Illustration Part I on the accounting cycle FOR USE PDF

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Illustration  Accounting Cycle for a Service-Giving FirmAnn Hill owns and operates a service giving business enterprise, Hill Photographic Studio. The chart of accounts is given below. Hill Photographic Studio Chart of Accounts Balance Sheet Accounts Income Statement Accounts ( 1) Assets A/C No. (4...

Description

Illustration Accounting Cycle for a Service-Giving Firm Ann Hill owns and operates a service giving business enterprise, Hill Photographic Studio. The chart of accounts is given below. Hill Photographic Studio Chart of Accounts Balance Sheet Accounts Income Statement Accounts (1) Assets A/C No. (4) Revenue A/C No. Cash 11 Sales 41 Accounts Receivable 12 (5) Expenses Supplies 14 Supplies Expense 51 Prepaid Rent 15 Salary Expense 52 Photographic Equipment 18 Rent Expense 53 Accumulated Depreciation 19 Depreciation Expense 54 (2) Liabilities Miscellaneous Expense 59 Accounts Payable 21 Salaries Payable 22 (3) Capital Ann Hill, Capital 31 Ann Hill, Drawing 32 Income Summary 33

The following business transactions were completed during the month of March, 2007. March 1. The owner invested the following assets in the enterprise: Cash, $3,500; Accounts Receivable, $950; Supplies, $1,200; and Photographic Equipment, $ 15,000. There were no liabilities transferred to the business. 1. Paid $2,400 on a lease rental contract, the payment representing three months’ rent of quarters for the studio. 4. Purchased additional photographic equipment on account from Palmer Photographic Equipment Inc. for $2,500 5. Received $850 from customers in payment of their accounts. 6. Paid $125 for newspaper advertisement 10. Paid $500 to Palmer Photographic Equipment Inc. to apply on the $2,500 debt owed them 13. Paid receptionist $575 for two weeks’ salary. 16. Received $1,980 from sales from the first half of March. 20. Paid $650 for supplies. 27. Paid receptionist $575 for two weeks’ salary. 31. Paid $69 for telephone bill for the month. 31. Paid $175 for electric bill for the month. 31. Received $1,870 from sales for the second half of March. 31. Sales on account totaled $1,675 for the month 31. Hill withdrew $1,500 for her personal use. Required: 1) Analyze and record the transactions in a general journal 2) Post to the ledger 3) Prepare the Trial Balance, collect adjustment data(to be provided) and complete the work sheet 4) Prepare financial statements 5) Journalize and post adjusting entries 6) Journalize and post closing entries 7) Prepare post-closing trial balance IllustrationAccounting Cycle for a Service-Giving Firm Page 1 of 8

Solution: 1) (Sept 1): Analyze and record the transactions in a general journal General Journal Date: 2007 Mar.

Description 1

1

4

5

6

10

13

16

20

27

31

Cash Accounts Receivable Supplies Photographic Equipment Ann Hill, Capital

Page No. 1 Pos. Ref.

Debit

11 12 14 18 31

3,500 950 1,200 15,000

Prepaid Rent Cash

15 11

2,400

Photographic Equipment Accounts payable

18 21

2,500

Cash Accounts Receivable

11 12

850

Miscellaneous expense Cash

59 11

125

Accounts Payable Cash

21 11

500

Salary Expense Cash

52 11

575

Cash Sales

11 41

1,980

Supplies Cash

14 11

650

Salary expense Cash

52 11

575

Miscellaneous expense Cash

59 11

175

IllustrationAccounting Cycle for a Service-Giving Firm

Credit

20,650

2,400

2,500

850

125

500

575

1,980

650

575

175

Page 2 of 8

General Journal Date

Page No. 2 Pos. Ref.

Description 31

31

31

Debit

Cash Sales

11 41

1,870

Accounts Receivable Sales

12 41

1,675

Ann Hill, Drawing Cash

32 11

1,500

Credit 1,870

1,675

1,500

2) (Step 2): Post to the Ledger ACCOUNT Cash Pos. Ref.

Debit

1

GJ1

3,500

1 5 6 10 13 16 20 27 31 31 31 31

GJ1 GJ1 GJ1 GJ1 GJ1 GJ1 GJ1 GJ1 GJ1 GJ1 GJ2 GJ2

Date 2007 Mar.

ACCOUNT NO. 11 Balance

Item

ACCOUNT Accounts Receivable Pos. Date Item Ref. 2007 1 GJ1 Mar. 5 GJ1 31 GJ2

Credit

Debit 3,500

2,400

1,100 1,950 1,825 1,325 750 2,730 2,080 1,505 1,436 1,261 3,131 1,631

850 125 500 575 1,980 650 575 69 175 1,870 1,500

Debit 950

Credit

850 1,675

ACCOUNT Supplies Date 2007 Mar.

Item 1 20 31

Adjusting

Pos. Ref. GJ1 GJ1 GJ2

Debit 1,200

Credit

650 960

IllustrationAccounting Cycle for a Service-Giving Firm

Credit

ACCOUNT NO. 12 Balance Debit Credit 950 100 1,775 ACCOUNT NO. 14 Balance Debit Credit 1,200 1,850 890

Page 3 of 8

ACCOUNT Prepaid Rent Date 2007 Mar.

Item

Pos. Ref. GJ1

Adjusting

GJ2

4 31

ACCOUNT Photographic Equipment Pos. Date Item Ref. 2007 1 GJ1 Mar. 4 GJ1

ACCOUNT Accumulated Depreciation Pos. Date Item Ref. 2007 31 Adjusting GJ2 Mar.

Debit 2,400

Credit

800

Debit 15,000

Credit

2,500

Debit

Date 2007 Mar.

Debit

4 10

GJ1

500

Item

31

Item Adjusting

Pos. Ref. GJ2

Debit

ACCOUNT Ann Hill, Capital Date 2007 Mar.

Item

Pos. Ref. GJ1

Closing Closing

GJ2 GJ2

1 31 31

Debit

ACCOUNT NO. 18 Balance Debit Credit 15,000

Credit 175

ACCOUNT NO. 19 Balance Debit Credit 175

Credit 2,500

ACCOUNT NO. 21 Balance Debit Credit 2,500 2,000

ACCOUNT Salaries Payable Date 2007 Mar.

1600

17,500

ACCOUNT Accounts Payable Pos. Ref. GJ1

ACCOUNT NO. 15 Balance Debit Credit 2,400

Credit 115

ACCOUNT NO. 22 Balance Debit Credit 115

ACCOUNT NO. 31 Balance Credit Debit Credit 20,650 20,650 1,956

22,606 21,106

1,500

ACCOUNT Ann Hill, Drawing Pos.

IllustrationAccounting Cycle for a Service-Giving Firm

ACCOUNT NO. 32 Balance

Page 4 of 8

Date 2007 Mar.

Item

Ref. GJ2

Closing

GJ2

31 31

Debit 1,500

Credit

Debit 1,500

Credit

1500

----

--

ACCOUNT Income Summary Date 2007 Mar.

Pos. Ref. GJ2

Debit

31

Item Closing

31 31

Closing Closing

GJ2 GJ2

3,569 1,956

Credit 5,525

Date 2007 Mar.

16 31 31 31

GJ2 GJ2 GJ2

Item

Closing

Debit

Credit 1,980

Date 2007 Mar.

31

Item Adjusting

31

Closing

GJ2

5,525

Debit 960

Date 2007 Mar.

Item 13

Credit

960

27 31 31

Adjusting Closing

GJ1 GJ2 GJ2

Debit 575

Credit

575 115 1,265

ACCOUNT Rent Expense Date 2007 Mar.

31

Item Adjusting

Pos. Ref. GJ2

31

Closing

GJ2

Debit 800

3,850 5,525 -----

------

ACCOUNT Salary Expense Pos. Ref. GJ1

ACCOUNT NO. 41 Balance Debit Credit 1,980

1,870 1,675

ACCOUNT Supplies Expense Pos. Ref. GJ2

1,956 -----

------

ACCOUNT Sales Pos. Ref. GJ1

ACCOUNT NO. 33 Balance Debit Credit 5,525

Credit

800

IllustrationAccounting Cycle for a Service-Giving Firm

ACCOUNT NO. 51 Balance Debit Credit 960 ----

----

ACCOUNT NO. 52 Balance Debit Credit 575 1,150 1,265 -----

-----

ACCOUNT NO. 53 Balance Debit Credit 800 ----

----

Page 5 of 8

ACCOUNT Depreciation Expense Pos. Date Item Ref. 2007 31 Adjusting GJ2 Mar. 31 Closing GJ2

ACCOUNT Miscellaneous Expense Pos. Date Item Ref. 2007 6 GJ1 Mar. 31 GJ1 31 GJ1 31 Closing GJ2

Debit 175

Credit

ACCOUNT NO. 54 Balance Debit Credit 175

175

Debit 125

-----

---

ACCOUNT NO. 59 Balance Credit Debit Credit 125

69 175

194 369 ----

369

----

3) (Step 3): Prepare the Trial Balance, Collect Adjustment Data (to be provided) and Complete the Work Sheet Hill Photographic Studio Trial Balance March 31, 2007

Cash Accounts Receivable Supplies Prepaid Rent Photographic Equipment Accounts Payable Ann Hill, Capital Ann Hill, Drawing Sales Salary Expense Miscellaneous Exp. 4) (Step 4): Prepare Financial Statements Hill Photographic Studio Income Statement For Month Ended March,31, 2007 Sales ------------------------------------------Operating expenses: Salary expense --------------- $1,265 Supplies expense -----------960 Rent expense --------------- 800 Depreciation expense -------- 175 Miscellaneous expe. ------369 Total operating expense Net income IllustrationAccounting Cycle for a Service-Giving Firm

Debit 1,631 1,775 1,850 2,400 17,500

Credit

2,000 20,650 1,500 5,525 1,150 369 28,175

28,175

$5,525

3,569 $1,956 Page 6 of 8

Hill Photographic Studio Statement of Owner's Equity For Month Ended March,31, 2007 Ann Hill, Capital, March 1, --------------------$20,650 Add: Net income (for the month) -------------- $1,956 Less: Withdrawals ----------------- 1,500 Increase in owner's equity -------------------------456 Ann Hill, Capital, March 31,, 2007 $21,106 Hill Photographic Studio Balance sheet March, 31, 2007 Assets Current Assets: Cash ---------------------------------------- $1,631 Accounts Receivable --------------------1,775 Supplies ------------------------------------890 Prepaid rent ----------------------------1,600 Total current assets $5,896 Plant assets: Photographic Eqt. ------------------------- $17,500 Less: Accum. Depr. ---------------------175 17,325 Total Assets $23,221 Liabilities Current liabilities: Accounts Payable -----------------------Salaries Payable -----------------------Total liabilities -------------------------Owner's Equity Ann Hill, Capital --------------Total liab. and OE

$2,000 115 $2,115 $21,106 $23,221

5) (Step 5): Journalize and Post Adjusting Entries (Even though not given openly, you can reconsider the transactions that need adjustments at the end of the month) General Journal Date 2007 Mar.

Description 31

31

31

31

Adjusting Entries Supplies Expense Supplies

Page No. 2 Pos. Ref.

Debit

51 14

960

Rent Expense Prepaid Rent

53 15

800

Depreciation Expense Accum. Depreciation

54 19

175

Salary Expense Salaries Payable

52 22

115

Credit

960

800

175

IllustrationAccounting Cycle for a Service-Giving Firm

115

Page 7 of 8

6) (Step 6): Journalize and Post Closing Entries General Journal Date 2007 Mar.

31

31

31

31

Description Closing Entries Sales Income Summary

Page No. 2 Pos. Ref.

Debit

41 33

5,525

Income Summary Salary Expense Miscellaneous Expense Supplies Expense Rent Expense Depreciation Expense

33 52 59 51 53 54

3,569

Income Summary Ann Hill, Capital

33 31

1,956

Ann Hill, Capital Ann Hill, Drawing

31 32

1,500

Credit

5,525

1,265 369 960 800 175

1,956

1,500

7) (Step 7): Prepare Post-Closing Trial Balance Hill Photographic studio Post-Closing Trial Balance March 31, 2007 Debit Cash ---------------------------------------1,631 Accounts Receivable --------------------1,775 Supplies ------------------------------------890 Prepaid Rent ----------------------------1,600 Photographic Eqt. ------------------------- 17,500 Accumulated Depr. ---------------------Accounts Payable -----------------------Salaries Payable -----------------------Ann Hill, Capital --------------------------23,396

Credit

175 2,000 115 21,106 23,396

IllustrationAccounting Cycle for a Service-Giving Firm

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