Chapter 1-4 Review

All right so let’s go over chapters 1 through4 so whether this is for a midterm or a project coming up in your accounting 111. We’re going to be going through the entireaccounting cycle so we’re going to see all these transactions. Journalize them post them in the t account. Are trial balance. We’re going to bed. Journalize and post adjustingentries. Prepare an adjusted trial balance. Prepare all of our financial statements thatwe need.And then we will finish it up by journalizingand posting are closing entries. And preparing a post-closing. Trial balance. So if we get started here the review saysartichokes LLC began operations on July 1st. And so the very first transaction. Listed for us is our.. The owner invests $30,000 cash in the business. Artichokes LLC. So whenever an owner invests cash in the businessthe company will be getting cash so we need to affect the cash account. Party is getting. A piece of the business right so. Owners Capital also has to be effect. So since the company’s getting more cash wewill increase our cash with a debit.Does assets go up with debits so we debitor cash for $30,000. And then owners capital. Goes up with a credit so we will credit ownersKappa. $30,000 so whenever you see a transactiontalking about an owner investing money in a business. That’s the framework that we’re going to deal. The next transaction. On July 1st. Artichokes LLC signed an office space rental. Paying $6,000 for 6 months worth of rent. So if we were paying just for one single month. Then we be looking at. Rent expense. But if we’re paying for 6 months. In the future of France. That’s where prepaid rent comes into playthe prepaid rent is an asset.It is going up 6000. Evan how did we pay for this prepaid rent. We use cash. Right whatever it says that we paid somethingwe know that that means that cash is leaving the business right now. So cash is decreasing. $6,000 so weak Reddit. Ellen July 3rd. The company purchased $15,000 of equipment. Paying $5,000 in cash right now. And the remainder will be on account. So this is going to be what’s called a compoundentry there. Three different accounts that are being affectedhere so if we break this apart the company’s buying equipped. The pain for some of it in cash. How to make all the rest later on. To the company’s getting this $15,000 of equipmentequipment is an asset account. And so we wanted debit are equipped. For that fifteen. Then we look at how we paid for this equipped. So we paid 5000 in cash. So we wanted end up decreasing our cash wewant a credit or cash for that 5000.And then whenever we see that we owe moneylater money is or. We owe the remainder on account. That’s where accounts payable will come intoplay because we will be paying them the money. Later on. So we end up here crediting cash 5000. And crediting accounts payable which is aliability account. That ten. What’s important to notice here is that your. Equipment a 15,000. Equals the sum. Love your two credits right to whenever wehave a journal entry we always want to make sure the sum of the Dead. Equals the sum of the credits so 15000 equals5000 + 10000. So we move on to the next transaction hereon July 6th. We buy 5. $100 of supplies on account. There’s that on account again so. What is the company purchases. The company is purchasing. Supplies. And supplies is an asset account. And so we want our asset account to go up.So to make our asset account of supplies toincrease. We will debit supplies. Now how did we pay for the supplies tellsus that we bought them on account. So that’s telling us. Just like what happened with the equipment. In the last transaction that accounts payableis being affected here. So we end up crediting accounts payable. For that five hundred. Is the liability will be increasing. No more money so we want to increase thatliability account with a credit. Now hear on July 10th.The company received $10,000. From a customer. For future. Services. So here on July 10th. When they received $10,000 for future services. They are getting money right now. So. When the company is getting money. We want to show that. As cash being debited cuz the cash that theyhave is increased. We need to increase. That company’s cash. Now why did we receive this cash. So it says we received the. From a customer for future services. So if we received payment for future services. That tells us. That we are dealing with. Unearned service Revenue. There’s honor and service Revenue that’s aliability account. So we want to increase the unearned serviceRevenue by 10,000. And to do that we credit unearned servicerevenue for that $10,000 amount. I’m moving on to July 12th. Does Artie withdraws $1,000 cash. For personal use. So hard he’s taking money out of the businesswhenever the owner takes money out of the business for personal use. We call that owners drawings. Right though we will debit are owners drawingsfor this $1,000. What is already taken out of the business.Party is taking cash. Out of the business. The company’s cash is decreasing cuz we alwayswant to make sure that we’re looking at these transactions through the point of view ofthe company not of the owner. So the company is losing cashier. We want to credit our cash for that one thousand. Calendar 40. You performed Services were $3,000 and billedthe customer for the amount. If we. Our billing the customer that means the customeris going to be paying us later for all of these services. When that happens. What we call that is accounts receivable. So we will be receiving the money. Later on so its accounts receivable that’san asset account. So it is increasing. With this debit of three. Why do all these people follow us this $3,000. Well we perform services so whenever you seethat you performed a service.We call that service rep. Right so even though we aren’t getting paidright now. For these Services right these people aregoing to pay us later. We still need to count the service Revenue. When it has. And so we want to count this Revenue hereon July 4th. This $3,000 worth of work that we did. We count the revenue today. Now on July 18th. We paid employees a total of $2,000. So we are paying our employees salaries rightnow right so. Where we pay salaries. We can be thinking of expense accounts. Luckily we have an expense account. Call salaries expense and expenses go up withdebits so we will debit are salaries expense for this two. How are we paying our employees. But we’re going to use cash right we’re goingto write them a check or use. Cold Hard Cash either way we call it cash. So we will credit our cash. For $2,000. Now here on the 21st. Tells us that we received payment in fullfrom customers billed on July 4th. So back on July 14th We performed these Serviceswere $3,000 and we build these customers.A week later they’re paying us back. So. As artichokes LLC. We’re getting money we’re getting cash andwhenever we get cash we wanted debit or cash. So we debit or cash for that. Read thousandsdollar amount since that’s what. A week early. Now we also want to show in our books thatthese people don’t owe what’s this money anymore.So what we end up doing is we credit our accountsreceivable. Because. They now or wash $3,000 less. So we are decreasing.. Accounts receivable account. Buy this $3,000. I hear on the 28th. It says pay creditors. $2,000 for amount owed. So whenever you see paid creditors creditorsor just people that you owe money to. So you’re paying people that you owe $2,000. If we’re paying people money. We know that our cash has to decrease. So we talked about that before. Decrease cash with credit or cash. What account are we going to debit. So if we are paying these people back. That means we don’t owe them that money. And the account that we used to show whatwe owe other people is accounts payable.So we’re going to end up debiting accountspayable. Which decreases that liability account. Debit accounts payable mm. How do we show that our cash is also decreasing. So we credit cash. $2,000. Our last transaction here on July 30th. It says we’ve performed services for a customer. So we burned $12,000 in Revenue. Received $8,000 in cash. And the remainder is on a cow. So just like back on July 3rd when we boughtall that equipment. This is going to be another one of those compoundat 3. Right we have three different accounts thatare affected. Earned Revenue. Got cast. People owe us. If we are receiving cash. We know that our cash has to go. And to make our cash increase. We want to debit or cash of 8000 that’s theamount of cash that we got. Now the other two pieces here. Earned revenue of 12000. So if we look back on July 14th. Earned Revenue there we credited service rep. We’re going to want to end up crediting servicerevenue for 12,000. This problem as well. Let me have that middle piece talking aboutthe remainder on a cow.Well that remainder. People owe us money. People owe us money. We wanted debit accounts receivable. $4,000 here cuz that’s the amount that wason account. People will pay us down the road. Evan like I was saying we want to credit ourservice Revenue. So those are all of our journal entries forour. Now. Part B of this problem is to prepare a trialbalance. There’s. No wave. Just looking at these journal entries realfast you know what the balance is in all these accounts. What we need to do. Is we need to post these transactions. Into T accounts or into a Ledge. So we’re going to use. RT account. So what we want to do. Go through all of those journal entries thatwe met. And we want to post them into this t accountwhich is. Term used for just putting them into thisTheory. So over on the left side of a t account willbe your debit.Anytime you debit cash. You’ll put that number over on the. Last song. Credit go over on the right side so anytimeyou see a credit to cash. You put that number over on the right side. So if we go through this. We go transaction by transaction. The very first transaction that we did. Debited cash of $30,000. Put that thirty thousand over on the debitside. Then. In the next transaction. Credited cast. Call six.. So put that 6000 / on the credit side.If we keep working through we see on July3rd. Credited cash of $5,000. When we bought that. So we credit 5000 here in Artesia. July 10th. We received money. And so we’d. Debited our cash. Top ten thousand so we put that debit of 10,000. Nrt account. On the 12. Already took money out of the business sowe credited cash back in our journal entry. So we show the credit to cash. Next transaction that affected cash was whenwe. Paid employees. When we did that we credited cash of 2000. The next transaction we received money. And we ended up debiting cash of 3000. Then we paid people back on the 28th. And we credited cash mm once again. And then our very last. Transaction. We had a debit of 8000 to cash.So we now have. Party account filled out for cash. Once we fill out all of that is to figureout the balance. In that account. So what we want to do is want to add up. All of our debit. And add up all of our credit. We want to see okay which side has more. So if you add up. All of your. You should end up. With. 51000. Dollars. Right so we have 51,000 worth. Over on the debit side right now. Over on the credit side if you add up thosefive credits. You have sixteen. So we know the. There’s more over on the debit side rightnow. That means that our balance is going to beover on the debit side. Figure out what the balance. Take me to total amount of debits that wehave that 51,000 that we found. Add it up our for debit. And we subtract out all of our credit. So when you take 51000 – 16000. End up with a debit balance. We can then use t-accounts the reef to findthe balances of the rest of these accounts. Right so if you are watching this review backI would recommend pausing the video here and going through all of your.Transactions all of your journal entries andfinding the balances. Each of these following accounts. When we. Find the balances. You’ll find that accounts receivable endsup with a balance of. 4000. Supplies is 500. Prepaid rent 6000. Equipment fifteen. Accounts payable. 85. Unearned Revenue. 10000. Owners capital. 30000. Owners drawings 10,000. Service Revenue with 15,000. Salaries expense is two. We now have the balances in each of thoseaccounts. So the next step is to finally prepare thistrial balance. The Weeknd now prepare. Trial balance so trial balance is going tolist out. All of your accounts. And then those balances that we found on thelast slide. We’re going to list those out. As either a debit. Or as a credit balance. Depending on. That accounts normal balance. Or. Which side the balance ended up on when wewere. Using the t account. When we list out the accounts you’re on trialbalance. There’s a certain order that we want to listthem in we can’t just list them however we were. So we want to list them in the order.Expanded accounting equation. We’re going to list our assets. What are liabilities. NR capital. Hard drawings. Are revenues. What are expenses. So starting off with acetone. There’s another rule. How we list out our assets as well. Assets anytime you list out assets just getin the. Habit of listing them in order of liquidity. What that means is. How quickly. They can be turned into Cash. Or how quickly they can be used. Right so the most liquid asset is always goingto be cash.Until we found. Earlier cash had a debit balance of thirtyfive. After cast. Will list accounts receivable. Debit balance of 4000. Send supplies a debit balance of 500. Prepaid rent. A debit balance of six. Quit. A debit balance of fifteen. And those are all of our assets. Accounts receivable supplies and prepaid rentthose are all current assets those are things that we expect the use of. Within the year. Equipment equipment or things like a computeror a car. If a company buys equipment they don’t wantto use that up in a year and get rid of. Right so equipment buildings and land. Will fall under the category called propertyplant and equipment for a long-term asset. Those are always listed after your currentassets. Once we finish up all of our assets we canthen move on to liability. So are liabilities here accounts payable youcan notice now the balance for accounts payable is no longer in that debit column like allof her assets were. Accounts payable is a liability liabilitieshave credit balances. To the $8,500 balance for accounts payableis over in the credit side.Unearned service Revenue. What’s its $10,000 balance. And that’s all of our. Liability. So after our liability. We then want to list out. Equity accounts right and Equity gets brokenup into Capital drawings revenues and expenses. So we want to list out owners Capital hasa credit balance of thirty. When owners drawings has a debit balance of1000. Service Revenue. Credit balance of fifteen. And salaries expense a debit balance of two. What’s the doubt all of our accounts. So we’re almost done with a trial balancethere’s one more stuff that we need to do. I need to make sure that all of our debit.When you add them all up. Equals. The sum of all of our credit. Selfie ad. You debit and credit columns. Each of them should add up to 60 3500. So if that happens you are probably on theright track. It’s not. Definitive. But you at least know that you haven’t doneanything. Too terribly wrong so far. After preparing a trial balance.The Next Step here was to journalize and post. Adjustments. This is a chapter 3. Your text. So these are adjusting entries right there’sa couple rules that we can follow. When preparing adjusting entries first ofall we will never ever use cash. In adjusting entry. Our second guideline to follow here. We will either. Debit an expense. Or credit a revenue. Evan that remaining account in each. Adjusting entry. Has to be a balance sheet. We’ll go through these five adjustments thatwe have. And figure out. What these entries need to be. So these adjustments all of them are goingto be happening happening at the end of the month also so. Here on the 31st. March 1st adjusting entry.Says $150 of supplies were used in July. We used up supplies. Right so we want to decrease our suppliesaccount. And supplies is an asset. Decrease an asset we want to end up creditingsupplies. Which means that our debit has to be an expense. The expense that we’re going to use here. Is going to be. Supplies expense. Rights-of-way. Come through here you’ll see supplies expense. F-150. Evan crediting supplies. Our next entry. Employees are owed $1,800 and will be paidon August 2nd. Search July 31st now so we are not paydayyet so we owe them this much. So. We can think okay is it going to be an expenseor is it going to be a revenue are we making money because we are paying our employeesknow right so we’re looking at an expense.We have. Salaries expense. Account that we have already used in thisreview. Rights of will debit that salaries expense1800. Ellen we aren’t paying our employees rightnow. We are going to be paying them in a few days. So if you owe them money. We have to be thinking of a liability account. Accounts payable is what we use when we. Predator. But if we owe our employees their salarieswe have a special salaries payable account. You salaries payable here and credit that$1,800. Are third adjusting entry. Does the equipment has depreciated $125 thismonth.Right so when you buy. Car. Overtime that car is going to lose value. So we call that depreciate. So. Here we’re looking at another expense. So we’re going to call it depreciation expensewill debit or depreciation expense $125. And then we will. Bread. This new account for chapter 3. The Contra asset account so it’s going upwith this credit. Call accumulated depreciation. Right so it’s going to be a contra asset.And we will see you later on in this problemhow that affects. Are assets on a balance sheet. Our fourth adjusting entry year $8,000 ofunearned Revenue remains unearned. At the end of the. So we initially had $10,000 worth of unearnedservice rep. Now at the end of the month. $8,000. Remains on Earth. We can flip that around and say that we. Earned $2,000. So this transaction for this journal entry. Need to show. That we have earned $2,000 worth of rapper. We would want to. Make sure that we show in our books as wellthat we have $2,000 left. Unearned service rep. Do we want to decrease that liability Act. Decrease that liability account here withus.Debit of two. That then tells us that the account that wehave to credit here. We go back to those rules that we talked aboutat the star. This account has to end up being a revenueaccount. We will credit our service Revenue. 4. Do all we’re doing there as we’re moving that2000 out of our unearned service Revenue. Into. Are service Revenue. Elvis last adjusting entry. Says one month. Of the six. Happy 6-month rental agreement has expired. Right so back on July 1st the second journalentry that we did today. We signed an office space rental agreementand we paid $6,000. First 6 months of rent. Well July has now run. Reviews. One month of this rental. We have to show that we had less prepaid rentnow. So we would have to decrease our prepaid rentaccount. Which means we need to end up crediting prepaidrent. Which leaves the debit slot open for an expense. That expense. Rent expense right so we debit rent expense1000. Credit prepaid rent. 1000 cuz that is one. 6. Be $6,000 original rental agreement amount. So you’ll notice looking at these adjustingentries. Words are similar. Write supplies expense supplies.Salaries expense salaries payable depreciationdepreciation rent rent right so if you are getting stuck. Try to come up with some sort of expense accountthat just deals with what. The adjusting entry is talking about. Right that that’s always going to be. A crutch that you can. But you can use her. After. You. Prepared all of those adjusting entries. You then have to post. Because the next step here is an adjustedtrial balance. What we would have to do is we have to goback to those. T accounts that we met. For all of those. Original account. And figure out the changes that happen. In these adjusting entries. Right so we take a look at that first adjustingentry that we made. Art supplies decreased by 150. Right so we would want to. So when are T accounts will be credited supplies150. And since we originally had $500 worth ofsupplies. Our new adjusted balance. Is $350 the difference between. Directional 500. And this $150. So if you go through. Find each of those you’ll see your supplies.Should now be at 350. Your prepaid rent. Should now be down to 5000. We use up some of that prepaid. Your unearned service Revenue. Decreased that’s now down to eight thousand. Your service Revenue. Increase. Because we learned some service Revenue hereso that increased and should be now 17,000. Salaries expense. That’s not what 3800. And then you also noticed that there weresome accounts that you used here in your adjusting entries. But you hadn’t used in your original. Journal entry. And so supplies expense salaries payable depreciationexpense. Accumulated depreciation and rent expenseall of those will need new T accounts. The show that. They now exist. So now we can create. An adjusted trial balance. So in an adjusted trial balance. We want to now use. All of these new balances that we found afterour adjusting entry. We still want to listen amount in a similarorder as we did before right assets gophers. And we list out our Assets in order of liquidity. So the very first asset that’s going to belisted.That’s going to be cash. Right to work. List cash. Cash was not affected. In our adjusted adjusting entry. So it still has that $35,000. The next account. Going to be accounts receivable again. That was not affected. And so. That still has its. Supplies comes next. And supplies as where we see our first changein the number. For our adjusted trial balance versus ourtrial balance that we did earlier. So supplies now only has $350 worth in. So we list that 350 under the debit side. Then we have our prepaid rent.That’s now down to five thousand so we list5000 as its debit balance. We have equipped. Now equipment was not affected in are adjustingentries. The equipment appreciate it but that one endedto other accounts. So the equipment account. Only ever affected whenever you buy equipmentor whenever you sell equipped. When it’s depreciating we do not affect theequipment account directly. It gets affected indirectly. By the next account we want to list. Accumulated depreciation. Right to that account gets listed right underneaththe equipment account you’re on your adjusted trial balance. And it has a credit balance of 125. So now we can start listing out our liability. So we have accounts payable. That was still at 8500.Let me go to our unearned service Revenue. Remember that decreased by 2,000 so that hasits new balance of 8000 / on the credit side. And then we had this new liability top up. Are adjusting entries we had salaries payof. We want to show salaries payable here. Underneath our unearned service Revenue. And salaries payable has a credit balanceof $18. Those are our liability. Now we move on to the equity portion rightso our Capital drawings revenues and expenses. So we lost at our capital or owners Capitalhas not changed.I’d still just Thirty. Owners drawings comes next drawings have notchanged. Still at the. Gerard drawings comes are Revenue accounts. The revenue account that we use here withservice rep. Service Revenue. Increased and was now at 17,000. Is we earn that $2,000 worth. That’s our only revenue account. Then we start listing our expense account. So we had salaries expense which is now at3800.That’s over on the debit side. We had rent expense. Sorry that should say. 1000. Do we have a rent expense of $1,000. Supplies expense. $150. And depreciation expense. $125. So we’ve now listed out all of our. Just like we did in the. Initial trial balance that we met. We now need to total up all of our debit. And total up all of our credits. To make sure the. Two sides equal. So when you add up all of your debit. Add up all of your credits. Each side. Should equal. 65000. 425. And again. Just because they add up doesn’t mean thateverything was correct. But it means that you’re probably on the righttrack. Right so. If they didn’t equal then we’d have to goback and find a mistake. If they equal. We can just move on with our day and assumethat we did everything correctly.So after making an adjusted trial balance. We can then start preparing financial statements. Right so there’s. Four financial statements that you need toknow for this class. There’s the income statement. There’s the owner’s equity state. There’s the balance sheet those three you’regoing to need to know how to prepare. Fourth one a statement of cash flows. You just need to know that it exists. Out there that’s going to be something thatyou’ll learn. Later on. Your accounting classes. I listed out those financial statements ina certain order. Income statement owner’s equity statementbalance sheet. That’s because that’s the order that we’regoing to be. Preparing. Restatement. Right to the first statement you want to prepare. That’s going to be your income state.Now you’ll notice up at the top it has thecompany name. The statement that you are prepared. And for an income statement it’s going tosay. For the month ended July 31st. 22. Write this is just for July. So an income statement always going to befor the month ended for the year ended for the quarter ended depending on what. What you are preparing the statement for. What goes on an income state. Well the goal of an income statement is definedour net income right so we find our net income. My listing out our revenues. Busting out our expenses.Are Revenue accounts here in the Sprout. We only had one. Right we had service rep. So we can list service Revenue. And we can put that $17,000 we get from theadjusted trial balance right we’re taking all of our numbers from that adjusted trialbalance. Take that $17,000 we put it on the far rightside of the income statement here. The reason we do that is cuz we only haveone rabbit. If we had multiple Revenue. We would put that 17,000 more so in the middleand then we have to add up all of our Revenue. And show the total revenue. Over on the far right.Will see that now with the expenses rightcuz we have we have four different expensive. You can list out your expenses here. Greatest to least. So we had salaries expense. 3800 you can notice that that number is nowmore so in the middle. Compared to where we have that 17,000 forservice Revenue. After. Salaries expense rent expense of 1000. Supplies expense. A 150. Depreciation expense of 125. Right so now we’re going to want to add themup so we draw a line under knee. Those four. Can we list our total expenses which addsup to $5,075. Can we listen. That number along the far right-hand side.Send that way when someone’s looking at anincome state. They can look on the far right and see. Total revenues total expenses. And then the bottom line of the net income. We find our net income by doing revenues minusexpenses so we’ll take our seventeen. Subtract are 5075. Can we get a net income. 11000. $925. The reason that we did an income statementfirst. Is because we’re going to need that net incomeamount. To help us fill out this next state. The next statement we’re going. Make is an owner’s equity state. Once again. Owner’s equity statements are for a. Of timeright for the month ended in this case could be for the year ended for the quarter at. Four. Of time. Sup the very first line. Owner’s equity statement. Is going to be. You’re beginning tap.Our beginning Capital here. Is. At the very start of July. Right to tells us in the problem that artichokesLLC. Dan operations on July 1st. That means that. At 12:01 a.m. on July 1st. There wasn’t any money put in the business. The owners capital. At the very very beginning of July. Is 0. We can put that zero. Therefore our owners capital on July 1st. Then we go into. Add section. Are owner’s equity. There’s two different things that we can. Owner’s equity statement we can add Investments. And we can add net income. So in our problem. Already made in investment in the businessback on July 1st.So we show that investment of thirty. Once we list that out. We can take a look back at our income statementthat we met. According to that income state. We made a net income. 11th Hour. Right so then we list out this net income. 11925. Those are two pieces that we will put intothe ad Section 8 notice. They’re in the middle. Right because we’re going to have to do math. Do we draw the line. Add those two numbers up 30,000 and the 11000925 we Adam. Can we put that number over on the far right. That’s how we get that 41000 925. Then. We need to add up. That 41000 925. Add that. To our beginning Kappa. In this case our beginning Capital One Zero. So. We still end up with 41 925. I just know that we aren’t just bringing thatnumber down what we’re doing is we’re doing 0 + 41 925. Giving us that 41000 number once again. We’re done with the ad Porsche. The owner’s equity. Now we have this last portion right thingsthat we will speak subtract. There’s two different things that can be subtractedon an owner’s equity state.First of all we have owners drawings rightanytime that an owner takes money out of the business for personal use that’s going todecrease there at. The other piece is net loss. So if we would have had a net loss on ourincome statement mean. Our revenues were less than our expenses. That net loss would show up. You’re on the owner’s equity state. Thunder. In our case the only thing that will go underthe last. Is that $1,000 worth. Drawings that we met. Since we only had. One piece under this less category.That 1000 can go over on that far right handside in line. But that 41000 925. After we list out are less category. We can then. Calculator. Ending owners Kappa. Are owners capital on July 31st so at theend of the month. Are toners capital in this case was 40000925. We got that number by subtracting that. From the 41925 that we had a right above. That’s how much are T had. In his Capital account. After the first month of business. So after we. Finish up this owner’s equity statement wecan then move on to our. Financial statement. The balance. Now if you look at the top of your screenhere you’ll notice. It has artichokes LLC balance sheet. Evan just July 31st twenty.There is no for the month ended for the yearended. Just the date. A balance sheet is a snapshot in time. So a balance sheet will always just have aspecific date. Rather than the for the month ended examplesthat we saw on an income statement and owner’s equity stake. Do a balance sheet with a balance sheets goingto prove here is your accounting.Right to your accounting equation is assetsequals liabilities plus owners at. So we’re going to want to list out all ofour assets first. More listing at our assets like I said earlierwe always want to list them out. Order of liquidity. So we already have that order of liquidity. And and their balances from that adjustedtrial balance right so we’re going to reference that adjusted trial balance as we’re preparingthis balance. So the most liquid asset. Always cash. We list cash first. After cast. We have our accounts receivable. Rights we have this account receivable offour.Then we have supplies. Are $350. We have prepaid rent. Five. Here. This next account this is where things aregetting a little dipper. Will notice that that 15,000 now moved intothe mid. That’s because we had this accumulated depreciationon the equipment. So we’re going to have to do. Some calculations here. And whatever we have to do calculations weput those numbers in the middle. Right so we had $15,000 worth of equipment. $125 in the accumulated depreciation equipmentaccount.Which gives us. Book value. About 14,000 875. Right so that’s what the equipment is worthto us on our books. After its depreciate. A little. That’s all of our assets. And so. Once we list out all of her assets. We want to Total those up. So our total assets. Equal 59225. That’s the left side of your accounting equationright that’s the assets equals 4. The right side is liabilities and owner’sat. That’s what’s going to come next here on thisbalance. We don’t want to list out our liability.Playwright liability. And we have three different liability accounts. All right we had accounts payable. Eighty five hundred. We had unearned service Revenue. Eight. And we had salaries payable. One thousand eight hundred. When we have multiple liabilities like this. We want to also be able to show. Total liabilities. So we add up your accounts payable unearnedservice revenue and salaries payable amounts. End up with. 18300 for your total liabilities. Flower done with the liabilities part. So we can take a look at owner’s equity. So. Owner’s equity. I got knots a category. Right that’s just like liabilities are assets. Owner’s equity account that we’re going tobe list. Owners cap. We get our owners Capital balance. From the owner’s equity state. Right if we took that $30,000 initial balancethat we had. What are adjusted trial balance. Things wouldn’t add up here on the ballot. We’re going to want to make sure. That we take our owners Capital amount. From. Owner’s equity stake. Put that 40,000 925.They’re as the balance for owners Kappa. Now. We have to show that our accounting equation. Works out here right we have to show thatyour assets equal. Your liabilities and owner’s equity. So we need to add up some numbers. Total liabilities and owner’s equity. How do we get that we take that total liabilitiesamount. 18300. Can we add in the owners Capital amount. 40000 925. Giving us a total liabilities and owner’sequity. $59,225. You’ll notice. That’s the same number as our total assets. That is not a coincidence. Write this is one of those situations wherethey need to equal your total assets must equal your total liabilities and owner’s at. Now the good news if you’ve done everythingright up to this point.They’re going to eat. Right today. There shouldn’t be too much worried into makingsure that everything equal. It will happen if you done all the other stepscorrect. Your total assets equals your total liabilitiesand owner’s equity. You prepared a balance sheet. So you have now completed. The financial statements that you need tomake. Last couple steps here. Are all about closing entries. So we wrap up the accounting cycle with theseclosing entries. What we’re doing is we are trying to zeroout. Account balances. Right so we have some temporary accounts thatget zeroed out at the end of each. Accounts like Revenue accounts are temporary. Expense accounts are temporary. Owners drawings are temporary. All of those account balances need to be closed.So. How do we do that. Well we have four adjust for four closingentries. That we make. They got this is all at the end of them. The first closing entry. Is the clothes are Revenue accounts. So our service Revenue in this problem hada credit balance of Seventeen. In order to. Lowe’s service revenue or is zero out thataccount. We need to. 17004 service rep. So you do the opposite of whatever its currentbalance is. The service Revenue debited seventeen. Now there was his new account that poppedup. Whenever you’re doing these closing entriesand it’s only here for these closing entries. Lowe’s Revenue. 2 in account call. Income summary. So there’s this income summary account thatwe will use when we’re making our closing entries. Here we’re going to Credit Income summary. Seventeen. Your first closing entry. Is now complete. You have closed your revenues. To income summary. So we can now move on to. The next closing entry. The next closing entry that we’re going tohave to make. Is closing our expense accounts.And we close our expense account. Also to income summary. So expensive counts have a normal debit balance. Which means. To close those. We’re going to need two credits. All of our expense account. So we’ll skip a line. Debits always go first in journal entriesright so we’ll skip a line and we’ll start listing out all of our expenses as credits. It will list out salaries expense. Rent expense. Supplies expense. And depreciation expense rights we have thosefor.Listed out. Askreddit. I said earlier we close our expenses to incomesummary. So the account that we’re going to be debitinghere. Is income summary. 5075e. But you may remember that number. That’s our total expenses. Right so all we did to find that five thousandnumber. Was we added up. Are for expense accounts. In this journal entry. Right because going back to. A few of our rules for journal entries. Debits have to equal your credit. Credits in that closing entry added up to5075. So we needed to make sure that our debit equal.5075e. So those are the first two closing entries. The framework of those entries are going tobe consistent you will always debit your revenues. Credit Income summary. Debit income summary. Credit all of your expenses. This third closing entry. What we are doing is we are closing our incomesummary account. So what I would recommend. When. Working out these closing entries. Is create a t account. For income summer. Cuz we can see based off of these first twoentries we have a credit of Seventeen. And we have a debit of 5075 to our incomesummary account.So if you made a t-account you would be ableto tell the income summary. Right now has a credit balance of 11009 25. So to close out income summary. We have to do the opposite of whatever itsbalance currently is. Sound is currently a credit. So we need to debit income summary. 11009 25. Where do we close income summary to. Well we’re going to close income summary. Owners cap. So what’s import. The note here is that we are not closing ownersCapital owner’s capital is a permanent account. It is staying open. You are closing income summary. Income summary gets closed. Two owners cap. So it’s going to affect your owners Capitalbalance. But we get that 11,000 number by figuringout what the balance is in income summary after the first two closing entries. That’s that’s one two and three four closingentries we have one more closing entry that we need to do I mentioned earlier that ownersdrawings are a temporary account.The owners drawings need to be close to. Drawings have a normal debit balance. And so we need to do the opposite. To close it out here so the opposite of adebit or going to end up crediting owners drawings 1000. Where do we close owners drawings to. We closed them to owners Capital as well. So these are your four closing entries. I want to talk about the third and fourthones real quick here so. Third closing entry when we close income summaryyou may hear that or see that be called closing your net income. That 11925 that was our net income amount.If you credit owners capital. You are increasing. The balance. In owners Kappa. Net income. Is added. Do your capital on an owner’s equity. So what you are doing here is you are showingwhat happens on that owner’s equity statement. Journal entry for. You are adding your net income to your owner’scapital in that third closing entry. The fourth closing entry. You’re showing that owners drawings takesaway from your owners copy. So we are decreasing our owners Capital bythat.Which is exactly what we did back when weprepared in owner’s equity stake. Right so. 3rd and 4th closing entries just help showsome of what’s going on. The owner’s equity statement. But showing it in journal entry. So after we prepare all of these. Closing entries. We can then make. What’s called a post-closing trial balanceright so we’ve had just our regular trial balance from the very beginning. We had an adjusted trial balance after areadjusting entries. We have this post-closing trial balance. After our closing entries this is the finalstep. So a post-closing trial balance this is goingto show every single account that is still open. Right so it’s going to show the. Permanent accounts. Set a company has. So it’s going to show your assets. It’s going to show your liabilities. It’s going to show your owner’s capital.Remember we just closed out revenues so revenueshave a zero balance now expenses we close those out those have a zero balance. Drawings we closed our owners drawings outthat has a zero balance. It would be pointless to put a bunch of accountsthat have zero balances on a post-closing trial balance. So we just show. The accounts that are permanent that stillhave. We still want to listen out just like we didearlier right assets gophers. What’s that are cash thirty five. List out our accounts receivable four. We have our supplies of 350. Are prepaid rent a 5000. 15000. Accumulated depreciation equipment 125 andremember that’s a contra asset.It’s going over on the credit side. Then we start listing our liability. We have accounts payable of eighty five hundred. With unearned service revenue of 8000. Salaries payable. 1800. Then we get to our owners Capital amount. List owners Capital amount. We’re going to want to take from our owner’sequity statement. Or we could also. Find this amount. Osteen are closing entries into T accounts. Either way you end up with that same $40,925. Owners cap. So we have all of our debits we have all ofour credits. What do we want to do. Just like we did every other trial balancethat we prepare. We want to make sure. That our total debits equal our total credits. So that’s how you work through. Accounting cycle. All-in-one problem right we had. Journal entry. T accounts. Trial balances. Adjusting entries adjusted trial balance. All of our financial statements. And then are closing entries and post-closingtrial balance. Set the accounting side..

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