CHAPTER y4
COMPLETING yTHE yACCOUNTING yCYCLE
DISCUSSION yQUESTIONS
1. The yend-of-period yspreadsheet yillustrates ythe yflow yof yaccounting yinformation yfrom ythe
yunadjusted y trial ybalance yinto ythe yadjusted ytrial ybalance yand yinto ythe yfinancial ystatements.
yIn ydoing yso, ythe y spreadsheet yillustrates ythe yimpact yof ythe yadjustments yon ythe yfinancial
ystatements.
2. a. Current y assets y are y composed y of y cash y and y other y assets y that y may y reasonably y be y expected
to ybe yrealized yin ycash yor ysold yor yused yup yusually ywithin yone yyear yor yless, ythrough
ythe ynormal yoperations yof ythe ybusiness.
b. Property, y plant, y and y equipment y is y composed y of y assets y that y are y used y in y the
y business y and y that yare yof ya ypermanent yor yrelatively yfixed ynature. yThe yProperty, yPlant,
yand yEquipment ysection ymay y also ybe ydescribed yas yfixed yassets yor yplant yassets. yThese
yassets yinclude yequipment, ymachinery, ybuildings, yand yland.
3. Current yliabilities yare yliabilities ythat ywill ybe ydue ywithin ya yshort ytime y(usually yone yyear yor
yless) yand ythat yare yto ybe ypaid yout yof ycurrent yassets. yLiabilities ythat ywill ynot ybe ydue yfor
ya ycomparatively ylong ytime y(usually ymore ythan yone yyear) yare ycalled ylong-term yliabilities.
4. Revenue, y expense, y and y drawing y accounts y are y generally y referred y to y as y temporary y accounts.
5. Cash, y Office y Equipment
6. Closing yentries yare ynecessary yat ythe yend yof yan yaccounting yperiod y(1) yto ytransfer ythe
ybalances yin ytemporary yaccounts yto ypermanent yaccounts yand y(2) yto yprepare ythe
ytemporary yaccounts yfor yuse yin yrecording ytransactions yfor ythe ynext yaccounting yperiod.
7. Adjusting yentries ybring ythe yaccounts yup yto ydate, ywhile yclosing yentries yreduce ythe yrevenue,
yexpense, yand ydrawing yaccounts yto yzero ybalances yfor yuse yin yrecording ytransactions yfor ythe
ynext yaccounting yperiod.
8. a. After y preparing y the y adjusted y trial y balance
b. After y preparing y the y financial y statements
c. Before y preparing y the y post-closing y trial y balance
9. The ypurpose yof ythe ypost-closing ytrial ybalance yis yto ymake ysure ythat ythe yledger yis yin
ybalance yat ythe y beginning yof ythe ynext yperiod.
10. a. The y financial y statements y are y the y most y important y output y of y the y accounting y cycle.
b. Yes. yAll ycompanies yhave yan yaccounting ycycle ythat ybegins ywith yanalyzing yand
yjournalizing ytransactions yand yends ywith ya ypost-closing ytrial ybalance. yHowever,
ycompanies ymay ydiffer yin yhow ythey yimplement ythe ysteps yin ythe yaccounting ycycle.
yFor yexample, ywhile ymost ycompanies yuse ycomputerized yaccounting ysystems, ysome
ycompanies ymay yuse ymanual ysystems.
4-1
© 2021 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 4 Completing the Accounting Cycle
PRACTICE yEXERCISES
PE y 4-1A
1. Balance y sheet 5. Income y statement
2. Income y statement 6. Income y statement
3. Statement y of y owner’s y equity 7. Balance y sheet
4. Balance y sheet 8. Balance y sheet
PE y 4-1B
1. Balance y sheet 5. Balance y sheet
2. Balance y sheet 6. Balance y sheet
3. Income y statement 7. Statement y of y owner’s y equity
4. Income y statement 8. Income y statement
PE y 4-2A
Aquarius yAdvertising
yServices yStatement yof
yOwner’s yEquity
For y the y Year y Ended y December y 31,
y 20Y3
Cyrus y Bautista, y capital, y January y 1, y 20Y3 $471,900
Additional y investment y during y 20Y3 $ y 72,000
Net y income 103,000
Withdrawals (17,000)
Increase y in y owner’s y equity 158,000
Cyrus y Bautista, y capital, y December y 31, y 20Y3 $629,900
PE y 4-2B
Road yRunner yDelivery yServices
yStatement yof yOwner’s yEquity
For y the y Year y Ended y December y 31,
y 20Y3
Ava y Marie y Rowland, y capital, y January y 1, y 20Y3 $781,000
Net y loss $(34,500)
Withdrawals (19,000)
Decrease y in y owner’s y equity (53,500)
Ava y Marie y Rowland, y capital, y December y 31, y 20Y3 $727,500
4-2
© 2021 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 4 Completing the Accounting Cycle
PE y 4-3A
1. Property, y plant, y and y equipment y (b) 5. Current y liability y (c)
2. Owner’s y equity y (e) 6. Current y asset y (a)
3. Long-term y liability y (d) 7. Current y liability y (c)
4. Current y asset y (a) 8. Current y liability y (c)
PE y 4-3B
1. Current y liability y (c) 5. Owner’s y equity y (e)
2. Current y asset y (a) 6. Long-term y liability y (d)
3. Property, y plant, y and y equipment y (b) 7. Current y asset y (a)
4. Current y asset y (a) 8. Current y liability y (c)
PE y 4-4A
Closing y Entries
Dec. 31 Fees yEarned 1,644,500
Wages y Expense 1,239,200
Rent y Expense 109,400
Supplies y Expense 26,800
Miscellaneous y Expense 19,300
Ellie y Liu, y Capital 249,800
31 Ellie y Liu, y Capital 70,000
Ellie y Liu, y Drawing 70,000
4-3
© 2021 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 4 Completing the Accounting Cycle
PE y 4-4B
Closing y Entries
Apr. 30 Oscar y Killingsworth, y Capital 5,500
Fees yEarned 279,100
Wages y Expense 221,600
Rent y Expense 43,800
Supplies y Expense 9,000
Miscellaneous y Expense 10,200
30 Oscar y Killingsworth, y Capital 8,200
Oscar y Killingsworth, y Drawing 8,200
PE y 4-5A
The yfollowing ytwo ysteps yare ymissing: y(1) yposting ythe ytransactions yto ythe
yledger yand y(2) ypreparing ythe yfinancial ystatements. yTransactions yshould ybe
yposted
to y the y ledger y after y step y (a). y The y financial y statements y should y be y prepared y after y step y (f).
PE y 4-5B
The yfollowing ytwo ysteps yare ymissing: y(1) yassembling yand yanalyzing
yadjustment ydata yand y(2) yjournalizing yand yposting ythe yclosing yentries. yThe
yadjustment ydata yshould ybe yassembled yand yanalyzed yafter ystep y(c). yThe
yclosing yentries yshould ybe yjournalized yand yposted yto ythe yledger yafter ystep
y(g).
PE y 4-6A
a. 20Y9 20Y8
Current y assets………… $2,042,400 $1,759,500
Current y liabilitites……… y 1,380,000 y 1,150,000
Working y capital………… $ y y 662,400 $ y y 609,500
Current y ratio…………… 1.48 1.53
($2,042,400 y ÷ y $1,380,000) ($1,759,500 y ÷
y $1,150,000)
b. The y decrease y from y 1.53 y to y 1.48 y indicates yan y unfavorable y change.
4-4
© 2021 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
COMPLETING yTHE yACCOUNTING yCYCLE
DISCUSSION yQUESTIONS
1. The yend-of-period yspreadsheet yillustrates ythe yflow yof yaccounting yinformation yfrom ythe
yunadjusted y trial ybalance yinto ythe yadjusted ytrial ybalance yand yinto ythe yfinancial ystatements.
yIn ydoing yso, ythe y spreadsheet yillustrates ythe yimpact yof ythe yadjustments yon ythe yfinancial
ystatements.
2. a. Current y assets y are y composed y of y cash y and y other y assets y that y may y reasonably y be y expected
to ybe yrealized yin ycash yor ysold yor yused yup yusually ywithin yone yyear yor yless, ythrough
ythe ynormal yoperations yof ythe ybusiness.
b. Property, y plant, y and y equipment y is y composed y of y assets y that y are y used y in y the
y business y and y that yare yof ya ypermanent yor yrelatively yfixed ynature. yThe yProperty, yPlant,
yand yEquipment ysection ymay y also ybe ydescribed yas yfixed yassets yor yplant yassets. yThese
yassets yinclude yequipment, ymachinery, ybuildings, yand yland.
3. Current yliabilities yare yliabilities ythat ywill ybe ydue ywithin ya yshort ytime y(usually yone yyear yor
yless) yand ythat yare yto ybe ypaid yout yof ycurrent yassets. yLiabilities ythat ywill ynot ybe ydue yfor
ya ycomparatively ylong ytime y(usually ymore ythan yone yyear) yare ycalled ylong-term yliabilities.
4. Revenue, y expense, y and y drawing y accounts y are y generally y referred y to y as y temporary y accounts.
5. Cash, y Office y Equipment
6. Closing yentries yare ynecessary yat ythe yend yof yan yaccounting yperiod y(1) yto ytransfer ythe
ybalances yin ytemporary yaccounts yto ypermanent yaccounts yand y(2) yto yprepare ythe
ytemporary yaccounts yfor yuse yin yrecording ytransactions yfor ythe ynext yaccounting yperiod.
7. Adjusting yentries ybring ythe yaccounts yup yto ydate, ywhile yclosing yentries yreduce ythe yrevenue,
yexpense, yand ydrawing yaccounts yto yzero ybalances yfor yuse yin yrecording ytransactions yfor ythe
ynext yaccounting yperiod.
8. a. After y preparing y the y adjusted y trial y balance
b. After y preparing y the y financial y statements
c. Before y preparing y the y post-closing y trial y balance
9. The ypurpose yof ythe ypost-closing ytrial ybalance yis yto ymake ysure ythat ythe yledger yis yin
ybalance yat ythe y beginning yof ythe ynext yperiod.
10. a. The y financial y statements y are y the y most y important y output y of y the y accounting y cycle.
b. Yes. yAll ycompanies yhave yan yaccounting ycycle ythat ybegins ywith yanalyzing yand
yjournalizing ytransactions yand yends ywith ya ypost-closing ytrial ybalance. yHowever,
ycompanies ymay ydiffer yin yhow ythey yimplement ythe ysteps yin ythe yaccounting ycycle.
yFor yexample, ywhile ymost ycompanies yuse ycomputerized yaccounting ysystems, ysome
ycompanies ymay yuse ymanual ysystems.
4-1
© 2021 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 4 Completing the Accounting Cycle
PRACTICE yEXERCISES
PE y 4-1A
1. Balance y sheet 5. Income y statement
2. Income y statement 6. Income y statement
3. Statement y of y owner’s y equity 7. Balance y sheet
4. Balance y sheet 8. Balance y sheet
PE y 4-1B
1. Balance y sheet 5. Balance y sheet
2. Balance y sheet 6. Balance y sheet
3. Income y statement 7. Statement y of y owner’s y equity
4. Income y statement 8. Income y statement
PE y 4-2A
Aquarius yAdvertising
yServices yStatement yof
yOwner’s yEquity
For y the y Year y Ended y December y 31,
y 20Y3
Cyrus y Bautista, y capital, y January y 1, y 20Y3 $471,900
Additional y investment y during y 20Y3 $ y 72,000
Net y income 103,000
Withdrawals (17,000)
Increase y in y owner’s y equity 158,000
Cyrus y Bautista, y capital, y December y 31, y 20Y3 $629,900
PE y 4-2B
Road yRunner yDelivery yServices
yStatement yof yOwner’s yEquity
For y the y Year y Ended y December y 31,
y 20Y3
Ava y Marie y Rowland, y capital, y January y 1, y 20Y3 $781,000
Net y loss $(34,500)
Withdrawals (19,000)
Decrease y in y owner’s y equity (53,500)
Ava y Marie y Rowland, y capital, y December y 31, y 20Y3 $727,500
4-2
© 2021 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 4 Completing the Accounting Cycle
PE y 4-3A
1. Property, y plant, y and y equipment y (b) 5. Current y liability y (c)
2. Owner’s y equity y (e) 6. Current y asset y (a)
3. Long-term y liability y (d) 7. Current y liability y (c)
4. Current y asset y (a) 8. Current y liability y (c)
PE y 4-3B
1. Current y liability y (c) 5. Owner’s y equity y (e)
2. Current y asset y (a) 6. Long-term y liability y (d)
3. Property, y plant, y and y equipment y (b) 7. Current y asset y (a)
4. Current y asset y (a) 8. Current y liability y (c)
PE y 4-4A
Closing y Entries
Dec. 31 Fees yEarned 1,644,500
Wages y Expense 1,239,200
Rent y Expense 109,400
Supplies y Expense 26,800
Miscellaneous y Expense 19,300
Ellie y Liu, y Capital 249,800
31 Ellie y Liu, y Capital 70,000
Ellie y Liu, y Drawing 70,000
4-3
© 2021 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 4 Completing the Accounting Cycle
PE y 4-4B
Closing y Entries
Apr. 30 Oscar y Killingsworth, y Capital 5,500
Fees yEarned 279,100
Wages y Expense 221,600
Rent y Expense 43,800
Supplies y Expense 9,000
Miscellaneous y Expense 10,200
30 Oscar y Killingsworth, y Capital 8,200
Oscar y Killingsworth, y Drawing 8,200
PE y 4-5A
The yfollowing ytwo ysteps yare ymissing: y(1) yposting ythe ytransactions yto ythe
yledger yand y(2) ypreparing ythe yfinancial ystatements. yTransactions yshould ybe
yposted
to y the y ledger y after y step y (a). y The y financial y statements y should y be y prepared y after y step y (f).
PE y 4-5B
The yfollowing ytwo ysteps yare ymissing: y(1) yassembling yand yanalyzing
yadjustment ydata yand y(2) yjournalizing yand yposting ythe yclosing yentries. yThe
yadjustment ydata yshould ybe yassembled yand yanalyzed yafter ystep y(c). yThe
yclosing yentries yshould ybe yjournalized yand yposted yto ythe yledger yafter ystep
y(g).
PE y 4-6A
a. 20Y9 20Y8
Current y assets………… $2,042,400 $1,759,500
Current y liabilitites……… y 1,380,000 y 1,150,000
Working y capital………… $ y y 662,400 $ y y 609,500
Current y ratio…………… 1.48 1.53
($2,042,400 y ÷ y $1,380,000) ($1,759,500 y ÷
y $1,150,000)
b. The y decrease y from y 1.53 y to y 1.48 y indicates yan y unfavorable y change.
4-4
© 2021 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
