In this case you will complete the full accounting cycle for one month for a new company. To facilitate the end-of-month accounting and reporting process you will use a worksheet. The worksheet is a tool used to adjust account balances and prepare financial statements, however, the worksheet does not replace the financial statements. Preparation of a worksheet is covered in Appendix 3C on pages 3-46 through 3-49. The following is information concerning the company. Instructions are at the end of the case. At the start of the new business the company set up the following chart of accounts: 101 Cash 405 Commissions Earned 106 Accounts Receivable 410 Consulting Revenue 124 Office Supplies 612 Depreciation Expense—Computer Equip. 128 Prepaid Insurance 622 Salaries Expense 167 Computer Equipment 637 Insurance Expense 168 Accumulated Depreciation—Computer Equip. 640 Rent Expense 209 Salaries Payable 650 Office Supplies Expense 307 Common Stock 684 Repairs Expense 318 Retained Earnings 688 Telephone Expense 319 Dividends 901 Income Summary You may ADD additional accounts as necessary. Assign an account # based on the account classifications: Assets: 100– 199 Liabilities: 200-299 Equity: 300- 399 Revenues: 400-499 Expenses: 600-699 July 1, 2020, John Adams created a new travel agency, Adventure Travel. The following transactions occurred during the company’s first month. July 1 Adams invested $65,000 cash and computer equipment worth $27,000 in the company in exchange for common stock. July 2 The company rented furnished office space by paying $4,500 cash for the first month’s (July) rent. JULY 3 5 The company purchased $2,400 of office supplies for cash and debited the entire amount to an expense account. The company collected $14,150 cash for consulting services to be provided in the next four months. July 10 The company paid $3,330 cash for the premium on a 12-month insurance policy. Coverage begins on July 11. July 14 The company paid $2,200 cash for two weeks’ salaries earned by employees. July 24 The company collected $17,400 cash on commissions from airlines on tickets obtained for customers. July 28 The company paid $2,200 cash for two weeks’ salaries earned by employees. July 29 The company paid $540 cash for minor repairs to the company’s computer. July 30 The company paid $1,900 cash for this month’s telephone bill. July 30 The company paid $1,500 cash for dividends. End of Month Information (use for instructions 4 and 5): a. Two-thirds of one month’s insurance coverage has expired. b. At the end of the month, $1,350 of office supplies are still available. c One month’s depreciation on the computer equipment was recorded. The company uses straight-line method of depreciation, the computer is estimated to have 3 year useful life and no residual value. d. Employees earned $780 of unpaid and unrecorded salaries as of month-end. e. The company earned $1,200 of commissions that are not yet billed at month-end. f. The company has provided consulting services for $2,900 for customers who have paid in advance (July 5th transaction) Instructions: 1. Journalize July transactions in the provided General Journal; 2. Post July transactions to the provided ledger accounts (T-accounts), calculate and show the unadjusted balance of each account at the end of the month (unadjusted balances); 3. Prepare the unadjusted trial balance in the worksheet; 4. Record the adjusting entries in the worksheet; 5. Journalize July adjusting entries in the General Journal; 6. Post the adjusting entries to the ledger accounts and determine the adjusted balances; 7. Prepare the adjusted trial balance in the worksheet; 8. Complete the income statements and the balance sheet columns of the worksheet; 9. Prepare in good form the income statement, statement of retained earnings and classified balance sheet for the month ending July 31; 10. Journalize the closing entries in the General Journal; 11. Post the closing entries in the ledger accounts. 12. Prepare a post-closing trial balance in the provided template format. General Journal (Instructions 1, 5 & 10) Date Account Title Rf Debit Credit 7/1/2020 Cash $ 65,000 Computer Equipment $ 27,000 Common Stock $ 92,000 7/2/2020 Rent Expense $ 4,500 Cash $ 4,500 7/3/2020 Office Supplies $ 2,400 Cash $ 2,400 7/5/2020 Cash $ 14,150 Unearned consulting revenue $ 14,150 7/10/2020 Prepaid Insurance $ 3,330 Cash $ 3,330 12 Mnth Ins Policy 7/14/2020 Salaries expense $ 2,200 Cash $ 2,200
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
In this case you will complete the full accounting cycle for one month for a new company. To facilitate the end-of-month accounting and reporting process you will use a worksheet. The worksheet is a tool used to adjust account balances and prepare financial statements, however, the worksheet does not replace the financial statements. Preparation of a worksheet is covered in Appendix 3C on pages 3-46 through 3-49.
The following is information concerning the company.
Instructions are at the end of the case.
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At the start of the new business the company set up the following chart of accounts: |
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101 |
Cash |
405 |
Commissions Earned |
|
106 |
Accounts Receivable |
410 |
Consulting Revenue |
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124 |
Office Supplies |
612 |
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128 |
Prepaid Insurance |
622 |
Salaries Expense |
|
167 |
Computer Equipment |
637 |
Insurance Expense |
|
168 |
Accumulated Depreciation—Computer Equip. |
640 |
Rent Expense |
|
209 |
Salaries Payable |
650 |
Office Supplies Expense |
|
307 |
Common Stock |
684 |
Repairs Expense |
|
318 |
|
688 |
Telephone Expense |
|
319 |
Dividends |
901 |
Income Summary |
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You may ADD additional accounts as necessary. Assign an account # based on the account classifications: Revenues: 400-499 |
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July 1, 2020, John Adams created a new travel agency, Adventure Travel. The following transactions occurred during the company’s first month. |
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July |
1 |
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Adams invested $65,000 cash and computer equipment worth $27,000 in the company in exchange for common stock. |
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July |
2 |
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The company rented furnished office space by paying $4,500 cash for the first month’s (July) rent. |
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| JULY |
3
5 |
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The company purchased $2,400 of office supplies for cash and debited the entire amount to an expense account. The company collected $14,150 cash for consulting services to be provided in the next four months. |
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July |
10 |
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The company paid $3,330 cash for the premium on a 12-month insurance policy. Coverage begins on July 11. |
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July |
14 |
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The company paid $2,200 cash for two weeks’ salaries earned by employees. |
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July |
24 |
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The company collected $17,400 cash on commissions from airlines on tickets obtained for customers. |
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July |
28 |
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The company paid $2,200 cash for two weeks’ salaries earned by employees. |
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July |
29 |
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The company paid $540 cash for minor repairs to the company’s computer. |
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July |
30 |
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The company paid $1,900 cash for this month’s telephone bill. |
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July |
30 |
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The company paid $1,500 cash for dividends. |
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End of Month Information (use for instructions 4 and 5): |
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a. |
Two-thirds of one month’s insurance coverage has expired. |
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b. |
At the end of the month, $1,350 of office supplies are still available. |
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c |
One month’s depreciation on the computer equipment was recorded. The company uses straight-line method of depreciation, the computer is estimated to have 3 year useful life and no residual value. |
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d. |
Employees earned $780 of unpaid and unrecorded salaries as of month-end. |
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e. |
The company earned $1,200 of commissions that are not yet billed at month-end. |
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f. |
The company has provided consulting services for $2,900 for customers who have paid in advance (July 5th transaction) |
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Instructions: |
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1. Journalize July transactions in the provided General Journal; 2. Post July transactions to the provided ledger accounts (T-accounts), calculate and show the unadjusted balance of each account at the end of the month (unadjusted balances); 3. Prepare the unadjusted 4. Record the 5. Journalize July adjusting entries in the General Journal; 6. Post the adjusting entries to the ledger accounts and determine the adjusted balances; 7. Prepare the adjusted trial balance in the worksheet; 8. Complete the income statements and the balance sheet columns of the worksheet; 9. Prepare in good form the income statement, statement of retained earnings and classified balance sheet for the month ending July 31; 10. Journalize the closing entries in the General Journal; 11. 12. Prepare a post-closing trial balance in the provided template format. |
General Journal (Instructions 1, 5 & 10)
| Date | Account Title | Rf | Debit | Credit |
| 7/1/2020 | Cash | $ 65,000 | ||
|
Computer Equipment |
$ 27,000 | |||
| Common Stock | $ 92,000 | |||
| 7/2/2020 | Rent Expense | $ 4,500 | ||
| Cash | $ 4,500 | |||
| 7/3/2020 | Office Supplies | $ 2,400 | ||
| Cash | $ 2,400 | |||
| 7/5/2020 | Cash | $ 14,150 | ||
| Unearned consulting revenue | $ 14,150 | |||
| 7/10/2020 |
Prepaid Insurance |
$ 3,330 |
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| Cash |
|
$ 3,330 | ||
| 12 Mnth Ins Policy | ||||
| 7/14/2020 | Salaries expense | $ 2,200 | ||
| Cash | $ 2,200 | |||
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