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Accounting Cycle: Journalizing and Posting Adjustments, Study notes of Accounting

An example of adjusting journal entries and their impact on the accounting equation. It includes adjustments for office supplies, rent, and amortization expenses. The document also explains the process of transferring balances to Capital accounts.

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THE BIG PICTURE
Accountants have come a long way from the old
stereotype of “bean counter”—a pale figure with
a green eyeshade who tends cloth-bound ledgers and
journals in a back room. In fact, today’s accountants
are more likely to be working from home, perhaps
overlooking the Pacific Ocean while they serve clients
in other provinces via the Internet. At least that’s what
life is like for Lance and Deanna Gildea, founders
of TAD, an online (or “virtual”) accounting service.
TAD accomplishes the entire accounting cycle
using the accounting software of the client’s choice.
For the first step of the accounting cycle, which you
learned in Chapter 3, TAD gets clients to scan their in-
voices, bank statements, and other source documents
into their computer. TAD even provides the scanner
free of charge to high-end clients. Scanned docu-
ments are then transmitted to TAD, and within min-
utes TAD updates the client’s accounts. One of the big
benefits of using TAD is that clients get real-time, 24-
hour access to their accounting data. They simply
use a Web browser to sign in to their home page
(prepared by TAD), where they can view, print, and
download reports, cheques, and other information.
In addition to forming full-service outsourcing
operations like TAD, accountants are morphing into
accounting software consultants. Harried entrepre-
neurs or CEOs of small to mid-size companies often
don’t know how to do more than boot up their
Simply or Peachtree accounting software. They don’t
have time to learn how to use it, much less use it
correctly. Many also can’t afford to pay a full-time
accountant to do their books. Enter the new account-
ing software consultant. These accountants are form-
ing different kinds of relationships with clients, even
to the extent of teaching them what has historically
been the job of the accountant. For instance, Brian
Price of Price and Associates has built a $600,000
business by consulting on low-end or small-business
accounting software. The typical client for a busi-
ness like Price’s could be anyone from the mom-and-
pop business bringing in $100,000–200,000 a year
to a $2-million services firm.
Whether you end up being an online accoun-
tant or an accounting software consultant, you still
need a thorough grounding in accounting basics.
After all, in order to teach your clients how to do
their books, as Brian Price does, you must be knowl-
edgeable enough to explain each process clearly. In
this chapter, as you learn how to complete the ac-
counting cycle and close the books, think how you
would explain the process to a client. How will you
explain the process of posting adjusting and closing
entries and preparing a post-closing trial balance?
Sources: Based on Antoinette Alexander, “Pioneers on the
virtual frontier,Accounting Technology, Jan/Feb 2000,
pp. 18–24; Jeff Stimpson, “The new consultant,The Practical
Accountant, September 1999, pp. 325–42; Antoinette
Alexander, “The Web: Giving life to a new generation,”
Accounting Technology, March 2000, pp. 26–34.
ADJUSTING, CLOSING, AND POST-CLOSING TRIAL BALANCE
5
The Accounting
Cycle Completed
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T H E B I G P I C T U R E

A

ccountants have come a long way from the old

stereotype of “bean counter”—a pale figure with

a green eyeshade who tends cloth-bound ledgers and

journals in a back room. In fact, today’s accountants

are more likely to be working from home, perhaps

overlooking the Pacific Ocean while they serve clients

in other provinces via the Internet. At least that’s what

life is like for Lance and Deanna Gildea, founders

of TAD, an online (or “virtual”) accounting service.

TAD accomplishes the entire accounting cycle

using the accounting software of the client’s choice.

For the first step of the accounting cycle, which you

learned in Chapter 3, TAD gets clients to scan their in-

voices, bank statements, and other source documents

into their computer. TAD even provides the scanner

free of charge to high-end clients. Scanned docu-

ments are then transmitted to TAD, and within min-

utes TAD updates the client’s accounts. One of the big

benefits of using TAD is that clients get real-time, 24-

hour access to their accounting data. They simply

use a Web browser to sign in to their home page

(prepared by TAD), where they can view, print, and

download reports, cheques, and other information.

In addition to forming full-service outsourcing

operations like TAD, accountants are morphing into

accounting software consultants. Harried entrepre-

neurs or CEOs of small to mid-size companies often

don’t know how to do more than boot up their

Simply or Peachtree accounting software. They don’t

have time to learn how to use it, much less use it

correctly. Many also can’t afford to pay a full-time

accountant to do their books. Enter the new account-

ing software consultant. These accountants are form-

ing different kinds of relationships with clients, even

to the extent of teaching them what has historically

been the job of the accountant. For instance, Brian

Price of Price and Associates has built a $600,

business by consulting on low-end or small-business

accounting software. The typical client for a busi-

ness like Price’s could be anyone from the mom-and-

pop business bringing in $100,000–200,000 a year

to a $2-million services firm.

Whether you end up being an online accoun-

tant or an accounting software consultant, you still

need a thorough grounding in accounting basics.

After all, in order to teach your clients how to do

their books, as Brian Price does, you must be knowl-

edgeable enough to explain each process clearly. In

this chapter, as you learn how to complete the ac-

counting cycle and close the books, think how you

would explain the process to a client. How will you

explain the process of posting adjusting and closing

entries and preparing a post-closing trial balance?

Sources: Based on Antoinette Alexander, “Pioneers on the virtual frontier,” Accounting Technology , Jan/Feb 2000, pp. 18–24; Jeff Stimpson, “The new consultant,” The Practical Accountant , September 1999, pp. 325–42; Antoinette Alexander, “The Web: Giving life to a new generation,” Accounting Technology , March 2000, pp. 26–34.

ADJUSTING , C LOSING , AND POST-C LOSING TRIAL BALANCE

The Accounting

Cycle Completed

Chapter

Objectives

170 CHAPTER 5

◆ Journalizing and posting adjusting entries (p. 170)

◆ Journalizing and posting closing entries (p. 174)

◆ Preparing a post-closing trial balance (p. 184)

Remember, for ease of presentation we are using a month as the accounting cycle for Clark’s. In the business world, the cycle can be any time period, but is usually one year.

Purpose of adjusting entries.

At this point, many ledger accounts are not up to date.

I

n Chapters 3 and 4 we completed these steps of the manual accounting cycle for

Clark’s Desktop Publishing Services:

Step 1: Business transactions occurred and generated source documents.

Step 2: Business transactions were analyzed and recorded in a journal.

Step 3: Information was posted or transferred from journal to ledger.

Step 4: A trial balance was prepared.

Step 5: A worksheet was completed.

Step 6: Financial statements were prepared.

This chapter covers the following steps, which will complete Clark’s accounting

cycle for the month of May:

Step 7: Journalizing and posting adjusting entries

Step 8: Journalizing and posting closing entries

Step 9: Preparing a post-closing trial balance

RECORDING JOURNAL ENTRIES FROM THE WORKSHEET

The information in the worksheet is up to date. The financial reports prepared from

that information can give the business’s management and other interested parties

a good idea of where the business stands as of a particular date. The problem is

that the worksheet is an informal report. The information concerning the adjust-

ments has not been placed in the journal, or posted to the ledger accounts. This

means that the books are not up to date and ready for the next accounting cycle to

begin. For example, the ledger shows $1,200 of prepaid rent (page 94), but the bal-

ance sheet we prepared in Chapter 4 shows an $800 balance. Essentially, the work-

sheet is a tool for preparing financial reports. Now we must use the adjustment

columns of the worksheet as a basis for bringing the ledger up to date. We do this

by adjusting journal entries (see Figure 5-1). Again, the updating must be done be-

fore the next accounting period starts. For Clark’s Desktop Publishing Services,

the next period begins on June 1.

Figure 5-1 shows the adjusting journal entries for Clark’s taken from the ad-

justments section of the worksheet (see Figure 5-2). Once the adjusting journal en-

tries are posted to the ledger, the accounts making up the financial statements that

were prepared from the worksheet will correspond with the updated ledger. (Keep

in mind that this is the same journal we have been using.) Let’s look at some simplified

T accounts to show how Clark’s ledger looked before and after the adjustments

were posted (see adjustments A to D on page 172).

LEARNING UNIT 5-

Journalizing and Posting Adjusting Entries: Step 7 of the Accounting Cycle

Adjustment A

Before posting: Office Supplies 114 Office Supplies Expense 514

After posting: Office Supplies 114 Office Supplies Expense 514

Adjustment B

Before posting: Prepaid Rent 115 Rent Expense 515

After posting: Prepaid Rent 115 Rent Expense 515

Adjustment C

Before posting:

Amortization Accumulated

Desktop Publishing Expense, DTP Amortization,

Equipment 121 Equipment 516 DTP Equipment 122

After posting:

Amortization Accumulated

Desktop Publishing Expense, DTP Amortization,

Equipment 121 Equipment 516 DTP Equipment 122

This last adjustment shows the same balances for Amortization Expense and

Accumulated Amortization. However, in subsequent adjustments the Accumulated

Amortization balance will keep getting larger, but the debit to Amortization Expense

and the credit to Accumulated Amortization will be the same. We will see why in a

moment.

Adjustment D

Before posting: Office Salaries Salaries

Expense 511 Payable 212

After posting: Office Salaries Salaries

Expense 511 Payable 212

CHAPTER 5

Adjustments A to D in the adjustments section of the worksheet must be recorded in the journal and posted to the ledger.

THE ACCOUNTING CYCLE COMPLETED^173

AT THIS POINT you should be able to:

◆ Define and state the purpose of adjusting entries. (p. 170)

◆ Journalize adjusting entries from the worksheet. (p. 171)

◆ Post journalized adjusting entries to the ledger. (p. 172)

◆ Compare specific ledger accounts before and after posting of the journalized

adjusting entries. (p. 172)

SELF-REVIEW QUIZ 5-

( The blank forms you need are on pages 5-1 and 5-2 of the Study Guide with

Working Papers. )

Turn to the worksheet of P. Logan Company (p. 140) and (1) journalize and post

the adjusting entries and (2) compare the adjusted ledger accounts before and after

the adjustments are posted. T accounts with beginning balances are provided in

your Study Guide.

Solution to Self-Review Quiz 5-

Quiz Tip

These journal entries come from the adjustments column of the worksheet.

Date

Dec. 31

Account Titles and Description Adjusting Entries Amortization Expense, Store Equipment

Estimated amortization of equipment

Accumulated Amortization, Store Equipment

Page 2

PR Dr. Cr.

511 122

31 Insurance Expense

Insurance expired

Prepaid Insurance

31 Supplies Expense

Store Supplies used

Store Supplies

31 Salaries Expense

Accrued salaries payable

Salaries Payable

LEARNING UNIT 5-1 REVIEW

HOW TO JOURNALIZE CLOSING ENTRIES

There are four steps to be performed in journalizing closing entries:

Step 1: Clear the revenue balances and transfer them to Income Summary. Income

Summary is a temporary account in the ledger needed for closing. At the

end of the closing process there will be no balance in Income Summary.

Revenue → Income Summary

Step 2: Clear the individual expense balances and transfer them to Income Summary.

Expenses → Income Summary

Step 3: Clear the balance in Income Summary and transfer it to Capital.

Income Summary → Capital

Step 4: Clear the balance in Withdrawals and transfer it to Capital.

Withdrawals → Capital

Figure 5-3 is a visual representation of these four steps. Keep in mind that this

information must first be journalized and then posted to the appropriate ledger

accounts. The worksheet presented in Figure 5-4 contains all the figures we will

need for the closing process.

Step 1: Clear Revenue Balances and Transfer to Income Summary

Here is what is in the ledger before closing entries are journalized and posted:

Desktop Publishing Fees 411 Income Summary 313

The income statement section on the worksheet on page 176 shows that the Desktop

Publishing Fees have a credit balance of $8,000. To close or clear this to zero in the

ledger, a debit of $8,000 is needed. But if we add an amount to the debit side, we must

also add a credit—so we add $8,000 on the credit side of the Income Summary

account.

THE ACCOUNTING CYCLE COMPLETED

Step 2: Expenses

Step 3: INCOME SUMMARY Net Income or Net Loss

Step 4: Withdrawals

Step 1: Revenue

Capital

FIGURE 5-
Four Steps in Journalizing
Closing Entries

Don’t forget two goals of closing:

1. Clear all temporary accounts **in the ledger.

  1. Update Capital to a new** balance that reflects a summary of all the temporary accounts.

All numbers used in the closing process can be found on the worksheet in Figure 5-4 (page 176). Note that the account Income Summary is not on the worksheet.

An Income Summary is a temporary account located in the chart of accounts under Owner’s Equity. It does not have a normal balance of a debit or a credit.

Sometimes, closing the accounts is referred to as “clearing the accounts.”

The following is the journalized closing entry for step 1:

This is what Desktop Publishing Fees and Income Summary should look like

in the ledger after step 1 closing entries are journalized and posted:

Desktop Publishing Fees 411 Income Summary 313

Closing Revenue Revenue

Note that the revenue balance is cleared to zero and transferred to Income Summary,

a temporary account also located in the ledger.

Step 2: Clear Individual Expense Balances and Transfer the Total to Income Summary

Here is what is in the ledger for each expense before step 2 closing entries are jour-

nalized and posted. Each expense is listed on the worksheet in the debit column of

the income statement section as above.

Office Salaries Expense 511 Advertising Expense 512

CHAPTER 5

6 1 5 5 00 5 0 0 0 00

6 0 0 0 00

5 0 0 00 4 0 0 00

3 5 0 00

8 0 00 8 0 00

1 0 0 00 8 0 0 00

3 1 0 0 00 8 0 0 0 00 18 6 8 0 00 13 7 8 0 00

18 6 8 0 00 18 6 8 0 00

4 9 0 0 00 4 9 0 0 00

2 5 0 00 2 2 0 00

6 2 5 00

1 6 5 0 00

3 3 5 0 00 10 0 0 0 00

8 0 0 0 00

8 0 0 0 00 8 0 0 0 00

Dr. Cr. Dr. Cr.

Accounts Receivable Office Supplies Prepaid Rent Desktop Publishing Equipment Accounts Payable Brenda Clark, Capital Brenda Clark, Withdrawals Desktop Publishing Fees Office Salaries Expense Advertising Expense Telephone Expense

Office Supplies Expense Rent Expense Amortization Exp., DTP Equip. Accum. Amort., DTP Equip. Salaries Payable

Net Income

Cash

Account Titles

Income Statement Balance Sheet

For Step 1

For Step 3

For Step 2

For Step 4

FIGURE 5-
Closing Figures on the
Worksheet

May Desktop Publishing Fees

To close income account

Income Summary

In order to transfer the balance of $4,900 from Income Summary (check the

bottom of the debit column of the income statement section on the worksheet; see

Figure 5-4) to Capital, it will be necessary to debit Income Summary for $4,900 (the

difference between the revenue and expenses) and credit or increase Capital of

Brenda Clark with $4,900.

This is the journalized closing entry for step 3:

This is what the Income Summary and Brenda Clark, Capital, accounts will look

like in the ledger after step 3 closing entries are journalized and posted:

Step 4: Clear the Withdrawals Balance and Transfer It to Capital

Next, we must close the Withdrawals account. The Brenda Clark, Withdrawals, and

Brenda Clark, Capital, accounts now look like this:

Brenda Clark, Withdrawals 312 Brenda Clark, Capital 311

To bring the Withdrawals account to a zero balance, and summarize its effect on

Capital, we must credit Withdrawals and debit Capital.

Remember, withdrawals are a non-business expense and thus not transferred to

Income Summary. The closing entry is journalized as follows:

At this point the Brenda Clark, Withdrawals, and Brenda Clark, Capital, accounts

would look like this in the ledger:

Brenda Clark, Withdrawals 312 Brenda Clark, Capital 311

625 Closing 625 625 10,

Withdrawals Beginning balance

Net income

CHAPTER 5

The opposite would take place if the business had a net loss.

At the end of these three steps, Income Summary has a zero balance. If we had a net loss the end result would be to decrease capital. The entry would be to debit Capital and credit Income Summary for the loss.

Today’s accounting software handles the closing process easily. However, accountants usually have to do step 4 separately.

Income Summary

Transfer profit for period to Capital acct.

Brenda Clark, Capital

Brenda Clark, Capital

Transfer withdrawals to Capital account

Brenda Clark, Withdrawals

Income Summary 313

Brenda Clark, Capital 311

Total of expenses Debit to close account

Net Net income income

Revenue

Note that the $10,000 is a beginning balance since no additional investments were made during the period.

Now let’s look at a summary of the closing entries. The complete ledger for

Clark’s Desktop Publishing Services is shown in Figure 5-5 beginning on this page.

Note that the word “adjusting” or “closing” is written in the explanation column

of individual ledgers, as for example in the one for Office Supplies. If the goals of clos-

ing have been achieved, only permanent accounts will have balances carried to the

next fiscal year. All temporary accounts should have zero balances.

THE ACCOUNTING CYCLE COMPLETED

CLARK'S DESKTOP PUBLISHING SERVICES GENERAL JOURNAL Date 2004 Dr.^ Cr.

Post. Ref. May 31

Account Title and Description Desktop Publishing Fees

To close income account

Income Summary

(^31) Income Summary

Transfer profit to capital

To close expense accounts

Brenda Clark, Capital

(^31) Brenda Clark, Capital

Transfer withdrawals to capital

Brenda Clark, Withdrawals

31 Income Summary Office Salaries Expense Advertising Expense Telephone Expense Office Supplies Expense Rent Expense Amortization Expense, DTP Equipment

Date 2004 1 1 1 7 11 20 25 28 29

May

Explanation

Cash Account No. 111

CLARK'S DESKTOP PUBLISHING SERVICES GENERAL LEDGER

Debit Credit Balance

Post. Ref.

DR CR GJ GJ GJ GJ GJ GJ GJ GJ GJ

or DR DR DR DR DR DR DR DR

FIGURE 5-5 DR
Complete Ledger
THE ACCOUNTING CYCLE COMPLETED^181

Date 2004 May 31

Explanation

Salaries Payable Acct. No. 212

Debit Credit Balance

Post. Ref.

DR CR GJ2 3 5 0 00 3 5 0 00

or

CR

Date 2004 1 31 31

May

Explanation

Acct. No. 311 (^) Note that this is the same ending balance as on page 142.

Brenda Clark, Capital

Debit Credit Balance

Post. Ref.

DR CR GJ GJ GJ2 6 2 5 00

or

CR CR CR

Date 2004 20 31

May

Explanation

Brenda Clark, Withdrawals Acct. No. 312

Debit Credit Balance

Post. Ref.

DR CR GJ GJ

or

DR

Date 2004 31 31 31

May

Explanation

Income Summary Acct. No. 313

Debit Credit Balance

Post. Ref.

DR CR GJ GJ GJ

or CR CR

Date 2004 7 22 31

May

Explanation

Desktop Publishing Fees Acct. No. 411

Debit Credit Balance

Post. Ref.

DR CR GJ GJ GJ

or

CR CR

Date 2004 11 25 31 31

May

Explanation

Office Salaries Expense Acct. No. 511

Debit Credit Balance

Post. Ref.

DR CR GJ GJ GJ GJ

or

DR DR DR

Closing (Net Income) Closing (Withdrawals)

Closing (Revenue) Closing (Expense) Closing (Net Income)

Adjusting

Closing

Closing

Adjusting Closing

182 CHAPTER 5
( FIGURE 5-5 cont.)

Date 2004 18 31

May

Explanation

Advertising Expense Acct. No. 512

Debit Credit Balance

Post. Ref.

DR CR GJ GJ

or

DR

Date 2004 29 31

May

Explanation

Telephone Expense Acct. No. 513

Debit Credit Balance

Post. Ref.

DR CR GJ GJ

or

DR

Date 2004 31 31

May

Explanation

Office Supplies Expense Acct. No. 514

Debit Credit Balance

Post. Ref.

DR CR GJ GJ

or

DR

Date 2004 31 31

May

Explanation

Rent Expense Acct. No. 515

Debit Credit Balance

Post. Ref.

DR CR GJ GJ

or DR

Date 2004 May 31

Explanation

Amortization Expense, Desktop Publishing Equipment Acct. No. 516

Debit Credit Balance

Post. Ref.

DR CR GJ GJ

or

DR

Closing

Adjusting Closing

Adjusting Closing

Closing

Adjusting Closing

PREPARING A POST-CLOSING TRIAL BALANCE

The last step in the accounting cycle is the preparation of a post-closing trial balance

(sometimes called an opening trial balance), which lists only permanent accounts in

the ledger and their balances after adjusting and closing entries have been posted. This

post-closing trial balance aids in checking whether the ledger is in balance. It is im-

portant to do this checking because so many new postings go to the ledger from the

adjusting and closing process.

The procedure for taking a post-closing trial balance is the same as for a trial

balance, except that, since closing entries have closed all temporary accounts, the

post-closing trial balance will contain only permanent accounts (balance sheet).

Keep in mind, however, that adjustments have occurred.

THE ACCOUNTING CYCLE REVIEWED

Table 5-1 lists the steps we completed in the manual accounting cycle for Clark’s

Desktop Publishing Services for the month of May.

Insight: Most companies journalize and post adjusting and closing entries only at the

end of their fiscal year. A company that prepares interim reports may complete only

the first six steps of the cycle. Worksheets allow the preparation of interim reports

without the formal adjusting and closing of the books.

Insight: To prepare a financial report for April, the data needed can be obtained by

subtracting the worksheet accumulated totals for the end of March from the work-

sheet prepared at the end of April. In this chapter, we chose a month that would

show the completion of an entire cycle for Clark’s Desktop Publishing Services.

CHAPTER 5

Income Summary 312 Salaries Expense 512 Rent Expense 518

P. Logan, Capital $

Net Income $

Less: Withdrawals 3

Increase in Capital 2

P. Logan, Capital (ending) $

Quiz Tip

No calculations are needed in the closing process. All numbers come from the worksheet. Income summary is a temporary account in the ledger.

The post-closing trial balance helps prove the accuracy of the adjusting and closing process. It contains the true ending figure for capital.

LEARNING UNIT 5-

The Post-Closing Trial Balance: Step 9 of the Accounting Cycle and the Accounting Cycle Reviewed

AT THIS POINT you should be able to:

◆ Prepare a post-closing trial balance. (p. 184)

◆ Explain the relationship of interim reports to the accounting cycle. (p. 184)

SELF-REVIEW QUIZ 5-

(The blank forms you need are on page 5-3 of the Study Guide with Working Papers. )

From the ledger on pages 179 to 182, prepare a post-closing trial balance.

THE ACCOUNTING CYCLE COMPLETED

Step Explanation

Table 5-1 Steps of the Manual Accounting Cycle

1. Business transactions occur and Source documents are cash register
generate source documents. tapes, sales tickets, bills, cheques,
payroll cards, etc.
2. Analyze and record business transactions Called journalizing
into a journal.
3. Post or transfer information from Copying the debits and credits of the
journal to ledger. journal entries into the ledger accounts
4. Prepare a trial balance. Summarizing each individual ledger
account and listing these accounts and
their balances to test for mathematical
accuracy in recording transactions
5. Prepare a worksheet. A multicolumn form that summarizes
accounting information to complete
the accounting cycle
6. Prepare financial statements. Income statement, statement of owner’s
equity, and balance sheet
7. Journalize and post adjusting entries. Use figures in the adjustment columns of
worksheet.
8. Journalize and post closing entries. Use figures in the income statement and
balance sheet sections of worksheet.
9. Prepare a post-closing trial balance. Prove the mathematical accuracy of
the adjusting and closing process of
the accounting cycle.

LEARNING UNIT 5-3 REVIEW

THE ACCOUNTING CYCLE COMPLETED^187

Chapter Review

COMPREHENSIVE DEMONSTRATION PROBLEM WITH SOLUTION TIPS

(The blank forms you need are on pages 5-4 to 5-10 of the Study Guide with Working

Papers. )

From the following transactions for Rolo Company, complete the entire accounting

cycle. The chart of accounts includes:

We will use unusually small numbers to simplify calculation and emphasize the

theory.

Jan. 2 Rolo Kern invested $1,200 cash and $100 worth of office equipment to

open Rolo Co.

2 Paid rent for three months in advance, $300.

4 Purchased office equipment on account, $50.

6 Bought office supplies for cash, $40.

8 Collected $400 for services rendered.

12 Rolo paid his home electric bill from the company bank account, $20.

14 Provided $100 worth of services to clients who will not pay until next

month.

16 Paid salaries, $60.

18 Advertising bill for $70 was received but will not be paid until next

month.

Adjustment Data on January 31

a. Supplies on Hand $

b. Rent Expired $

c. Amortization, Office Equipment $

d. Salaries Accrued $

Assets
111 Cash
112 Accounts Receivable
114 Prepaid Rent
115 Office Supplies
121 Office Equipment
122 Accumulated Amortization,
Office Equipment
Liabilities
211 Accounts Payable
212 Salaries Payable
Owner’s Equity
311 R. Kern, Capital
312 R. Kern, Withdrawals
313 Income Summary
Revenue
411 Fees Earned
Expenses
511 Salaries Expense
512 Advertising Expense
513 Rent Expense
514 Office Supplies Expense
515 Amortization Expense,
Office Equipment
188 CHAPTER 5

Journalizing Transactions and Posting

to Ledger, Rolo Company

Solution Tips to Journalizing and Posting Transactions

Jan. 2

Jan. 2 Prepaid Rent^ Asset^ ↑^ Dr.^ $^300

Cash Asset ↓ Cr. $ 300
Cash Asset ↑ Dr. $1,
Office Equipment Asset ↑ Dr. $ 100
R. Kern, Capital Capital ↑ Cr. $1,

Date 2004 Jan. (^2)

Account Titles and Description

General Journal Page 1

Cash Office Equipment R. Kern, Capital Initial investment

Prepaid Rent Cash Rent paid in advance—3 months

Office Equipment Accounts Payable Purchased equipment on account

Office Supplies Cash Supplies purchased for cash

Cash Fees Earned Services rendered

R. Kern, Withdrawals Cash Personal payment of a bill

Accounts Receivable Fees Earned Services rendered on account

Salaries Expense Cash Paid salaries

Advertising Expense Accounts Payable Advertising bill, but not paid

PR Dr. Cr.

111 121 311