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									                              Chapter 4



    Completing the Accounting
             Cycle
        Illustrated Solution for Problem 4-12:
    Unifying Concepts: Analysis of Accounts


Ch. 04 Illustrated Solution   Previous    Next   Slide 1 of 15
        Account Balances at 12/31/03
           Account            Balance           Account          Balance
     Cash                      122,000    Accounts Receivable      98,000
     Furniture (net)             80,000   Inventory               320,000
     Accounts Payable          240,000    Notes Payable           500,000
     Land                      520,000    Supplies on Hand         20,000
     Buildings (net)           480,000    Capital Stock           600,000
     Sales Revenue             830,000    Dividends                40,000
     Salaries Expense          100,000    Retained Earnings             ?
     Cost of Goods Sold        440,000




Ch. 04 Illustrated Solution    Previous          Next     Slide 2 of 15
               Account Classifications
           Account            Balance           Account         Balance
  A   Cash                     122,000 A Accounts Receivable      98,000
  A   Furniture (net)            80,000 A Inventory              320,000
  L   Accounts Payable         240,000 L Notes Payable           500,000
  A   Land                     520,000 A Supplies on Hand         20,000
  A   Buildings (net)          480,000 OE Capital Stock          600,000
  R   Sales Revenue            830,000 OE Dividends               40,000
  E   Salaries Expense         100,000 OE Retained Earnings            ?
  E   Cost of Goods Sold       440,000
  A    =   Asset
  L    =   Liability
  OE   =   Owners’ Equity
  R    =   Revenue
  E    =   Expense

Ch. 04 Illustrated Solution    Previous          Next    Slide 3 of 15
               Total Assets at 12/31/03

        1. Total assets at 12/31/03:

            Cash                          $   122,000
            Accounts Receivable                98,000
            Inventory                         320,000
            Supplies on Hand                   20,000
            Furniture (net)                    80,000
            Buildings (net)                   480,000
            Land                              520,000
              Total assets                $ 1,640,000


Ch. 04 Illustrated Solution   Previous   Next   Slide 4 of 15
               Net Income for the Year

     2. Net Income for year ended 12/31/03:


          Sales Revenues                        $ 830,000
          Less: Cost of Goods Sold               (440,000)
                     Salaries Expense            (100,000)
          Net Income                            $ 290,000



Ch. 04 Illustrated Solution   Previous   Next     Slide 5 of 15
                  The Closing Process

           Revenues                       Retained Earnings
           xxx      Bal. xxx                         Beg. Bal. xxx
                                                     Revenues



      Since the revenues account
      is a nominal account, it is
      closed at the end of the
      period to Retained Earnings.

Ch. 04 Illustrated Solution    Previous       Next    Slide 6 of 15
                  The Closing Process

  The expenses account                     Retained Earnings
  is also a nominal
                                                      Beg. Bal. xxx
  account and is debited
                                           Expenses   Revenues
  to Retained Earnings
  to close it.

                 Expenses
           Bal. xxx           xxx


Ch. 04 Illustrated Solution     Previous       Next    Slide 7 of 15
                  The Closing Process

  The dividends                           Retained Earnings
  account, which is also
                                                     Beg. Bal. xxx
  nominal, is credited to
                                         Expenses    Revenues
  close out the balance.
                                         Dividends



                                              Dividends
                                          Bal. xxx    xxx


Ch. 04 Illustrated Solution   Previous        Next    Slide 8 of 15
                  The Closing Process

  Retained Earnings                       Retained Earnings
  is a real account
                                                     Beg. Bal. xxx
  and always carries
                                         Expenses    Revenues
  a balance.
                                         Dividends
                                                     End. Bal. xxx
       Net income for the
       period is determined
       by these two entries.

Ch. 04 Illustrated Solution   Previous        Next    Slide 9 of 15
        Retained Earnings at 12/31/03
         Since a beginning Retained Earnings balance is not
        known, the amount of ending Retained Earnings must
        be computed by using the basic accounting equation:
                Assets = Liabilities + Owners’ Equity




Ch. 04 Illustrated Solution   Previous    Next   Slide 10 of 15
        Retained Earnings at 12/31/03
         Since a beginning Retained Earnings balance is not
        known, the amount of ending Retained Earnings must
        be computed by using the basic accounting equation:
                Assets = Liabilities + Owners’ Equity

     Total Assets ($1,640,000) = Total Liabilities ($240,000 +
        $500,000) + Owners’ Equity (?).




Ch. 04 Illustrated Solution   Previous    Next   Slide 11 of 15
        Retained Earnings at 12/31/03
         Since a beginning Retained Earnings balance is not
        known, the amount of ending Retained Earnings must
        be computed by using the basic accounting equation:
                Assets = Liabilities + Owners’ Equity

     Total Assets ($1,640,000) = Total Liabilities ($240,000 +
        $500,000) + Owners’ Equity (?).
     Therefore, Owners’ Equity at 12/31/03 = $900,000




Ch. 04 Illustrated Solution   Previous    Next   Slide 12 of 15
        Retained Earnings at 12/31/03
         Since a beginning Retained Earnings balance is not
        known, the amount of ending Retained Earnings must
        be computed by using the basic accounting equation:
                Assets = Liabilities + Owners’ Equity

     Total Assets ($1,640,000) = Total Liabilities ($240,000 +
        $500,000) + Owners’ Equity (?).
     Therefore, Owners’ Equity at 12/31/03 = $900,000

     Owners’ Equity ($900,000) = Capital Stock ($600,000) +
       Retained Earnings (?)



Ch. 04 Illustrated Solution   Previous    Next   Slide 13 of 15
        Retained Earnings at 12/31/03
         Since a beginning Retained Earnings balance is not
        known, the amount of ending Retained Earnings must
        be computed by using the basic accounting equation:
                Assets = Liabilities + Owners’ Equity

     Total Assets ($1,640,000) = Total Liabilities ($240,000 +
        $500,000) + Owners’ Equity (?).
     Therefore, Owners’ Equity at 12/31/03 = $900,000

     Owners’ Equity ($900,000) = Capital Stock ($600,000) +
       Retained Earnings (?)

     Therefore, Retained Earnings at 12/31/03 = $300,000

Ch. 04 Illustrated Solution   Previous    Next   Slide 14 of 15
        Retained Earnings at 01/01/03
      If ending Retained Earnings is $300,000 and net
      income for the period is $290,000, with $40,000
      of Dividends, then beginning Retained Earnings
      must be $50,000.

                         Retained Earnings
                                     Beg. bal.  X = 50,000
        Dividends             40,000 Net income    290,000
                                     End. bal.     300,000



Ch. 04 Illustrated Solution     Previous     Next   Slide 15 of 15

								
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