Answer for Chapter4 Completing Accounting circle

1、Chapter 4 Completing Accounting CircleKEY TERMaccounting cycle The process that begins with analyzing and journalizing transactions and ends with the post-closing trial balance. clearing account Another name for the Income Summary account because it has the effect of clearing the revenue and expense

2、 accounts of their balances. closing entries The entries that transfer the balances of the revenue, expense, and drawing accounts to the owners capital account. closing process The transfer process of converting temporary account balances to zero by transferring the revenue and expense account balan

3、ces to Income Summary, transferring the Income Summary account balance to the owners capital account, and transferring the owners drawing account to the owners capital account. current assets Cash and other assets that are expected to be converted to cash or sold or used up, usually within one year

4、or less, through the normal operations of the business. current liabilities Liabilities that will be due within a short time (usually one year or less) and that are to be paid out of current assets. fiscal year The annual accounting period adopted by a business. fixed (plant) assets Assets that depr

5、eciate over time, such as equipment, machinery, and buildings. Income Summary An account to which the revenue and expense account balances are transferred at the end of a period. long-term liabilities Liabilities that usually will not be due for more than one year. natural business year A fiscal yea

6、r that ends when business activities have reached the lowest point in an annual operating cycle. notes receivable A customers written promise to pay an amount and possibly interest at an agreed-upon rate. real accounts Term for balance sheet accounts because they are relatively permanent and carried

7、 forward from year to year. temporary (nominal) accounts Accounts that report amounts for only one period. KEY POINT1. How to prepare the adjusting and closing entries from a work sheet?The data for journalizing the adjusting entries are in the Adjustments columns of the work sheet. The four entries

8、 required in closing the temporary accounts are: a. Debit each revenue account for the amount of its balance, and credit Income Summary for the total revenue.b. Debit Income Summary for the total expenses, and credit each expense account for the amount of its balance.c. Debit Income Summary for the

9、amount of its balance (net income), and credit the capital account for the same amount. (Debit and credit are reversed if there is a net loss.)d. Debit the capital account for the balance of the drawing account, and credit the drawing account for the same amount.After the closing entries have been p

10、osted to the ledger, the balance in the capital account will agree with the amount reported on the statement of owners equity and balance sheet. In addition, the revenue, expense, and drawing accounts will have zero balances.The last step of the accounting cycle is to prepare a post-closing trial ba

11、lance. The purpose of the post-closing trial balance is to make sure that the ledger is in balance at the beginning of the next period. 2. What is the seven basic steps of the accounting cycle?The basic steps of the accounting cycle are:a. Transactions are analyzed and recorded in a journal.b. Trans

12、actions are posted to the ledger.c. A trial balance is prepared, adjustment data are assembled, and the work sheet is completed.d. Financial statements are preparede. Adjusting entries are journalized and posted to the ledger.f. Closing entries are journalized and posted to the ledger.g. A post-clos

13、ing trial balance is prepared.3. How to analyze and interpret the financial solvency of a business by computing working capital and the current ratio?The ability of a business to pay its debts is called solvency. Two financial measures for evaluating a businesss short-term solvency are working capit

14、al and the current ratio. Working capital is the excess of the current assets of a business over its current liabilities. The current ratio is computed by dividing current assets by current liabilities.QUESTIONThe trial balance of Clay Employment Services at December 31, 2009, follows,Clay Employmen

15、t ServiceTrial Balance December 31, 2009Account TitleDebit Bal ($)Credit Bal ($)Cash6,000Accounts receivable5,000Supplies1,000Furniture10,000Accumulated depreciation-furniture4,000Building50,000Accumulated Depreciation-building30,000Accounts payable2,000Salary payableUnearned service revenue8,000Jay

16、 Clay, capital12,000Jay Clay, withdrawals25,000Service revenue60,000Salary expense16,000Supplies expenseDepreciation expense-furnitureDepreciation expense-buildingMiscellaneous expense3,000Total116,000116,000Data needed for the adjusting entries include:a. Supplies on hand at year-end, $200b. Deprec

17、iation on furniture, $2,000c. Depreciation on building, $1,000d. Salaries owed but not yet paid, $500e. Accrued service revenue, $1,300f. $3,000 of the unearned service revenue was earned during 2009Requirements1. Journalize and post the adjusting entries.2. Journalize and post the closing entries.3

18、. Prepare the income statement for the year ended December 31, 2009.4. Prepare the statement of owners equity for the year ended December 31, 2009.5. Prepare the classified balance sheet at December 31, 2009.Requirement 1Adjusting EntriesaDec. 31Supplies Expense800 Supplies800bDec. 31Depreciation Ex

19、pense-Furniture2,000 Accumulated Depreciation Furniture2,000c31Depreciation Expense-Building1,000Accumulated Depreciation-Building1,000d31Salary Expense500Salary Payable500e31Accounts Receivable1,300 Service Revenue1,300f31Unearned Service Revenue3,000 Service Revenue3,000Accounts Receivable Supplie

20、s 5,000 (c) 1,300Bal. 6,3001,000(a) 800 Bal. 200 Unearned Service(d) 500 Bal. 500 Salary payable Revenue (f) 3,000(a) 8,000 Bal. 5,000Accumulated Accumulated Depreciation-Furniture Depreciation-Building 4,000 (b) 2,000Bal. 6,000 30,000 (c) 1,000Bal. 31,000Service Revenue60,000(e) 1,300(f) 3,000Bal.

21、64,300Requirement 2Closing Entries1Dec. 31Service Revenue64,300Income Summary64,3002Dec. 31Income Summary23,300 Salary Expense16,500Supplies Expense800Accumulated Depreciation-Furniture2,000Accumulated Depreciation-Building1,000Miscellaneous Expense3,000331Income Summary(64,300-23,300)41,000 Jay, Cl

22、ay, Capital41,000431Jay Clay, Capital25,000 Jay Clay, Withdrawals25,000Salary Expense Service Revenue16,000(d) 500Bal. 16,500(2) 16,50060,000(e) 1,300(f) 3,000(1) 64,300Bal. 64,300 Supplies Expense (a) 800Bal. 800(2) 800Income Summary(2) 23,300(1) 64,300(3) 41,000Bal. 41,000Requirement 3CLAY EMPLOYMENT SERVICESIncome StatementYear Ended December 31,2009Revenue: Service revenueExpenses: Salary expense Depreciation expense-furniture Depreciation expense-building Supplies expense Miscellaneous expense Total expensesNet income$16,500 2,0001,0008003,000$64,300 23,300$41,000 Requireme