
(f)
50
Debit
Credit
NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Adjustments
To make more
space,
Debit
Credit
Debit
Credit
2,065 let’s remove the
2,220
(e) 500
heading.(a) 1,240
2,000
Trial Balance
Account Title
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Miscellaneous Expense
Insurance Expense
Rent Revenue
Wages Payable
Depreciation Expense
Accum. Depreciation
2,400
20,000
1,800
(b) 100
900
360
25,000
(c) 120
4,000
16,340
4,275
1,600
985
800
455
42,600
(e) 500
(d) 250
(a) 1,240
42,600
(b) 100
(c) 120
(d) 250
(f)
50
(f)
50
Adjusted
Trial Balance
Debit
Credit
Trial Balance
Account Title
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Miscellaneous Expense
Insurance Expense
Rent Revenue
Wages Payable
Depreciation Expense
Accum. Depreciation
Debit
Credit
2,065
2,220
2,000
2,400
20,000
1,800
Adjustments
Debit
Credit
(e) 500
(a) 1,240
(b) 100
900
360
25,000
(c) 120
4,000
16,340
4,275
1,600
985
800
455
42,600
(e) 500
(d) 250
(a) 1,240
42,600
(b) 100
(c) 120
(d) 250
Summed
and
ruled
(f)
50
(f)
2,260
50
2,260
Adjusted
Trial Balance
Debit
31
Credit
Next, the unadjusted Trial
Balance columns and the
Adjustments columns are
combined to determine the
amounts displayed in the
Adjusted Trial Balance.
Trial Balance
Account Title
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Miscellaneous Expense
Insurance Expense
Rent Revenue
Wages Payable
Depreciation Expense
Accum. Depreciation
Debit
Credit
2,065
2,220
2,000
2,400
20,000
1,800
Adjustments
Debit
Credit
(e) 500
(a) 1,240
(b) 100
900
360
25,000
(c) 120
4,000
16,340
4,275
1,600
985
800
455
42,600
(e) 500
(d) 250
(a) 1,240
42,600
(b) 100
(c) 120
(d) 250
(f)
50
(f)
2,260
50
2,260
Adjusted
Trial Balance
Debit
33
Credit
Trial Balance
Account Title
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Miscellaneous Expense
Insurance Expense
Rent Revenue
Wages Payable
Depreciation Expense
Accum. Depreciation
Debit
Credit
2,065
2,220
2,000
2,400
20,000
1,800
Adjustments
Debit
Credit
(e) 500
(a) 1,240
(b) 100
900
360
25,000
Debit
34
Credit
2,065
2,720
760
2,300
20,000
1,800
900
240
25,000
(c) 120
4,000
4,000
16,340
4,275
1,600
985
800
455
42,600
Adjusted
Trial Balance
(e) 500
(d) 250
16,840
4,525
1,600
985
2,040
455
(a) 1,240
42,600
(b) 100
100
(c) 120
(d) 250
(f)
50
50
(f)
2,260
120
250
50
2,260
43,400
50
43,400
The Work Sheet
Adjusted TB
Accounts
Dr
Cr
Income State.
Dr
Cr
Balance Sheet
Dr
Cr
Revenue and expense balances in
the Adjusted Trial Balance column
are extended to the Income
Statement column.
The Work Sheet
Adjusted TB
Accounts
Dr
Cr
Income State.
Dr
Cr
Balance Sheet
Dr
Cr
Asset, liability, owner’s equity, and
drawing balances in the Adjusted
Trial Balance column are extended
to the Balance Sheet column.
To make room on the slides for
the Income statement and
Balance Sheet columns, the Trial
Balance and Adjustments
columns have been removed.
Adjusted
Trial Balance
Account Title
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Miscellaneous Expense
Insurance Expense
Rent Revenue
Wages Payable
Depreciation Expense
Accum. Depreciation
Debit
Income Statement
Credit
2,065
2,720
760
2,300
20,000
1,800
900
240
25,000
4,000
16,840
4,525
1,600
985
2,040
455
100
120
250
50
43,400
50
43,400
Debit
Credit
Balance Sheet
Debit
38
Credit
Now, let’s extend the balances
from the Adjusted Trial Balance
column.
Adjusted
Trial Balance
Account Title
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Miscellaneous Expense
Insurance Expense
Rent Revenue
Wages Payable
Depreciation Expense
Accum. Depreciation
Debit
40
Income Statement
Credit
Debit
Credit
2,065
2,720
760
2,300
20,000
1,800
Balance Sheet
Debit
2,065
2,720
760
2,300
20,000
1,800
900
240
25,000
900
240
25,000
4,000
4,000
16,840
16,840
4,525
1,600
985
2,040
455
4,525
1,600
985
2,040
455
100
100
120
250
50
43,400
Credit
120
250
50
50
43,400
50
These four
columns are
summed.
Adjusted
Trial Balance
Account Title
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Miscellaneous Expense
Insurance Expense
Rent Revenue
Wages Payable
Depreciation Expense
Accum. Depreciation
Debit
42
Income Statement
Credit
Debit
Credit
2,065
2,720
760
2,300
20,000
1,800
Balance Sheet
Debit
2,065
2,720
760
2,300
20,000
1,800
900
240
25,000
900
240
25,000
4,000
4,000
16,840
16,840
4,525
1,600
985
2,040
455
4,525
1,600
985
2,040
455
100
100
120
250
50
43,400
Credit
120
250
50
50
43,400
9,755
16,960
33,645
50
26,440
The difference between the
Income Statement column
totals is the net income (or net
loss) for the period.
The difference between the
Balance Sheet column totals is
also the income (or net loss)
for the period.
Income Statement
Balance Sheet
9,755 16,960 33,645
7,205
16,960 16,960 33,645
Net Income
26,440
7,205
33,645
Net Income
NetSolutions
Income Statement
For Two Months Ended December 31, 2005
Fees earned
Rent revenue
Total revenues
Expenses:
Wages expense
Supplies expense
Rent expense
Utilities expense
Insurance expense
Depreciation expense
Miscellaneous expense
Total expenses
Net income
$16,840
120
$16,960
$ 4,525
2,040
1,600
985
100
50
455
9,755
$ 7,205
Every amount on this income statement was taken from the
Income Statement column of the work sheet.
NetSolutions
Statement of Owner’s Equity
For the Two Months Ended December 31, 2005
Chris Clark, Capital, November 1, 2005
Investment on November 1, 2005
Net income for November and December
$
$25,000
7,205
$32,205
4,000
0
Less withdrawals
Increase in owner’s equity
28,205
Fromfrom
the$28,205
the
Chris Clark, Capital, December 31, 2005Either
Balance
Sheet
income
debit
column
of
statement
or the
thework
worksheet.
sheet.
NetSolutions
Balance Sheet
December 31, 2005
Assets
Liabilities
Current assets:
Current liabilities:
Cash
$ 2,065
Accounts payable
Accounts receivable
2,720
Wages payable
Supplies
760
Unearned rent
Prepaid insurance
2,300
Total liabilities
Total current assets $ 7,845
Property, plant, and
equipment:
Land
$20,000
Office equip. $1,800
Less accum.
depreciation
50 1,750
Owner’s Equity
Total property, plant
Chris Clark, Capital
and equipment
21,750 Total liabilities and
Total assets
$29,595
owner’s equity
$900
From the
250
240
Statement
$ 1,390
of Owner’s
Equity
28,205
$29,595
Adjusting and Closing Entries
Adjusting entries are recorded
in the journal at the end of the
accounting period.
Adjusting and Closing Entries
If a work sheet has been
prepared, the data for
these entries are in the
Adjustments columns.
The Closing Process
Income Summary
2
Expenses are
transferred to
Income Summary
3
1
Revenues are
transferred to
Income Summary
Net Income or Net Loss is
transferred to Owner’s Capital
OWNER’S CAPITAL
4
Drawings are transferred to
Owner’s Capital
Adjusting and Closing Entries
Income Summary
2
Expenses are
transferred to
Income Summary
1
Revenues are
transferred to
Income Summary
The
Summary
Net Income
Income or
Net Loss is
transferred
to Owner’s
account
does not
appearCapital
on
the financial statements.
3
OWNER’S CAPITAL
4
Drawings are transferred to
Owner’s Capital
The Closing Process
Fees Earned
Wages Expense
Bal.
Income Summary
4,525
Rent Expense
Bal.
Bal. 16,840
Rent Revenue
1,600
Bal.
120
Depreciation Expense
Bal.
50
Utilities Expense
Bal.
985
Chris Clark, Capital
Bal. 25,000
Supplies Expense
Bal.
2,040
Insurance Expense
Bal.
100
Chris Clark, Drawing
Miscellaneous Expense
Bal.
455
Bal.
4,000
Note: The
balances shown
are adjusted
balances before
closing. The
following
sequence
demonstrates the
closing process.
The Closing Process
Fees Earned
Wages Expense
Bal.
Income Summary
4,525
16,960
Rent Expense
Bal.
1,600
16,840 Bal. 16,840
Rent Revenue
120 Bal.
120
Depreciation Expense
Bal.
50
Utilities Expense
Bal.
985
Chris Clark, Capital
Bal. 25,000
Supplies Expense
Bal.
2,040
Insurance Expense
Bal.
100
Chris Clark, Drawing
Miscellaneous Expense
Bal.
455
Bal.
4,000
Debit each revenue
account for the
amount of its
balance, and credit
Income Summary
for the total
revenue.
The Closing Process
Fees Earned
Wages Expense
Bal.
4,525
Income Summary
4,525
9,775
Rent Expense
Bal.
1,600
16,960
1,600
16,840 Bal. 16,840
Rent Revenue
120 Bal.
120
Depreciation Expense
Bal.
50
50
Utilities Expense
Bal.
985
985
Chris Clark, Capital
Bal. 25,000
Supplies Expense
Bal.
2,040
2,040
Insurance Expense
Bal.
100
100
Miscellaneous Expense
Bal.
455
455
Chris Clark, Drawing
Bal.
4,000
Debit Income
Summary for the
total expenses and
credit each expense
account for its
balance.
The Closing Process
Fees Earned
Wages Expense
Bal.
4,525
Income Summary
4,525
9,775
7,205
Rent Expense
Bal.
1,600
1,600
16,960
16,840 Bal. 16,840
Rent Revenue
120 Bal.
120
Depreciation Expense
Bal.
50
50
Utilities Expense
Bal.
985
985
Chris Clark, Capital
Bal. 25,000
7,205
Supplies Expense
Bal.
2,040
2,040
Insurance Expense
Bal.
100
100
Miscellaneous Expense
Bal.
455
455
Chris Clark, Drawing
Bal.
4,000
Debit Income
Summary for the
amount of its
balance (in this
case, the net
income) and credit
the capital account.
The Closing Process
Fees Earned
Wages Expense
Bal.
4,525
Income Summary
4,525
9,775
Rent Expense
Bal.
1,600
16,960
7,205
1,600
16,840 Bal. 16,840
Rent Revenue
120 Bal.
120
Depreciation Expense
Bal.
50
50
Utilities Expense
Bal.
985
985
Chris Clark, Capital
4,000 Bal. 25,000
7,205
Supplies Expense
Bal.
2,040
2,040
Insurance Expense
Bal.
100
100
Miscellaneous Expense
Bal.
455
455
Chris Clark, Drawing
Bal.
4,000
4,000
Debit the capital
account for the
balance of the
drawing account,
and credit drawing
for the same
amount.
Review of the Closing Process
Fees Earned
Wages Expense
Bal.
4,525
Income Summary
4,525
4,525
9,775
7,205
Rent Expense
Bal.
1,600
1,600
1,600
16,960
16,960
16,480 Bal. 16,840
16,840
Rent Revenue
120 Bal.
120
120
Depreciation Expense
Bal.
50
50
50
Utilities Expense
Bal.
985
985
985
Chris Clark, Capital
4,000 Bal. 25,000
4,000
7,205
7,205
Supplies Expense
Bal.
2,040
2,040
2,040
Close Revenues
Close Expenses
Close Income Summary
Insurance Expense
Bal.
100
100
100
Miscellaneous Expense
Bal.
455
455
445
Close Drawing
Chris Clark, Drawing
Bal.
4,000
4,000
After the closing entries
are posted, all of the
temporary accounts have
zero balances.
Post-closing Trial Balance
NetSolutions
Post-Closing Trial Balance
December 31, 2005
Cash
2 065 00
Accounts Receivable
2 720 00
Supplies
760 00
Prepaid Insurance
2 300 00
Land
20 000 00
Office Equipment
1 800 00
Accumulated Depreciation
50 00
Accounts Payable
900 00
Wages Payable
250 00
Unearned Rent
240 00
Chris Clark, Capital
28 205 00
29 645 00 29 645 00
Financial Analysis for
NetSolutions
Working
Current
Current
–
=
Capital
Assets
Liabilities
Working
$7,845 – $1,390
=
Capital
Working
$6,455
=
Capital
Financial Analysis for
NetSolutions
Current
Ratio
Current
Ratio
Current
Ratio
Current
Current
= Assets ÷ Liabilities
= $7,845 ÷
=
5.6
$1,390
Financial Analysis for
NetSolutions
This ratio implies that
NetSolutions is able to pay its
current liabilities.
Financial Analysis for
NetSolutions
Current
ratio
Current
Current
= Assets ÷ Liabilities
Current
$7,845 ÷ $1,390
=
ratio
Current
5.6
=
ratio
Financial Analysis for
NetSolutions
NetSolutions can use the current ratio to
make comparisons across companies and
with industry averages.
Chapter 4
The End