1

Finishing the
Bookkeeping
Sequence
CHAPTER 4
Book-keeping Sequence

Journalize Transaction

Post to Accounts

Adjust Accounts

Close Accounts

Prepare
Financial Statements
The Book-keeping Worksheet 3

 Used to help move data from the trial balance to the

financial statements
 An internal document – not financial statement
 Exercise 4-13
Wireless Solutions
Worksheet
30-Nov-06
Trial Balance Adjustments Adjusted T/B Income Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 3,500
Accounts receivable 3,400
Prepaid rent 1,200
Supplies 3,300
Equipment 34,100
Accum. Depreciation 1,800
Accounts payable 5,100
Salary payable
C. Voss, Capital 36,000
C. Voss, Withdrawals 2,000
Service revenue 7,100
Depreciation expense
Salary expense 1,800
Rent expense
Utilities expense 700
Supplies expense
Total 50,000 50,000
 Wireless Solutions
Worksheet
30-Nov-06
Trial Balance Adjustments Adjusted T/B Income Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 3,500 3,500
Accounts receivable 3,400 a. 300 3,700
Prepaid rent 1,200 d. 800 400
Supplies 3,300 e.1,600 1,700
Equipment 34,100 34,100
Accum. Depreciation 1,800 b. 100 1,900
Accounts payable 5,100 5,100
Salary payable c. 500 500
C. Voss, Capital 36,000 36,000
C. Voss, Withdrawals 2,000
2,000
Service revenue 7,100 a. 300 7,400
Depreciation expense b. 100 100
Salary expense 1,800 c. 500 2,300
Rent expense d. 800 800
Utilities expense 700 700
Supplies expense e. 1,600 1,600
Total 50,000 50,000 3,300 3,300 50,900 50,900 5,500 7,400 45,400 43,500
Net Income 1,900 1,900
7,400 7,400 45,400 45,400
Recording Adjusting Entries 6

 Work sheet helps identify accounts that need adjustments

 Actual adjustment of accounts requires journalizing and
posting entries
 Exercise 4-14 7

GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT

Nov 30 Accounts Receivable 300

Service Revenue 300

30 Depreciation Expense,
Equipment 100
Accumulated Depreciation,
Equipment 100
Closing the Accounts 8

 Prepares accounts for recording transactions during next

period
 Updates owner’s capital account
Four Closing Entries 9

Revenue Expense
500 500 200 200
Bal 0 Bal 0

Income Summary
200 500
Bal 300

Revenues – Expenses =
Net Income
Four Closing Entries 10

Entry 3: Close Income Summary to Capital

Entry 4: Close Withdrawals to Capital
 Notice: Only income
Exercise 4-14 11 are
statement accounts
closed to income
summary
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT

Nov 30 Income Summary 5,500

Depreciation Expense 100
Salary Expense 2,300
Rent Expense 800
Utilities Expense 700
Supplies Expense 1,600
To close expense accounts
Exercise 4-15 12
Accounts Receivable Prepaid Rent
3,400 1,200 Adj. 800
Adj. 300 Bal. 400
Bal. 3,700

Supplies Accumulated Depreciation

3,300 Adj. 1,600 1,800
Bal. 1,700 Adj. 100
Bal. 1,900

Salary Payable Gail Pfeiffer, Capital

Adj. 500 36,000
Bal. 500 Clo. 2,000 Clo. 1,900
Bal. 35,900

Gail Pfeiffer, Withdrawals Income Summary

2,000 Clo. 2,000 Clo. 5,500 Clo. 7,400
Clo. 1,900 Bal. 0
Income Summary Account 13

 Debit balance = Net Loss

 Credit balance = Net Income
 Only Balance Sheet
E4-16 accounts remain on14the
Post-Closing Trial Balance.
Wireless Solutions All other accounts have a -
Postclosing Trial Balance $0- balance
November 30, 2006
ACCOUNT DEBIT CREDIT
Cash $ 3,500
Accounts receivable 3,700
Prepaid rent 400
Supplies 1,700
Equipment 34,100
Accumulated depreciation $ 1,900
Accounts payable 5,100
Salary payable 500
Gail Pfeiffer, capital               35,900
Total $43,400 $43,400
Liquidity 15

 Measure of how quickly an item can be converted into cash

 On the balance sheet, assets and liabilities are classified as
either current or long-term to indicate their relative liquidity
The Classified Balance Sheet 16

Debit side Credit side

Current assets Current liabilities
Long-term assets Long-term liabilities
 S4-9
Current Assets Current Liabilities
 Cash  Accounts payable
 Receivables  Accrued liabilities
 Prepaid expenses

Long-term Assets Long-term liabilities

 Equipment
 None
 Buildings
 Accumulated depreciation
Different Formats of 18

the Balance Sheet

 Account Format
 Report Format
Comparative Financial 19

Statements
 Enhance user’s ability to analyze company’s past
performance
 Two common ratios used to measure liquidity
1. Current ratio
2. Debt ratio
Debt Ratio 20

 Indicates the proportion of a business’s assets that are

financed with debt
 Measures business’s ability to pay both current and long-
term debt

Total liabilities ÷ Total assets

S4-11 21

Total Liabilities:
Total Assets:
Accounts payable $4,000
Cash
$3,000 Salary payable 2,000
Accounts receivable
Note payable 9,000
6,000
Prepaid rent Total $15,000
2,000
Supplies
1,000
Equipment
Debt Ratio: Total liabilities/Total assets =
12,000
Total $15,000 / $24,000 =
$24,000 .625