NTK 4- CLASSIFIED BALANCE SHEET C3 Classified balance sheet—Structure and categories A1 Current ratio NTK 4- CLOSING PROCESS C1 Temporary accounts P2 Closing entries P3 Post-closing trial balance C2 Accounting cycle WORK SHEET P1 Benefits of a work sheet Preparing a work sheet Applying a work sheet NTK 4- Learning Objectives CONCEPTUAL C1 Explain why temporary accounts are closed each period. C2 Identify steps in the accounting cycle. C3 Explain and prepare a classified balance sheet. P2 Describe and prepare closing entries. P3 Explain and prepare a post-closing trial balance. P4 Appendix 4A—Prepare reversing entries and explain their purpose. ANALYTICAL A1 Compute the current ratio and describe what it reveals about a company’s financial condition. PROCEDURAL P1 Prepare a work sheet and explain its usefulness. Chapter Preview 4Completing theAccounting Cycle129 “Creativity creates value”—Evan Spiegel Snap!VENICE, CA—Evan Spiegel met his future co-founder Bobby Murphy in college. “We weren’t cool,” recalls Bobby, “so we tried to build things to be cool!” One of their cool projects was an app that could send messages that disappeared after a few seconds. This app would later be called Snapchat (Snapchat). The first headquarters of Snapchat was the home of Evan’s dad. However, within a matter of months, their app had over a million users. As Snapchat grew, Evan and Bobby knew an effective ac- counting system was key to attracting investors. “One of the things I did underestimate,” admits Evan, “was how much more important communication becomes [when seeking investors].” Investors wanted to know revenues, costs, assets, and liabilities for Snapchat. “You really need to explain... how your business works,” insists Evan. To communicate “the Snap story,” the entrepreneurs learned how to use work sheets and create classified financial state- ments. This included learning the accounting cycle. With accounting reports in hand, Evan and Bobby were able to se- cure additional financing. Exclaims Evan: “That was the greatest feeling of all time!” Sources: Snapchat website, January 2019; Vanity Fair, October 2017; LA Times, March 2017; Forbes, January 2014 ©J. Emilio Flores/Corbis via Getty Images P Prepare a work sheet and explain its usefulness. Benefits of a Work Sheet (Spreadsheet) A work sheet is a document that is used internally by companies to help with adjusting and closing accounts and with preparing financial statements. It is an internal accounting aid and is not a substitute for journals, ledgers, or financial statements. A work sheet: Helps in preparing financial statements. Reduces the risk of errors when working with many accounts and adjustments. Links accounts and adjustments to financial statements. Shows the effects of proposed or “what-if” transactions. ####### WORK SHEET AS A TOOL Women in Charge In a recent survey, it was reported that women make up roughly 50% of managers and senior man- agers at accounting firms. Further, women also make up about half of all supervisors and senior staff. If the current trend continues, women will soon hold the majority of manager and senior staff positions in accounting. Source: AICPA ■ Decision Insight Use of a Work Sheet When a work sheet is used to prepare financial statements, it is constructed at the end of a period before the adjusting process. The complete work sheet includes a list of the accounts, their balances and adjustments, and their sorting into financial statement columns. It provides two columns each for the unadjusted trial balance, the adjustments, the adjusted trial balance, the income statement, and the balance sheet (including the statement of owner’s equity). To describe and interpret the work sheet, we use the information from FastForward. Preparing the work sheet has five steps. 1 Step 1. Enter Unadjusted Trial Balance Refer to Exhibit 4—green section. The first step in preparing a work sheet is to list the title of every account and its account number that appears on its financial statements. This includes all accounts in the ledger plus any new ones from adjusting entries. The unadjusted balance for each account is then entered in the correct Debit or Credit column of the unadjusted trial balance columns. The totals of these two columns must be equal. The light green section of Exhibit 4. shows FastForward’s work sheet after completing this first step (dark green rows show accounts that arise because of the adjustments). Sometimes an account can require more than one adjust- ment, such as for Consulting Revenue. The additional adjustment can be added to a blank line below (as in Exhibit 4), squeezed on one line, or combined into one adjustment amount. ©Syda Productions/Shutterstock FASTForward 2 Step 2. Enter Adjustments Exhibit 4—yellow section. The second step is to enter adjustments in the Adjustments col- umns. The adjustments shown are the same ones shown in Exhibit 3. An identifying letter links the debit and credit of each adjustment. This is called keying the adjustments. After pre- paring a work sheet, adjustments must still be entered in the journal and posted to the led- ger. The Adjustments columns provide the information for adjusting entries in the journal. 3 Step 3. Prepare Adjusted Trial Balance Exhibit 4—blue section. The adjusted trial balance is prepared by combining the adjustments with the unadjusted balances for each account. As an example, the Prepaid Insurance account has a $2,400 debit balance in the Unadjusted Trial Balance columns. This $2,400 debit is com- bined with the $100 credit in the Adjustments columns to give Prepaid Insurance a $2,300 debit in the Adjusted Trial Balance columns. The totals of the Adjusted Trial Balance columns con- firm debits and credits are equal. 4 Step 4. Sort Adjusted Trial Balance Amounts to Financial Statements Exhibit 4—orange section. This step involves sorting account balances from the adjusted trial balance to their proper financial statement columns. Expenses go to the Income Statement Debit column and revenues to the Income Statement Credit column. Assets and withdrawals go to the Balance Sheet & Statement of Owner’s Equity Debit column. Liabilities and owner’s capital go to the Balance Sheet & Statement of Owner’s Equity Credit column. 5 Step 5. Total Statement Columns, Compute Income or Loss, and Balance Columns Exhibit 4—purple section. Each financial statement column (from step 4) is totaled. The dif- ference between the Debit and Credit column totals of the Income Statement columns is net income or net loss. This occurs because revenues are entered in the Credit column and expenses in the Debit column. If the Credit total exceeds the Debit total, there is net income. If the Debit total exceeds the Credit total, there is a net loss. For FastForward, the Credit total exceeds the Debit total, giving a $3,785 net income. FASTFORWARD Balance Sheet December 31, 2019 Assets Cash.................................... $ , Accounts receivable....................... , Supplies................................. , Prepaid insurance......................... , Equipment............................... $ , Accumulated depreciation—Equipment....... () , Total assets.............................. $ , Liabilities Accounts payable......................... $ , Salaries payable.......................... Unearned consulting revenue............... , Total liabilities............................ , Equity C. Taylor, Capital.......................... , Total liabilities and equity................... $ , FASTFORWARD Income Statement For Month Ended December 31, 2019 Revenues Consulting revenue..................... $ , Rental revenue......................... Total revenues......................... $ , Expenses Depreciation expense—Equipment......... Salaries expense....................... , Insurance expense...................... Rent expense.......................... , Supplies expense....................... , Utilities expense........................ Total expenses......................... , Net income.............................. $ , FASTFORWARD Statement of Owner’s Equity For Month Ended December 31, 2019 C. Taylor, Capital, December .............. $ Add: Investment by owner.................. $, Net income.......................... , , , Less: Withdrawals by owner................ C. Taylor, Capital, December .............. $, EXHIBIT 4. Financial Statements Prepared from the Work Sheet FASTForward The following 10-column work sheet contains the year-end unadjusted trial balance for Magic Company as of December 31. Complete the work sheet by entering the necessary adjustments, computing the ad- justed account balances, extending the adjusted balances into the appropriate financial statement columns, and entering the amount of net income for the period. Note: The Magic, Capital account balance was $75,000 at December 31 of the prior year. , , , , , , , , , , , , Cash Accounts receivable Land Accounts payable Long-term notes payable Magic, Capital Magic, Withdrawals Fees earned Salaries expense Oce supplies expense Totals Net income Totals Account Title Unadjusted Trial Balance Adjusted Trial Balance Dr. Adjustments Cr. Dr. Cr. Income Statement Dr. Cr. Balance Sheet and Statement of Owner’s Equity No. Dr. Cr. Dr. Cr.
TEMPORARY PERMANENT Revenues Expenses Owner, Withdrawals Income Summary Temporary Accounts (closed at period-end) Assets Liabilities Owner, Capital Permanent Accounts (not closed at period-end) Consulting Revenue Rental Revenue Balance 7, Balance 300 4, 8, Balance 3, 7, 300 Balance 200 200 1 Close income statement credit balances 2 Close income statement debit balances 3 Close Income Summary account 4 Close withdrawals account Four-Step Closing Process Balance 30, 200 3, Balance 33, Income Summary C. Taylor, Withdrawals Revenue Accounts C. Taylor, Capital 1 3 4 Expense Accounts Depreciation Expense—Equip. Balance 300 Salaries Expense Balance 1, Insurance Expense Balance 100 Rent Expense Balance 1, Supplies Expense Balance 1, Utilities Expense Balance 305 300 1, 100 1, 1, 305 2 3, Point: C. Taylor, Capital is the only permanent account in Exhibit 4— meaning it is not closed, but it does have Income Summary closed to it. EXHIBIT 4. Four-Step Closing Process each period (which updates the owner’s capital account for inclusion on the balance sheet). This is done so that these accounts can properly measure income and with- drawals for the next period. Second, it helps summarize a period’s revenues and expenses. This section explains the closing process. Temporary and Permanent Accounts Temporary accounts relate to one accounting period. They include all income statement accounts, the owner withdrawals account, and the Income Summary account. They are temporary because the accounts are opened at the beginning of a period, used to record transactions and events for that period, and then closed at the end of the period. The clos- ing process applies only to temporary accounts. Permanent accounts report on activities related to one or more future accounting periods. They include asset, liability, and owner capital accounts (all balance sheet accounts). Permanent accounts are not closed each period and carry their ending balance into future periods. Recording Closing Entries Closing entries transfer the end-of-period balances in revenue, expense, and withdrawals accounts to the permanent capital account. Closing entries are necessary at the end of each period after financial statements are prepared because Revenue, expense, and withdrawals accounts must begin each period with zero balances. Owner’s capital must reflect prior periods’ revenues, expenses, and withdrawals. An income statement reports revenues and expenses for a specific accounting period. Owner with- drawals are also for a specific accounting period. Because revenue, expense, and withdrawals accounts record information separately for each period, they must start each period with zero balances. Exhibit 4 uses the adjusted account balances of FastForward (from the Adjusted Trial Balance columns of Exhibit 4 or from the left side of Exhibit 4) to show the four steps to close its temporary accounts. 1 2 To close revenue and expense accounts, we transfer their balances to Income Summary. Income Summary is a temporary account only used for the closing process that contains a credit for total revenues (and gains) and a debit for total expenses (and losses). Point: If Apple did not make closing entries, prior-year revenue from iPhone sales would be in- cluded with current-year revenue. P Describe and prepare closing entries. $47, 8, 2, 1, $ 4, 26, 200 300 1, 100 1, 1, 305 Cash............................. Accounts receivable............... Supplies.......................... Prepaid insurance................. Equipment........................ Accumulated depreciation—Equip... Accounts payable................. C. Taylor, Capital.................. C. Taylor, Withdrawals............. Consulting revenue................ Rental revenue.................... Depreciation expense—Equip....... Salaries expense.................. Insurance expense................ Rent expense..................... Supplies expense................. Utilities expense.................. Totals............................ FASTFORWARD Adjusted Trial Balance December 31, 2019 Dec. 31 Consulting Revenue................. Rental Revenue..................... Income Summary................. Close revenue accounts. Close Income Summary account. 7, 300 1, 8, Step 1: Dec. 31 Income Summary................... Salaries Expense................. Depreciation Expense—Equip...... Insurance Expense............... Rent Expense.................... Supplies Expense................ Utilities Expense................. 4, 300 100 1, 1, 305 Step 2: Dec. 31 Income Summary................... C. Taylor, Capital................. 3, 3, Step 3: $ 300 6, Salaries payable................... 210 Unearned consulting revenue....... 2, 30, 300 7, $47, Close expense accounts. Debit Credit C. Taylor, Capital.................... Close withdrawals account. Dec. 31 C. Taylor, Withdrawals............ 200 200 Step 4: General Journal 3 The Income Summary balance, which equals net income or net loss, is transferred to the capital account. 4 The withdrawals account balance is transferred to the capital account. After closing entries are posted, the revenue, expense, withdrawals, and Income Summary accounts have zero balances and are said to be closed or cleared. Exhibit 4 shows the four closing journal entries to apply the closing process of Exhibit 4. EXHIBIT 4. Preparing Closing Entries Step 1: Close Credit Balances in Revenue Accounts to Income Summary The first closing entry transfers credit balances in revenue (and gain) accounts to the Income Summary account. We bring accounts with credit balances to zero by debiting them. For FastForward, this is step 1 in Exhibit 4. The $8,150 credit entry to Income Summary equals total revenues for the period. This leaves revenue accounts with zero balances, and they are now ready to record revenues for next period. Step 2: Close Debit Balances in Expense Accounts to Income Summary The second closing entry transfers debit balances in expense (and loss) accounts to the Income Summary account. We bring expense accounts’ debit balances to zero by crediting them. With a balance of zero, these accounts are ready to record expenses for next period. This second clos- ing entry for FastForward is step 2 in Exhibit 4. Step 3: Close Income Summary to Owner’s Capital After steps 1 and 2, the balance of Income Summary equals December net income of $3,785 ($8,150 credit less $4, debit). The third closing entry transfers the balance of the Income Summary account to the capital account. This entry closes the Income Summary account—see step 3 in Exhibit 4. (If a net loss occurred because expenses exceeded revenues, the third entry is reversed: debit Owner, Capital and credit Income Summary.) Step 4: Close Withdrawals Account to Owner’s Capital The fourth closing entry transfers any debit balance in the withdrawals account to the owner’s capital account—see step 4 in Exhibit 4. This entry gives the withdrawals account a zero balance, and the account is now ready to record next period’s withdrawals. Exhibit 4 shows the entire ledger of FastForward as of December 31 after adjusting and closing entries are posted. The temporary accounts (revenues, expenses, and withdrawals) have ending balances equal to zero. Post-Closing Trial Balance A post-closing trial balance is a list of permanent accounts and their balances after all closing entries. It lists the balances for all accounts not closed. A post-closing trial balance verifies that (1) total debits equal total credits for permanent accounts and (2) all temporary accounts have zero balances. FastForward’s post-closing trial balance is in Exhibit 4 and often is the last step in the accounting process. P Explain and prepare a post-closing trial balance. Point: Only balance sheet (permanent) accounts are on a post-closing trial balance. Point: C. Taylor, Capital is com- puted as $30,000 + $3,785 − $200. EXHIBIT 4. Post-Closing Trial Balance FASTFORWARD Post-Closing Trial Balance December 31, 2019 Debit Credit Cash............................................. $ , Accounts receivable................................ , Supplies.......................................... , Prepaid insurance.................................. , Equipment........................................ , Accumulated depreciation—Equipment................. $ Accounts payable.................................. , Salaries payable................................... Unearned consulting revenue........................ , C. Taylor, Capital................................... , Totals............................................ $ , $ , ©IM_photo/Shutterstock Staff Accountant A friend shows you the post-closing trial balance she is working on. You review the statement and see a line item for rent expense. How do you know that an error exists? ■ Answer: This error is apparent in a post-closing trial balance because Rent Expense is a temporary account. Post-closing trial balances only contain permanent accounts. Decision Maker Use the adjusted trial balance solution for Magic Company from Need-To-Know 4-1 to prepare its closing entries—the accounts are also listed here for convenience. Closing Entries NEED-TO-KNOW 4- P Do More: QS -, E -, E - , E -, E - Cash.............................. $, Dr. Accounts receivable................. , Dr. Land.............................. , Dr. Accounts payable................... , Cr. Long-term notes payable............. , Cr. Magic, Capital....................... $ , Cr. Magic, Withdrawals................... , Dr. Fees earned......................... , Cr. Salaries expense..................... , Dr. Office supplies expense............... , Dr. Solution Dec. Fees Earned....................... , Income Summary.............. , Close revenue account. Dec. Income Summary................... , Salaries Expense............... , Office Supplies Expense......... , Close expense accounts. Dec. Income Summary................... , Magic, Capital................. , Close Income Summary. Dec. Magic, Capital..................... , Magic, Withdrawals............ , Close Withdrawals account. C Identify steps in the accounting cycle. The accounting cycle is the steps in preparing financial statements. It is called a cycle because the steps are repeated each reporting period. Exhibit 4 shows the 10 steps in the cycle. Steps 1 through 3 occur regularly as a company enters into transactions. Steps 4 through 9 are done at the end of a period. Reversing entries in step 10 are optional and are explained in Appendix 4A. ####### ACCOUNTING CYCLE EXHIBIT 4. Steps in the Accounting Cycle* $ 33, Less: Withdrawals by owner ............. Taylor, Capital, December 31 ....... $33,585 200 C. Taylor, Capital, December 1.........: Investments by owner ............... $30, Net income .................................. 3, 0 Statement of Owner’s Equity FASTFORWARD For Month Ended December 31, 2019 Assets Liabilities Equity Cash Old Bal. $1,500 + + + + +
Explain and prepare a classified balance sheet. This section describes a classified balance sheet. An unclassified balance sheet broadly groups accounts into assets, liabilities, and equity. One example is FastForward’s balance sheet in Exhibit 4. A classified balance sheet organizes assets and liabilities into subgroups. Classification Structure A classified balance sheet typically contains the categories in Exhibit 4 (there is no required layout). An important classification is the separation between current and noncurrent for both ####### CLASSIFIED BALANCE SHEET Plant Assets Plant assets are tangible assets that are both long-lived and used to produce or sell products and services. Examples are equipment, machinery, buildings, and land that are used to produce or sell products and services. Plant assets are normally listed in order by how quickly they can be converted to cash. Intangible Assets Intangible assets are long-term assets that benefit business op- erations but lack physical form. Examples are patents, trademarks, copyrights, franchises, and goodwill. Their value comes from the privileges or rights granted to or held by the owner. Current Liabilities Current liabilities are liabilities due to be paid or settled within one year or the operating cycle, whichever is longer. They usually are settled by paying out cash. Current liabilities include accounts payable, notes payable, wages payable, taxes payable, inter- est payable, and unearned revenues. Also, any portion of a long-term liability due to be paid within one year or the operating cycle, whichever is longer, is a current liability. Unearned rev- enues are current liabilities when products or services are to be provided within one year or the operating cycle, whichever is longer. Long-Term Liabilities Long-term liabilities are liabilities not due within one year or the operating cycle, whichever is longer. Notes payable, mortgages payable, bonds payable, and lease obligations are common long-term liabilities. If a company has both short- and long-term items in each of these categories, they are commonly separated into two accounts in the ledger. Equity Equity is the owner’s claim on assets. For a proprietorship, this claim is reported in the equity section with an owner’s capital account. Point: Plant assets are also called fixed assets; property, plant and equipment (PP&E); or long-lived assets. ©Johannes Simon/Getty Images Point: Only assets and liabilities (not equity) are classified as current or noncurrent. Use the adjusted trial balance solution for Magic Company from Need-To-Know 4-1 to prepare its classi- fied balance sheet as of December 31—the accounts are also listed here for convenience. Note: The Classified Balance Sheet Magic, Capital account balance was $75,000 at December 31 of the prior year. NEED-TO-KNOW 4- C Solution Do More: QS -, E - , P - MAGIC COMPANY Balance Sheet December 31 Assets Current assets Cash.............................. $ , Accounts receivable................. , Total current assets.................. , Plant assets Land.............................. , Total plant assets.................... , Total assets.......................... $ , Liabilities Current liabilities Accounts payable...................... $ , Total current liabilities.................. , Long-term notes payable.................. , Total liabilities........................... , Equity Magic, Capital*.......................... , Total liabilities and equity................. $ , *Computed as $75,000 beginning balance + $15,000 net income (from NTK 4-1) − $20,000 withdrawals. Cash................................. $, Dr. Accounts receivable.................... , Dr. Land................................. , Dr. Accounts payable...................... , Cr. Long-term notes payable................ , Cr. Magic, Capital......................... $ , Cr. Magic, Withdrawals..................... , Dr. Fees earned........................... , Cr. Salaries expense....................... , Dr. Office supplies expense................. , Dr. Current Ratio Decision Analysis An important use of financial statements is to help assess a company’s ability to pay its debts in the near future. Such analysis affects decisions by suppliers when allowing a company to buy on credit. It also affects decisions by creditors when lending money to a company, including loan terms such as interest rate and due date. The current ratio is one measure of a company’s ability to pay its short-term obligations. It is defined in Exhibit 4. A Compute the current ratio and describe what it reveals about a company’s financial condition. Current ratio = Current assets Current liabilities EXHIBIT 4. Current Ratio Costco’s current ratio for each of the last three years is in Exhibit 4. A current ratio of over 1 means that current obligations can be covered with current assets. For the recent two years, Costco’s current ratio was slightly below 1. This means Costco could face challenges in covering liabilities. Although Costco has a better ratio than Walmart in each of the last three years, management must continue to monitor current assets and liabilities. EXHIBIT 4. Analysis Using Current Ratio Analyst You are analyzing a dirt bike company’s ability to meet upcoming loan payments. You compute its current ratio as 1. You find that a major portion of accounts receivable is due from one client who has not made any pay- ments in the past 12 months. Removing this receivable from current assets lowers the current ratio to 0. What do you conclude? ■ Answer: A current ratio of 1 suggests that current assets are sufficient to cover current liabilities. Removing the past-due receiv- able reduces the current ratio to 0. You conclude that the company will have difficulty meeting its loan payments. Decision Maker ©sgpage902/Getty Images The partial work sheet of Midtown Repair Company at December 31 follows. COMPREHENSIVE Completing a Work Sheet, Recording Closing Entries, and Preparing Financial Statements NEED-TO-KNOW 4- Balance Sheet and Adjusted Trial Income Statement of Balance Statement Owner’s Equity Cash Notes receivable (current) Prepaid insurance Prepaid rent Equipment Accumulated depreciation—Equipment Accounts payable Long-term notes payable C. Trout, Capital C. Trout, Withdrawals Repair services revenue Interest revenue Depreciation expense—Equipment Wages expense Rent expense Insurance expense Interest expense Totals Account Title Debit Credit Debit Credit Debit Credit , , , , , , , , , , , , , , , , , , , Company $ millions Current Year 1 Year Ago 2 Years Ago Costco Current assets......................... $ , $ , $ , Current liabilities...................... $ , $ , $ , Current ratio......................... 0 0 1. Walmart Current ratio.......................... . . .
Reversing Entries4AReversing entries are optional. They are recorded in response to accrued assets and accrued liabilities that were created by adjusting entries at the end of a reporting period. Reversing entries simplify re- cordkeeping. Exhibit 4A shows an example of FastForward’s reversing entries. The top of the exhibit shows the adjusting entry FastForward recorded on December 31 for its employee’s earned but unpaid salary. The entry recorded three days’ salary of $210, which increased December’s total salary expense to $1,610. The entry also recognized a liability of $210. The expense is reported on December’s income statement. The expense account is then closed. The ledger on January 1, 2020, shows a $210 liability and a zero balance in the Salaries Expense account. At this point, the choice is made between using or not using reversing entries. P Prepare reversing entries and explain their purpose. Accounting without Reversing Entries The path down the left side of Exhibit 4A. is described in the chapter. To summarize, when the next payday occurs on January 9, we record payment with a compound entry that debits both the expense and liability accounts and credits Cash. Posting that entry creates a $490 balance in the expense account and reduces the liability account balance to zero because the payable has been settled. Accounting with Reversing Entries The right side of Exhibit 4A shows reversing entries. A reversing entry is the exact opposite of an adjusting entry. For FastForward, the Salaries Payable liability account is debited for $210, meaning that this account now has a zero balance after the entry is Salaries Expense Accrue salaries expense on December 31, 2019 No reversing entry recorded on Jan. 1, 2020 WITHOUT Reversing Entries WITH Reversing Entries Under both approaches, the expense and liability accounts have identical balances after the cash payment on January 9. 210 Salaries Payable 210 Salaries Expense Salaries Payable Date 2019 Dec. 12 (7) 700 700 26 31 700 1, 1, (16) (e) 210 (e) Expl. Debit CreditBalance Date 2019 Dec. 31 210 210 Expl. Debit CreditBalance Salaries Expense $ Salaries Payable $ 0 — OR — Reversing entry recorded on Jan. 1, 2020 Circled numbers in the Balance column indicate abnormal balances. Salaries Expense 490 Salaries Payable Cash 700 Salaries Expense Salaries Payable Date 2020 Jan. 9 490 490 (e) Expl. Debit CreditBalance Date 2019 Dec. 31 210 210 Expl. Debit CreditBalance NO ENTRY Salaries Expense Salaries Payable Date 2020 (e) Expl. Debit CreditBalance Date 2019 Dec. 31 2020 210 210 2020 Jan. 9 210 0 Expl. Debit CreditBalance Salaries Expense 700 Cash 700 Salaries Expense Salaries Payable Date 2020 Jan. 1 Jan. 9 700 490 (e) Expl. Debit 210 CreditBalance Date 2019 Dec. 31 210 210 2020 Jan. 1 210 0 Expl. Debit CreditBalance Salaries Expense* Salaries Payable Date 2020 (e) Expl. Debit CreditBalance Date 2019 Dec. 31 2020 Jan. 1 210 210 210 0 Expl. Debit CreditBalance Salaries Payable 210 Salaries Expense 210 Jan. 1 210 210 210 Pay the accrued and current salaries on January 9, the first payday in 2020 EXHIBIT 4A. Reversing Entries for an Accrued Expense Intangible assets: Long-term assets that lack physical form. Examples are patents, trademarks, copyrights, franchises, and goodwill. Current liabilities: Liabilities to be paid or settled within one year. Examples are accounts payable, wages payable, taxes payable, interest payable, unearned revenues, and current portions of notes or long-term debt. Long-term liabilities: Liabilities not due within one year. Examples are notes pay- able, mortgages payable, bonds payable, and lease obligations. Equity: The owner’s claim on assets. For a proprietorship, this is the owner’s capital account. Common Layout of Classified Balance Sheet Assets Liabilities and Equity Current assets Current liabilities Noncurrent assets Noncurrent liabilities Long-term investments Plant assets Equity Intangible assets Accounting cycle (137) Classified balance sheet (138) Closing entries (134) Closing process (133) Current assets (139) Current liabilities (140) Current ratio (141) Income Summary (134) Intangible assets (140) Long-term investments (139) Long-term liabilities (140) Operating cycle (139) Permanent accounts (134) Post-closing trial balance (137) Pro forma financial statements (130) Reversing entries (143) Temporary accounts (134) Unclassified balance sheet (138) Work sheet (129) Key Terms Multiple Choice Quiz
A Superscript letter A denotes assignments based on Appendix 4A. Icon denotes assignments that involve decision making. |
