Unit5CompletionoftheAccountingCycleⅠ.AdjustingEntriesⅡ.ClosingEntriesⅢ.AdjustedTrialBalance21.AnalyzingtransactionsAccountingCycle2.Makingjournals3.Preparingledgers4.Trialbalance

5.Adjusting&closing6.Adjustedtrialbalance7.FinancialstatementAccountingCycle3Ⅰ.AdjustingEntriesAdjustingentriesarejournalentrieswhichareclassifiedaseitherprepaymentsoraccruals.Adjustingentriesareneededbecausetheyassignrevenuestotheperiodwhentheyareearnedandexpensestotheperiodwhentheyareincurred.Withadjustingentries,relatedassetandliabilityaccountsbalancesarecorrectedundertheconceptofaccrual-basis.4PrepaymentsPrepaidexpensesUnearnedrevenuesAdjustment

AccruedrevenuesAccruedexpenses

Accruals51.Prepayments:Prepaidexpenses:expensespaidincashandrecordedinassetsbeforetheyareusedorconsumed.Unearnedrevenues:cashreceivedasliabilitiesbeforerevenueisearned.2.Accruals:Accruedrevenues:revenuesearnedbutnotyetreceivedincashorrecorded.Accruedexpenses:expensesincurredbutnotyetpaidincashorrecorded.6TypeofadjustmentAccountsbeforeadjustmentAdjustingentryPrepaidexpensesAssetoverstatedExpensesunderstatedDr.ExpensesCr.AssetsUnearnedrevenuesLiabilitiesoverstatedRevenuesunderstatedDr.LiabilitiesCr.RevenuesAccruedrevenuesAssetsunderstatedRevenuesunderstatedDr.AssetsCr.RevenuesAccruedexpensesExpensesunderstatedLiabilitiesunderstatedDr.ExpensesCr.Liabilities71.PrepaidExpensesPaymentsofexpensesthatwillbenefitmorethanoneaccountingperiodarecalledprepaidexpenses.Commonprepaymentsareinsurance,taxes,rents,anddepreciation,etc.8AnassetaccountisincreasedtoshowthebenefitthatwillbereceivedinthefutureWhenexpensesarepaidAttheendofeachaccountingperiodApportionisneededtorecordtheexpensesthatoccurredinthecurrentperiod.9AdjustmentforprepaidexpensesAssets

ExpensesOverstatedBalanceAdjustingEntry(-)AdjustingEntry(+)10Example(1)PrepaidInsuranceTargetpaida$1,200fora3-monthinsurance.Dr.PrepaidInsurance1,200Cr.Cash1,200WhenexpensesarepaidAttheendofthemonthDr.InsuranceExpense400Cr.PrepaidInsurance40011Example(2)SuppliesTargetpurchasessuppliescosting$5,000.WhensuppliesarepurchasedBytheendofthemonth,acountoftheinventoryshowsthat$2,500ofthesupplieshasbeenusedup.Dr.Supplies5,000Cr.Cash5,000Dr.SuppliesExpense2,500Cr.Supplies2,500Attheendofthemonth12Example(3)DepreciationDepreciationisaspecialkindofprepayment.Itmeansthewearandtearonfixedassetsthathavelonglivesandwillserveforyearsinacompany,suchasbuildings,equipment,andmotorvehicles.Theperiodofserviceiscalledtheusefullifeorservicelifeoftheasset.Depreciationistheprocessofallocatingthecostofanassettoexpenseoveritsusefullife.AnaccountcalledAccumulatedDepreciationissetup,whichisadeductionoftheassetsaccountitoffsets.13Acompanybuysapieceofequipmentfor$1millionandexpectsittohaveausefullifefor10years.Example(3)DepreciationWhenequipmentarepurchasedDr.Equipment1,000,000Cr.Cash1,000,000AttheendoftheyearDr.DepreciationExpense100,000Cr.AccumulatedDepreciation100,000142.UnearnedRevenuesWhenpaymentisreceivedforservicestobeprovidedinafuturedate,aliabilityaccountcalledUnearnedRevenueisincreasedtorecognizetheobligationthatiscreated.Forexample:Rentreceivedinadvance15AdjustmentforunearnedrevenuesLiabilityRevenuesOverstatedBalanceAdjustingEntry(-)AdjustingEntry(+)16ExampleunearnedrevenuesSearsCorporationreceives$4,000forservicesinadvancesupposedtobecompletedin4month.Whenpaymentisreceived

Dr.Cash4,000Cr.UnearnedRevenue4,000Attheendofmonth

Dr.UnearnedRevenue1,000Cr.ServiceRevenue1,000173.AccruedRevenuesRevenuesearnedbutnotyetrecordedatthesettlementdatearecalledaccruedrevenues.Forexample:interestrevenue18AdjustmentforAccruedRevenuesAssetsRevenuesUnderstatedBalanceAdjustingEntry(+)AdjustingEntry(+)19ExampleSearsCorporationperformedserviceforrevenuefeefor$300whichwouldnotbereceiveduntillater.Whenrevenueisearned

Dr.AccountReceivable300Cr.ServiceRevenue300Whencashisreceived

Dr.Cash300Cr.AccountReceivable300204.AccruedExpensesExpensesincurredbutnotyetpaidorrecordedarecalledaccruedexpenses.Forexample:interest,taxesandsalaries21AdjustmentforaccruedexpensesExpensesLiabilitiesUnderstatedBalanceAdjustingEntry(+)AdjustingEntry(+)22Example(1)AccruedInterestSearsCorporationsignedathree-monthnotespayableintheamountof$10,000inOctober1.Thenoterequiresinterestatanannualrateof12%.Theamountofinterestaccumulationisdeterminedbythreefactors:Interest=FaceValueofNotexAnnualInterestRatexTimeinTermsofOneYear23Interestcostforamonth:$10,000x12%x1/12=$100Dr.InterestExpense100Cr.InterestPayable100Attheendofmonth

24Example(2)AccruedSalariesSearshasaccruedsalariestopayattheendofmonth$2,000.Adjustingentry:Dr.SalariesExpense2,000Cr.SalariesPayable2,00025Ⅱ.ClosingEntriesClosinginvolvesclosingtemporaryaccountsandtransferringthedatatoanaccountcalledIncomeSummary.IncomeSummaryisanon-financialstatementaccountusedonlytofacilitatetheclosingprocess.26Realaccounts/Permanentaccounts:

Theirbalancesarecarriedfromperiodtoperiod.Forexample:Asset,LiabilityandOwner’sequity.Nominalaccounts/Temporaryaccounts:

Attheendoftheaccountingyear,theirbalanceswillbetransferredtoIncomeSummary,ietobeclosed.Forexample:RevenueandExpense.271.Tocloserevenuesandexpensesintoincomesummary2.NowtheincomesummaryhasacreditbalancewhichwillbecarriedovertoRetainedEarning3.Toclosethedividend12328ExampleCurrentaccountsshowNationalCityhasthefollowingrevenuesandexpensesinformation:Revenues:$35,000,Expensesfortheperiod:salary$900,advertising$5,000,depreciation$5,000,interest$200,Dividendfortheperiod$1,000.291.Tocloserevenuesandexpensesintoincomesummary.Dr.Revenue35,000Cr.IncomeSummary35,000Dr.IncomeSummary11,100Cr.SalariesExpense900AdvertisingExpense5,000DepreciationExpense5,000InterestExpense200302.NowtheincomesummaryhasacreditbalancewhichwillbecarriedovertoRetainedEarnings.Dr.IncomeSummary23,900Cr.RetainedEarnings23,9003.Toclosethedividend.Dr.RetainedEarnings1,000Cr.Dividend1,00031Ⅲ.AdjustedTrialBalanceAdjustingtrialbalanceshouldbeinperfectbalancebasedonwhichfinancialstatementsareprepared.32AccountsTitleBalance

Cash7,050OfficesuppliesPrepaidrent8002,000Paid-inCapital10,000Withdrawals50Salesrevenue1,500Telephoneexpense100Salaryexpense1,500Total11,50011,500Balance

sheetIncomestatementSonyaPharmacy

TrialBalance

December31,200933CaseMissyRealEstatehasthefollowingtransactionsinformationinAugust,2007:1.OnAugust312007,thecompanyowed$900insalariestoitsemployeeswhichwillnotbepaidtillSeptember2007.2.OnAugust1,thecompanyborrowed$48,000fromthebankona10yearmortgage.Theannualinterestrateis10%.3.RevenuesearnedbutunrecordedforAugusttotaled$1,300.Requirements:Preparetheadjus