Financial Accounting

IFRS 4th Edition

Weygandt ● Kimmel ● Kieso

Chapter 4
Completing the
Accounting Cycle
Chapter Outline
Learning Objectives
LO 1 Prepare a worksheet.
LO 2 Prepare closing entries and a post-closing trial
balance.
LO 3 Explain the steps in the accounting cycle and how
to prepare correcting entries.
LO 4 Identify the sections of a classified statement of
financial position.

Copyright ©2019 John Wiley & Son, Inc. 2

 Learning Objective 1
Prepare a Worksheet

LO 1 Copyright ©2019 John Wiley & Sons, Inc. 3

 The Worksheet
• Multiple-column form used in preparing financial
statements
• Not a permanent accounting record
• May be a computerized worksheet
• Prepared using a five step process
• Use of worksheet is optional

LO 1 Copyright ©2019 John Wiley & Son, Inc. 4

 Yazici Advertising A.S.
Worksheet Worksheet
For the Month Ended October 31, 2020
Adjusted Income Statement of
Trial Balance Adjustments Trial Balance Statement Financial Position
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200       15,200       15,200  
Supplies 2,500     (a) 1,500 1,000       1,000  
Prepaid Insurance 600     (b) 50 550       550  
Equipment 5,000       5,000       5,000  
Notes Payable   5,000       5,000       5,000
Accounts Payable   2,500       2,500       2,500
Unearned Service Revenue   1,200 (d) 400     800       800
Owner's Capital   10,000       10,000       10,000
Owner's Drawings 500       500       500  
Service Revenue   10,000   (d) 400   10,600   10,600    
        (e) 200            
Salaries and Wages Expense 4,000   (g) 1,200   5,200   5,200      
Rent Expense 900       900   900      
Totals 28,700 28,700                
Supplies Expense     (a) 1,500   1,500
Insurance Expense Step  1   (b) Step 50 2   Step
50 3    1,500
50 Step 
  4      
 
Accumulated Depreciation Prepare
  a   Enter
  (c) 40 Enter
  40   Extend  adjusted   40
Depreciation Expense     (c) 40   40   40      
Accounts Receivable trial balance
    (e)adjustment
200   adjusted
200   balances
  to  appropriate
200  
Interest Expense  
on the   (f) 50
data.   balances.  
50 50  
statement columns.    
Interest Payable       (f) 50   50       50
Salaries and Wages Payable worksheet.
      (g) 1,200   1,200   Step  5   1,200
Totals     3,440 3,440 30,190 30,190 7,740 10,600 22,450 19,590
Net Income             2,860Total the  statement   2,860
Totals             10,600 columns,
10,600 22,450 22,450
compute net income
(or net loss), and
complete worksheet.

LO 1 Copyright ©2019 John Wiley & Son, Inc. 5

 Yazici Advertising A.S.
Step 1 Worksheet
For the Month Ended October 31, 2020
Adjusted Income Statement of
Trial Balance Adjustments Trial Balance Statement Financial Position
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200       15,200       15,200  
Supplies 2,500     (a) 1,500 1,000       1,000  
Prepaid Insurance 600     (b) 50 550       550  
Equipment 5,000       5,000       5,000  
Notes Payable   5,000       5,000       5,000
Accounts Payable   2,500       2,500       2,500
Unearned Service Revenue   1,200 (d) 400     800       800
Share Capital—Ordinary   10,000       10,000       10,000
Dividends 500       500       500  
Service Revenue   10,000   (d) 400   10,600   10,600    
        (e) 200            
Salaries and Wages Expense 4,000   (g) 1,200   5,200   5,200      
Rent Expense 900       900   900      
Totals 28,700 28,700                
Supplies Expense     (a) 1,500   1,500   1,500      
Insurance Expense     (b) 50   50   50      
Accumulated Depreciation       (c) 40   40       40
Depreciation Expense     (c) 40   40   40      
Accounts Receivable     (e) 200   200       200  
Interest Expense
Interest Payable
 
 
  (f)
 
50
  (f)
Trial balance amounts come
50
  50
  50
  50
 
 
 
 
  50
 

Salaries and Wages Payable

Totals
 
 
 
  3,440
directly from ledger accounts.
  (g) 1,200
3,440 30,190
  1,200
30,190 7,740
 
10,600
 
22,450
  1,200
19,590
Net Income             2,860     2,860
Include all accounts
Totals             10,600 10,600 22,450 22,450
with balances.

LO 1 Copyright ©2019 John Wiley & Son, Inc. 6

 Step 2 Enter Adjustments
The adjustments are the same as in Illustration 3.23.
a. Yazici debits an additional account, Supplies Expense, ₺1,500 for the cost of
supplies used, and credits Supplies ₺1,500.
b. Yazici debits an additional account, Insurance Expense, ₺50 for the insurance
that has expired, and credits Prepaid Insurance ₺50.
c. The company needs two additional depreciation accounts. It debits
Depreciation Expense ₺40 for the month’s depreciation, and credits
Accumulated Depreciation—Equipment ₺40.
d. Yazici debits Unearned Service Revenue ₺400 for services performed, and
credits Service Revenue ₺400.
e. Yazici debits an additional account, Accounts Receivable, ₺200 for services
performed but not billed, and credits Service Revenue ₺200.
f. The company needs two additional accounts relating to interest. It debits
Interest Expense ₺50 for accrued interest, and credits Interest Payable ₺50.
g. Yazici debits Salaries and Wages Expense ₺1,200 for accrued salaries, and
credits an additional account, Salaries and Wages Payable, ₺1,200.
LO 1 Copyright ©2019 John Wiley & Son, Inc. 7
 Yazici Advertising A.S.
Step 2 Worksheet
For the Month Ended October 31, 2020
Adjusted Income Statement of
Trial Balance Adjustments Trial Balance Statement Financial Position
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200       15,200       15,200  
Supplies 2,500     (a) 1,500 1,000       1,000  
Prepaid Insurance 600     (b) 50 550       550  
Equipment 5,000       5,000       5,000  
Notes Payable   5,000       Adjustments
5,000   Key:     5,000
Accounts Payable   2,500       2,500       2,500
Unearned Service Revenue   1,200 (d) 400     800       800
Share Capital—Ordinary   10,000      
(a) Supplies  Used  
10,000   10,000
Dividends 500       500 (b) Insurance
    Expired   500  
Service Revenue   10,000   (d) 400   10,600   10,600    
        (e) 200   (c) Depreciation
    Expensed
     
Salaries and Wages Expense 4,000   (g) 1,200   5,200   5,200      
Rent Expense 900       900 (d) Service  900Revenue   Recognized
   
Totals 28,700 28,700                
Supplies Expense     (a) 1,500   1,500 (e) Service  1,500Revenue Accrued
     
Insurance Expense     (b) 50   50   50      
Accumulated Depreciation       (c) 40   (f) 40 Interest Accrued
      40
Depreciation Expense     (c) 40   40   40      
Accounts Receivable     (e) 200   200 (g) Salaries
  Accrued
    200  
Interest Expense     (f) 50   50   50      
Interest Payable       (f) 50   50       50
Salaries and Wages Payable       (g) 1,200   Enter
1,200 adjustment  amounts,
    total
1,200
Totals     3,440 3,440 30,190 30,190 7,740 10,600 22,450 19,590
Net Income           adjustments
  2,860 columns,   and  check 2,860
Totals             10,600 10,600 22,450 22,450
for equality.

Add additional accounts as needed.

LO 1 Copyright ©2019 John Wiley & Son, Inc. 8
 Yazici Advertising A.S.
Step 3 Worksheet
For the Month Ended October 31, 2020
Adjusted Income Statement of
Trial Balance Adjustments Trial Balance Statement Financial Position
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200       15,200       15,200  
Supplies 2,500     (a) 1,500 1,000       1,000  
Prepaid Insurance 600     (b) 50 550       550  
Equipment 5,000       5,000       5,000  
Notes Payable   5,000       5,000       5,000
Accounts Payable   2,500       2,500       2,500
Unearned Service Revenue   1,200 (d) 400     800       800
Share Capital—Ordinary   10,000       10,000       10,000
Dividends 500       500       500  
Service Revenue   10,000   (d) 400   10,600   10,600    
        (e) 200            
Salaries and Wages Expense 4,000   (g) 1,200   5,200   5,200      
Rent Expense 900       900   900      
Totals 28,700 28,700                
Supplies Expense     (a) 1,500   1,500   1,500      
Insurance Expense     (b) 50   50   50      
Accumulated Depreciation       (c) 40   40       40
Depreciation Expense     (c) 40   40   40      
Accounts Receivable     (e) 200   200       200  
Interest Expense     (f) 50   50   50      
Interest Payable       (f) 50   50       50
Salaries and Wages Payable       (g) 1,200   1,200       1,200
Totals     3,440 3,440 30,190 30,190 7,740 10,600 22,450 19,590
Net Income             2,860     2,860
Totals             10,600 10,600 22,450 22,450

Check equality of adjusted trial balance columns.

LO 1 Copyright ©2019 John Wiley & Son, Inc. 9
 Yazici Advertising A.S.
Step 4 Worksheet
For the Month Ended October 31, 2020
Adjusted Income Statement of
Trial Balance Adjustments Trial Balance Statement Financial Position
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200       15,200       15,200  
Supplies 2,500     (a) 1,500 1,000       1,000  
Prepaid Insurance 600     (b) 50 550       550  
Equipment 5,000       5,000       5,000  
Notes Payable   5,000       5,000       5,000
Accounts Payable   2,500       2,500       2,500
Unearned Service Revenue   1,200 (d) 400     800       800
Share Capital—Ordinary   10,000       10,000       10,000
Dividends 500       500       500  
Service Revenue   10,000   (d) 400   10,600   10,600    
        (e) 200            
Salaries and Wages Expense 4,000   (g) 1,200   5,200   5,200      
Rent Expense 900       900   900      
Totals 28,700 28,700                
Supplies Expense     (a) 1,500   1,500   1,500      
Insurance Expense     (b) 50   50   50      
Accumulated Depreciation       (c) 40   40       40
Depreciation Expense     (c) 40   40   40      
Accounts Receivable     (e) 200   200       200  
Interest Expense     (f) 50   50   50      
Interest Payable       (f) 50   50       50
Salaries and Wages Payable       (g) 1,200   1,200       1,200
Totals     3,440 3,440 30,190 30,190 7,740 10,600 22,450 19,590
Net Income             2,860     2,860
Totals             10,600 10,600 22,450 22,450

Extend adjusted trial balance amounts to appropriate financial statement columns.

LO 1 Copyright ©2019 John Wiley & Son, Inc. 10
 Yazici Advertising A.S.
Step 5 Worksheet
For the Month Ended October 31, 2020
Adjusted Income Statement of
Trial Balance Adjustments Trial Balance Statement Financial Position
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200       15,200       15,200  
Supplies 2,500     (a) 1,500 1,000       1,000  
Prepaid Insurance 600     (b) 50 550       550  
Equipment 5,000       5,000       5,000  
Notes Payable   5,000       5,000       5,000
Accounts Payable   2,500       2,500       2,500
Unearned Service Revenue   1,200 (d) 400     800       800
Share Capital—Ordinary   10,000       10,000       10,000
Dividends 500       500       500  
Service Revenue   10,000   (d) 400   10,600   10,600    
        (e) 200            
Salaries and Wages Expense 4,000   (g) 1,200   5,200   5,200      
Rent Expense 900       900   900      
Totals 28,700 28,700                
Supplies Expense     (a) 1,500   1,500   1,500      
Insurance Expense     (b) 50   50   50      
Accumulated Depreciation       (c) 40   40       40
Depreciation Expense     (c) 40   40   40      
Accounts Receivable     (e) 200   200       200  
Interest Expense     (f) 50   50   50      
Interest Payable       (f) 50   50       50
Salaries and Wages Payable       (g) 1,200   1,200       1,200
Totals     3,440 3,440 30,190 30,190 7,740 10,600 22,450 19,590
Net Income             2,860     2,860
Totals             10,600 10,600 22,450 22,450

Compute net income or net loss.

LO 1 Copyright ©2019 John Wiley & Son, Inc. 11
 Steps in Preparing a Worksheet (2 of 2)
Which of the following statements is incorrect
concerning the worksheet?
a. The worksheet is essentially a working tool of the
accountant.
b. The worksheet is distributed to management and
other interested parties.
c. The worksheet cannot be used as a basis for
posting to ledger accounts.
d. Financial statements can be prepared directly
from the worksheet before journalizing and
LO 1
posting the adjusting entries.
Copyright ©2019 John Wiley & Son, Inc. 12
 Steps in Preparing a Worksheet (1 of 2)
Which of the following statements is incorrect
concerning the worksheet?
a. The worksheet is essentially a working tool of the
accountant.
b. The worksheet is distributed to management and
other interested parties.
c. The worksheet cannot be used as a basis for
posting to ledger accounts.
d. Financial statements can be prepared directly
from the worksheet before journalizing and
LO 1
posting the adjusting entries.
Copyright ©2019 John Wiley & Son, Inc. 13
 Preparing Financial Statements from a
Worksheet
• Income statement is prepared from the income
statement columns
• Statement of financial position and retained earnings
statement are prepared from the statement of
financial position columns
• Companies can prepare financial statements before
they journalize and post adjusting entries

LO 1 Copyright ©2019 John Wiley & Son, Inc. 14

 Statements from a Worksheet (1 of 2)
Yazici Advertising A.S.
Income Statement
For the Month Ended October 31, 2020
Revenues
Service revenue ₺10,600
Expenses
Salaries and wages expense ₺5,200
Supplies expense 1,500
Rent expense 900
Insurance expense 50
Interest expense 50
Depreciation expense 40
Total expenses 7,740
Net income ₺ 2,860

LO 1 Copyright ©2019 John Wiley & Son, Inc. 15

 Statements from a Worksheet (2 of 2)
Yazici Advertising A.S.
Retained Earnings Statement
For the Month Ended October 31, 2020
Retained earnings, October 1 ₺ –0–
Add: Net income 2,860
2,860
Less: Dividends 500
Retained earnings, October 31 ₺ 2,360

LO 1 Copyright ©2019 John Wiley & Son, Inc. 16

 Yazici Advertising A.S.
Statement of Financial Position
October 31, 2020
Assets
Equipment ₺5,000
Less: Accumulated depreciation—equipment 40 ₺ 4,960
Prepaid insurance 550
Supplies 1,000
Accounts receivable 200
Cash 15,200
Total assets ₺21,910
Equity and Liabilities
Equity
Share capital—ordinary ₺10,000
Retained earnings 2,360 ₺12,360
Liabilities
Notes payable 5,000
Accounts payable 2,500
Interest payable 50
Unearned service revenue 800
Salaries and wages payable 1,200 9,550
Total equity and liabilities ₺21,910

LO 1 Copyright ©2019 John Wiley & Son, Inc. 17

 Preparing Adjusting Entries from a
Worksheet
• Adjusting entries are prepared from the adjustments
columns of worksheet
• Journalizing and posting of adjusting entries follows
the preparation of financial statements when a
worksheet is used

LO 1 Copyright ©2019 John Wiley & Son, Inc. 18

 DO IT! 1: Worksheet
Susan Elbe is preparing a worksheet. Explain to Susan how she should
extend the following adjusted trial balance accounts to the financial
statement columns of the worksheet.
Cash Statement of financial position (debit)
Owner’s Drawings Statement of financial position (debit)
Accumulated Depreciation Statement of financial position (credit)
Service Revenue Income statement (credit)
Accounts Payable Statement of financial position (credit)
Salaries and Wages Expense Income statement (debit)

LO 1 Copyright ©2019 John Wiley & Son, Inc. 19

 Learning Objective 2
Prepare Closing Entries and a Post-
Closing Trial Balance

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 20

 Closing the Books (1 of 2)
At the end of the accounting period, the company
makes the accounts ready for the next period.

Trial Adjusting
Analyze Journalize Post
Balance Entries

Adjusted Post-Closing
Trial
Financial Closing
Trial
Balance Statements Entries
Balance

LO 2 Copyright ©2019 John Wiley & Son, Inc. 21

 Closing the Books (2 of 2)
TEMPORARY PERMANENT
Accounts are closed Accounts are not closed

All revenue accounts All assets accounts

All expense accounts All liability accounts
Dividends Equity

LO 2 Copyright ©2019 John Wiley & Son, Inc. 22

 Preparing Closing Entries (1 of 2)
Closing entries formally recognize in the ledger the
transfer of:
• Net income (or net loss) to owner’s capital
• Dividends to retained earnings
Produce a zero balance in each temporary account.
Companies generally journalize and post closing entries
only at end of the annual accounting period.

LO 2 Copyright ©2019 John Wiley & Son, Inc. 23

 Preparing Closing Entries (2 of 2)
(Individual) Income (Individual)
Expenses Summary Revenues

2 1

3
Key:
1. Close Revenues to Income Retained
Summary. Dividends Earnings
2. Close Expenses to Income
Summary.
4
3. Close Income Summary to
Retained Earnings.
4. Close Dividends to Retained
Earnings.

LO 2 Copyright ©2019 John Wiley & Son, Inc. 24

 Closing Entries Illustrated (1 of 2)
GENERAL JOURNAL Page J3
Date Account Titles and Explanations Ref. Debit Credit
2020
Oct. 31 Service Revenue 400 10,600
Income Summary 350 10,600
(To close revenue account)
31 Income Summary 350 7,740
Supplies Expense 631 1,500
Depreciation Expense 711 40
Insurance Expense 722 50
Salaries and Wages Expense 726 5,200
Rent Expense 729 900
Interest Expense 729 50
(To close expense accounts)
LO 2 Copyright ©2019 John Wiley & Son, Inc. 25
 Closing Entries Illustrated (2 of 2)
GENERAL JOURNAL Page J3
Date Account Titles and Explanations Ref. Debit Credit
2020
Oct. 31 Income Summary 350 2,860
Retained Earnings 301 2,860
(To close net income)
31 Retained Earnings 301 500
Dividends 306 500
(To close drawings)

LO 2 Copyright ©2019 John Wiley & Son, Inc. 26

 Posting Closing Entries

Copyright ©2019 John

LO 2 27
Wiley & Son, Inc.
 Yazici Advertising A.S.
Post-Closing Trial Balance
October 31, 2020
Debit Credit
Cash ₺15,200
Accounts Receivable 200
Supplies 1,000
Prepaid Insurance 550
Equipment 5,000
Accumulated Depreciation—Equipment ₺ 40
Notes Payable 5,000
Accounts Payable 2,500
Unearned Service Revenue 800
Salaries and Wages Payable 1,200
Interest Payable 50
Share Capital—Ordinary 10,000
Retained Earnings 2,360
₺21,950 ₺21,950
LO 2 Copyright ©2019 John Wiley & Son, Inc. 28
 DO IT! 2: Closing Entries (1 of 3)
Hancock Company has the following balances in selected accounts
of its adjusted trial balance.
Accounts Payable €27,000 Dividends €15,000
Service Revenue 98,000 Share Capital—Ordinary 42,000
Rent Expense 22,000 Accounts Receivable 38,000
Salaries and Wages Supplies Expense 7,000
Expense 51,000
Prepare the closing entries at December 31.
Service Revenue 98,000
Income Summary 98,000

LO 2 Copyright ©2019 John Wiley & Son, Inc. 29

 DO IT! 2: Closing Entries (2 of 3)
Accounts Payable €27,000 Dividends €15,000
Service Revenue 98,000 Share Capital—Ordinary 42,000
Rent Expense 22,000 Accounts Receivable 38,000
Salaries and Wages Supplies Expense 7,000
Expense 51,000
Prepare the closing entries at December 31.
Income Summary 80,000
Salaries and Wages Expense 51,000
Rent Expense 22,000
Supplies Expense 7,000

LO 2 Copyright ©2019 John Wiley & Son, Inc. 30

 DO IT! 2: Closing Entries (3 of 3)
Accounts Payable €27,000 Dividends €15,000
Service Revenue 98,000 Share Capital—Ordinary 42,000
Rent Expense 22,000 Accounts Receivable 38,000
Salaries and Wages Supplies Expense 7,000
Expense 51,000
Prepare the closing entries at December 31.
Income Summary 18,000
Retained Earnings 18,000
Retained Earnings 15,000
Dividends 15,000

LO 2 Copyright ©2019 John Wiley & Son, Inc. 31

 Learning Objective 3
Explain the Steps in the Accounting
Cycle and How to Prepare Correcting
Entries

LO 3 Copyright ©2019 John Wiley & Sons, Inc. 32

 The Accounting Cycle
1. Analyze business transactions

9. Prepare a post-closing trial

2. Journalize the transactions
balance

8. Journalize and post closing

3. Post to ledger accounts
entries

7. Prepare financial
4. Prepare a trial balance
statements

6. Prepare an adjusted trial 5. Journalize and post

balance adjusting entries

LO 3 Copyright ©2019 John Wiley & Son, Inc. 33

 1. Analyze Business Transactions
Assets Liabilities Equity
Accounts Notes Unearned Share
Date Cash +Equipment = Payable + Payable + Revenue + Capital - Dividends +Revenue - Expense
1 +₺10,000 +₺10,000
1 +₺5,000 +₺5,000
2 +1,200 +₺1,200
3 -1,200 -₺1,200
4 +250 -$250

Partial Schedule

LO 3 Copyright ©2019 John Wiley & Son, Inc. 34

 2. Journalize the Transactions
GENERAL JOURNAL Page J1
Date Explanation Ref. Debit Credit
2020
Oct. 1 Cash 101 10,000
Share Capital-Ordinary 311 10,000
1 Equipment 157 5,000
Notes Payable 200 5,000
2 Cash 101 1,200
Unearned Revenue 209 1,200

LO 3 Copyright ©2019 John Wiley & Son, Inc. 35

 3. Post to the Ledger Accounts
GENERAL JOURNAL J1
Date Account Titles and Explanations Ref. Debit Credit
Oct. 1 Cash 101 10,000
Share Capital-Ordinary 311 10,000
(Issued shares for cash)

GENERAL LEDGER
Cash No. 101
Date Explanations Ref. Debit Credit Balance
Oct. 1 J1 7,000 7,000

Share Capital-Ordinary No. 311

Date Explanations Ref. Debit Credit Balance
Oct. 1 J1 7,000 7,000

LO 2 Copyright ©2018 John Wiley & Son, Inc. 36

 Yazici Advertising A.S.
4. Prepare Trial Balance
October 31, 2020
a Trial Debit Credit
Balance Cash ₺15,200
Supplies 2,500
Prepaid Insurance 600
Equipment 5,000
Notes Payable ₺5,000
Accounts Payable 2,500
Unearned Service Revenue 1,200
Share Capital—Ordinary 10,000
Retained Earnings 0
Dividends 500
Service Revenue 10,000

LO 3 Copyright ©2019 John Wiley & Son, Inc. 37

 5. Journalize and Post AJEs
GENERAL JOURNAL J1
Date Account Titles and Explanations Ref. Debit Credit
Oct. 31 Supplies Expense 631 1,500
Supplies 126 1,500
(To record supplies used)

GENERAL LEDGER
Supplies No. 126
Date Explanations Ref. Debit Credit Balance
Oct. 1 2,500
Oct. 31 Adjusting entry J2 1,500 1,000

Supplies Expense No. 631

Date Explanations Ref. Debit Credit Balance
Oct. 31 Adjusting entry J2 1,500 1,500

LO 2 Copyright ©2018 John Wiley & Son, Inc. 38

 Yazici Advertising A.S.
6. Prepare Adjusted Trial Balance
October 31, 2020
an Adjusted Debit Credit
Trial Balance Cash ₺15,200
Accounts Receivable 200
Supplies 1,000
Prepaid Insurance 550
Equipment 5,000
Accumulated Depreciation ₺ 40
Notes Payable 5,000
Accounts Payable 2,500
Interest Payable 50
Unearned Service Revenue 800
Salaries and Wages Payable 1,200

LO 3 Copyright ©2019 John Wiley & Son, Inc. 39

 7. Prepare Financial Statements Partial
Statements

Yazici Advertising A.S.

Income Statement
For the Month Ended October 31, 2020
Revenues
Service revenue ₺10,600

Yazici Advertising A.S.

Retained Earnings Statement
For the Month Ended October 31, 2020
Retained earnings, October 1 ₺ 0

Yazici Advertising A.S.

Statement of Financial Position
October 31, 2020
Assets
Cash ₺15,200
Accounts receivable 200

LO 3 Copyright ©2019 John Wiley & Son, Inc. 40

 8. Journalize and Post Closing Entries
GENERAL JOURNAL Page J3
Date Account Titles and Explanations Ref. Debit Credit
2020
Oct. 31 Service Revenue 400 10,600
Income Summary 350 10,600
(To close revenue account)
31 Income Summary 350 7,740
Supplies Expense 631 1,500
Depreciation Expense 711 40
Insurance Expense 722 50
Salaries and Wages Expense 726 5,200
Partial Rent Expense 729 900
Schedule Interest Expense 729 50
(To close expense accounts)

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 9. Prepare a Yazici Advertising A.S.
Post-Closing Trial Balance
Post-Closing October 31, 2020

Trial Balance Debit Credit

Cash ₺15,200
Accounts Receivable 200
Supplies 1,000
Prepaid Insurance 550
Equipment 5,000
Accumulated Depreciation ₺ 40
Notes Payable 5,000
Accounts Payable 2,500
Unearned Service Revenue 800
Salaries and Wages Payable 1,200

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 Correcting Entries—Avoidable Step (1 of 3)
• Unnecessary if accounting records are free of errors
• Made whenever an error is discovered
• Must be posted before closing entries
Instead of preparing a correcting entry, it is possible
to reverse the incorrect entry and then prepare the
correct entry.

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 Correcting Entries—Avoidable Step (2 of 3)
Case 1: On May 10, Mercato Co. journalized and posted a NT$500
cash collection on account from a customer as a debit to Cash and a
credit to Service Revenue for NT$500. The error was discovered
when the customer paid the remaining balance in full.
Incorrect Cash 500
entry Service Revenue 500
Correct Cash 500
entry Accounts Receivable 500
Correcting Service Revenue 500
entry Accounts Receivable 500
LO 3 Copyright ©2019 John Wiley & Son, Inc. 44
 Correcting Entries—Avoidable Step (3 of 3)
Case 2: On May 10, 18, Mercato purchased on account equipment
costing NT$4,500. The transaction was journalized and posted as a
debit to Equipment NT$450 and a credit to Accounts Payable
NT$450. The error was discovered on June 3,
Incorrect Equipment450
entry Accounts Payable 450
Correct Equipment4,500
entry Accounts Payable 4,500
Correcting Equipment4,050
entry Accounts Payable 4,050
LO 3 Copyright ©2019 John Wiley & Son, Inc. 45
 DO IT! 3: Correcting Entries (1 of 3)
Sanchez Company discovered the following errors made in January
2020.
1. A payment of Salaries and Wages Expense of $600 was debited
to Supplies and credited to Cash, both for $600.
2. A collection of $3,000 from a client on account was debited to
Cash $200 and credited to Service Revenue $200.
3. The purchase of supplies on account for $860 was debited to
Supplies $680 and credited to Accounts Payable $680.
Correct the errors without reversing the incorrect entry.

LO 3 Copyright ©2019 John Wiley & Son, Inc. 46

 DO IT! 3: Correcting Entries (2 of 3)
1. A payment of Salaries and Wages Expense of $600 was debited
to Supplies and credited to Cash, both for $600.
Salaries and Wages Expense 600
Supplies 600
2. A collection of $3,000 from a client on account was debited to
Cash $200 and credited to Service Revenue $200.
Service Revenue 200
Cash 2,800
Accounts Receivable 3,000

LO 3 Copyright ©2019 John Wiley & Son, Inc. 47

 DO IT! 3: Correcting Entries (3 of 3)
3. The purchase of supplies on account for $860 was debited to
Supplies $680 and credited to Accounts Payable $680.
Supplies ($860 - $680) 180
Accounts Payable 180

LO 3 Copyright ©2019 John Wiley & Son, Inc. 48

 Learning Objective 4
Identify the Sections of a Classified
Statement of Financial Position

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 Classified Statement of Financial
Position
• Presents a snapshot at a point in time
• To improve understanding, companies group similar
assets and similar liabilities together
Assets Equity and Liabilities
Intangible assets Equity
Property, plant, and equipment Non-current liabilities
Long-term investments Current liabilities
Current assets

LO 4 Copyright ©2019 John Wiley & Son, Inc. 50

 Cheng Ltd.
Statement of Financial Position
October 31, 2020
(NT$ in thousands) (1 of 2)
Assets
Intangible assets
Patents NT$ 3,100
Property, plant, and equipment
Land NT$10,000
Equipment NT$24,000
Less: Accumulated depreciation—
equipment 5,000 19,000 29,000
Long-term investments
Investment in shares of Walters Corp. 5,200
Investment in real estate 2,000 7,200
Current assets
Prepaid insurance 400
Supplies 2,100
Inventory 3,000
Notes receivable 1,000
Accounts receivable 7,000
Short-term investments 2,000
Cash 6,600 22,100
Total assets NT$61,400

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 Cheng Ltd.
Statement of Financial Position
October 31, 2020
(NT$ in thousands) (2 of 2)
Equity and Liabilities
Equity
Share capital—ordinary NT$20,000
Retained earnings 14,050 NT$34,050
Non-current liabilities
Mortgage payable 10,000
Notes payable 1,300 11,300
Current liabilities
Notes payable 11,000
Accounts payable 2,100
Salaries and wages payable 1,600
Unearned service revenue 900
Interest payable 450 16,050 Total equity and liabilities
NT$61,400

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 Intangible Assets
Long-lived assets that do not have physical substance.

Nokia
Statement of Financial Position (partial)
(in millions)

Intangible assets
Capitalized development costs € 244
Goodwill 6,257
Other intangible assets 3,913
€10,414

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 Classified Statement of Financial
Position (1 of 2)
Current assets are listed:
a. in the reverse order of expected conversion to
cash.
b. by importance.
c. by longevity.
d. by size.

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 Classified Statement of Financial
Position (2 of 2)
Current assets are listed:
a. in the reverse order of expected conversion to
cash.
b. by importance.
c. by longevity.
d. by size.

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 Property, Plant, and Equipment (1 of 2)
• Long useful lives
• Currently used in operations
• Depreciation - allocating the cost of assets to a
number of years
• Accumulated depreciation - total amount of
depreciation expensed thus far in the asset’s life
• Sometimes called fixed assets or plant assets

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 Property, Plant, and Equipment (2 of 2)
Laclede Group
Statement of Financial Position (partial)
(₩ in billions )
Property, plant, and equipment
Land ₩ 2,604
Buildings ₩ 9,487
Structures 1,568
Machinery 36,956
Vehicles 226
Other 10,600 58,837
Less: Accumulated depreciation 32,617
₩28,824
LO 4 Copyright ©2019 John Wiley & Son, Inc. 57
 Long-Term Investments
• Investments in stocks and bonds of other companies
• Investments in long-term assets such as land or
buildings that are not currently being used in
operating activities
• Long-term notes receivable

Alphabet Inc.
Statement of Financial Position (partial)
(in thousands)
Long-term investments
Non-marketable equity investments $1,469

LO 4 Copyright ©2019 John Wiley & Son, Inc. 58

 Current Assets (1 of 4)
• Assets that a company expects to convert to cash or
use up within one year or the operating cycle,
whichever is longer
• Operating cycle is the average time that it takes to
 purchase inventory,
 sell it on account, and
 collect cash from customers

LO 4 Copyright ©2019 John Wiley & Son, Inc. 59

 Current Assets (2 of 4)
Tesco
Statement of Financial Position (partial)
(£ in millions )

Current assets
Inventories £2,430
Trade and other receivables 1,311
Derivative financial instruments 97
Current tax assets 6
Short-term investments 360
Cash and cash equivalents 1,788
Total current assets £5,992

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 Current Assets (3 of 4)
The correct order of presentation in a classified
statement of financial position for the following current
assets is:
a. accounts receivable, cash, prepaid insurance,
inventory.
b. prepaid insurance, inventory, accounts
receivable, cash.
c. cash, accounts receivable, inventory, prepaid
insurance.
d. inventory, cash, accounts receivable, prepaid
insurance.
LO 4 Copyright ©2019 John Wiley & Son, Inc. 61
 Current Assets (4 of 4)
The correct order of presentation in a classified
statement of financial position for the following current
assets is:
a. accounts receivable, cash, prepaid insurance,
inventory.
b. prepaid insurance, inventory, accounts
receivable, cash.
c. cash, accounts receivable, inventory, prepaid
insurance.
d. inventory, cash, accounts receivable, prepaid
insurance.
LO 4 Copyright ©2019 John Wiley & Son, Inc. 62
 Equity
• Proprietorship - one capital account
• Partnership - capital account for each partner
• Corporation – Share Capital—Ordinary and Retained
Earnings
Halie Capital Ltd.
Statement of Financial Position (partial)
(in thousands)
Equity
Share capital—ordinary £ 685,934
Retained earnings 1,406,747
Total equity £2,092,681
LO 4 Copyright ©2019 John Wiley & Son, Inc. 63
 Non-Current Liabilities
Obligations a company expects to pay after one year.

Siemens
Statement of Financial Position (partial)
(in millions)

Non-current liabilities
Long-term debt

€14,260
Pension plans and similar commitments

4,361
Provisions
LO 4 Copyright ©2019 John Wiley & Son, Inc. 64
 Current Liabilities (1 of 2)
• Obligations company has to pay within coming year
or its operating cycle, whichever is longer
• Common examples are accounts payable, salaries and
wages payable, notes payable, interest payable,
income taxes payable, and current maturities of long-
term obligations
• Liquidity - ability to pay obligations expected to be
due within the next year

LO 4 Copyright ©2019 John Wiley & Son, Inc. 65

 Current Liabilities (2 of 2)
Siemens
Statement of Financial Position (partial)
(in millions)

Current liabilities
Trade payables € 8,860
Current provisions 5,165
Other current financial liabilities 2,427
Income taxes payable 1,970
Current maturities for long-term debt 1,819
Other current liabilities 22,210 €42,451

LO 4 Copyright ©2019 John Wiley & Son, Inc. 66

 Statement of Financial Position (1 of 2)
Current assets are listed:
a. in the reverse order of expected conversion to cash.
b. by importance.
c. by longevity.
d. by size.

LO 4 Copyright ©2019 John Wiley & Son, Inc. 67

 Statement of Financial Position (2 of 2)
Current assets are listed:
a. in the reverse order of expected conversion to cash.
b. by importance.
c. by longevity.
d. by size.

LO 4 Copyright ©2019 John Wiley & Son, Inc. 68

 DO IT! 4: Statement of Financial Position
Classifications
Match each of the following to its proper statement of financial position
classification, shown below. If the item would not appear on a statement of
financial position, use “NA.”

CL Salaries and wages payable LTI Stock investments (long-term)

NA Service revenue PPE Equipment
CL Interest payable PPE Accumulated depreciation
IA Goodwill NA Depreciation expense
CA Debt investments (short-term) E Share capital—ordinary
NCL Mortgage payable (due in 3 years) CL Unearned service revenue

Intangible assets (IA) Equity (E)

Property, plant, and equipment (PPE) Non-current liabilities (NCL)
Long-term investments (LTI) Current liabilities (CL)
Current assets (CA)
LO 4 Copyright ©2019 John Wiley & Son, Inc. 69
 Learning Objective 5
Prepare Reversing Entries

LO 4 Copyright ©2019 John Wiley & Sons, Inc. 70

 Appendix 4A Reversing Entries
It is often helpful to reverse some adjusting entries
before recording regular transactions of the next
period
Companies make a reversing entry at beginning of
next accounting period
Each reversing entry is exact opposite of adjusting
entry made in previous period
Use of reversing entries does not change amounts
reported in the financial statements
LO 5 Copyright ©2019 John Wiley & Son, Inc. 71
 Reversing Entries Example (1 of 3)
We use the salaries expense transactions for Yazici Advertising as
illustrated in Chapters 2, 3, and 4.
1. October 26 (initial salary entry): Yazici pays ₺4,000 of salaries
and wages earned between October 15 and October 26.
2. October 31 (adjusting entry): Salaries and wages earned
between October 29 and October 31 are ₺1,200. The company
will pay these in the November 9 payroll.
3. November 9 (subsequent salary entry): Salaries and wages paid
are ₺4,000. Of this amount, ₺1,200 applied to accrued salaries
and wages payable and ₺2,800 was earned between November
1 and November 9.

LO 5 Copyright ©2019 John Wiley & Son, Inc. 72

 Reversing Entries Example (2 of 3)
WITHOUT Reversing Entries WITH Reversing Entries
(per appendix) (per appendix)

Initial Salary Entry Initial Salary Entry

Oct. 26 Salaries and Wages Expense 4,000 Oct. 26 (Same entry)
Cash 4,000
Adjusting Entry Adjusting Entry
Oct. 31 Salaries and Wages Expense 1,200 Oct. 31 (Same entry)
Salaries and Wages Payable 1,200
Closing Entry Closing Entry
Oct. 31 Income Summary 5,200 Oct. 31 (Same entry)
Salaries and Wages Expense 5,200
Reversing Entry Reversing Entry
Nov. 1 No reversing entry is made. Nov. 1 Salaries and Wages Payable 1,200
Salaries and Wages Expense 1,200
Subsequent Salary Entry Subsequent Salary Entry
Nov. 9 Salaries and Wages Payable 1,200 Nov. 9 Salaries and Wages Expense 4,000
Salaries and Wages Expense 2,800 Cash 4,000
Cash

4,000 Copyright ©2019 John Wiley & Son, Inc. 73

LO 5
 Reversing Entries Example (3 of 3)
Salaries and Wages Expense
10/26 Paid 4,000 Blank Blank

10/31 Adjusting 1,200 Blank Blank

Blank 5,200 10/31 Closing 5,200

11/9 Paid 4,000 11/1 Reversing 1,200

Salaries and Wages Payable

11/1 Reversing 1,200 10/31 1,200

LO 5 Copyright ©2019 John Wiley & Son, Inc. 74

 Learning Objective 6
Compare the Procedures for the
Accounting Cycle Under I F R S and U.S.
GAAP

LO 4 Copyright ©2019 John Wiley & Sons, Inc. 75

 A Look at IFRS
Key Points
In general, G A A P follows the similar guidelines as this text for
presenting items in the current asset section, except that
under G A A P items are listed in order of liquidity, while under
I F R S they are often listed in reverse order of liquidity. For
example, under G A A P cash is listed first, but under I F R S it is
listed last.
Both G A A P and I F R S are increasing the use of fair value to
report assets. However, at this point I F R S has adopted it
more broadly. As examples, under I F R S companies can apply
fair value to property, plant, and equipment; natural
resources; and in some cases intangible assets.

LO 6 Copyright ©2019 John Wiley & Son, Inc. 76

 A Look at IFRS (1 of 5)
Key Points
Similarities
Both I F R S and G A A P require disclosures about (1) accounting
policies followed, (2) judgments that management has made
in the process of applying the entity’s accounting policies, and
(3) the key assumptions and estimation uncertainty that could
result in a material adjustment to the carrying amounts of
assets and liabilities within the next financial year.
Comparative prior-period information must be presented and
financial statements must be prepared annually.

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 A Look at IFRS (2 of 5)
Key Points
Differences
I F R S officially uses the term statement of financial position in its
literature, while in the United States it is often referred to as
the balance sheet.
I F R S requires that specific items be reported on the statement
of financial position, whereas no such general standard exists
in G A A P. However, under G A A P, public companies must
follow U.S. Securities and Exchange Commission (S E C)
regulations, which require specific line items as well. In
addition, specific G A A P standards mandate certain forms of
reporting statement of financial position information. The S E C
guidelines are more detailed than I F R S .
LO 6 Copyright ©2019 John Wiley & Son, Inc. 78
 A Look at IFRS (3 of 5)
Key Points
Differences
While I F R S companies often report non-current assets before
current assets in their statements of financial position, this is
never seen under G A A P. Also, some I F R S companies report
the subtotal “net assets,” which equals total assets minus
total liabilities. This practice is also not seen under G A A P.
A key difference in valuation is that under I F R S , companies,
under certain conditions, can report property, plant, and
equipment at cost or at fair value, whereas under G A A P this
practice is not allowed.

LO 6 Copyright ©2019 John Wiley & Son, Inc. 79

 A Look at IFRS (4 of 5)
Key Points
Differences
G A A P has many differences in terminology from what are
shown in your textbook. For example, in the investment
category shares are called stock. Also note that Share Capital—
Ordinary is referred to as Common Stock. In addition, the
format used for statement of financial position presentation is
often different between G A A P and I F R S .

LO 6 Copyright ©2019 John Wiley & Son, Inc. 80

 A Look at IFRS (5 of 5)
Looking to the Future
The IASB and the FASB are working on a project to converge their
standards related to financial statement presentation. A key feature
of the proposed framework is that each of the statements will be
organized in the same format, to separate an entity’s financing
activities from its operating and investing activities and, further, to
separate financing activities into transactions with owners and
creditors. Thus, the same classifications used in the statement of
financial position would also be used in the income statement and
the statement of cash flows.

LO 6 Copyright ©2019 John Wiley & Son, Inc. 81

Copyright
Copyright © 2019 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Act without the express written permission of the
copyright owner is unlawful. Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies
for his/her own use only and not for distribution or resale. The Publisher assumes no
responsibility for errors, omissions, or damages, caused by the use of these programs or
from the use of the information contained herein.

Copyright ©2019 John Wiley & Son, Inc. 82