To close the accounting cycle for Joe Smith's business, complete the following:
Journalize and post the adjusting entries for Joe's business. Make the following adjusting entries: (Note: you may need to create additional ledger accounts)
Adjustment for expired insurance
Adjustment for office supplies used (note: a physical inventory of supplies on Nov 30 showed $35 worth of supplies)
Adjustment for depreciation on the tools, reference materials, and truck used for the business. To keep things simple, Joe will use the straight-line depreciation method. The tools and reference materials are expected to have a useful life of 10 years. The tools are expected to have a salvage value of $50 at the end of 10 years. The reference materials are not expected to have a salvage value. The truck is expected to last 5 years and to have a salvage value of $2,500. (note: use individual depreciation accounts for each type of asset – 3 different accounts)
Adjustment for accrued interest on the truck loan. The annual interest rate on the loan is 6%.
Journalize and post the closing entries.
Prepare a post-closing trial balance.
Prepare the financial statements (income statement, statement of owner's equity, and balance sheet) for the first three months
Note: I have the first part of this assignment saved on my excel files I am just not understanding this part of it.
I am in this accounting class at CTU , did you ever find an answer to this question ?
To close the accounting cycle for Joe Smith's business, you will need to complete the following steps:
1. Journalize and post the adjusting entries:
- Adjustment for expired insurance: Determine the amount of insurance expense that has been used up or expired during the period and debit Insurance Expense and credit Prepaid Insurance.
- Adjustment for office supplies used: Based on the physical inventory showing $35 worth of supplies remaining on November 30, calculate the amount of supplies used up during the period. Debit Office Supplies Expense and credit Office Supplies.
- Adjustment for depreciation: Calculate the depreciation expense for each asset type (tools, reference materials, and truck) using the straight-line method. Debit each corresponding depreciation account and credit Accumulated Depreciation for the respective asset.
- Adjustment for accrued interest on the truck loan: Calculate the accrued interest expense on the truck loan using the annual interest rate of 6%. Debit Interest Expense and credit Accrued Interest Payable.
2. Journalize and post the closing entries:
The closing entries are made to transfer the balances of temporary accounts (revenue, expense, and withdrawal accounts) to the owner's equity account. For each revenue account, debit it and credit the Income Summary. For each expense account, credit it and debit the Income Summary. Finally, to close the Income Summary account, debit it for its balance and credit the owner's capital account for the same amount. If there is any owner's withdrawals account, debit it and credit the owner's capital account to close it.
3. Prepare a post-closing trial balance:
After closing the temporary accounts, prepare a trial balance by listing the permanent accounts (assets, liabilities, and owner's equity accounts) with their updated balances. Exclude the temporary accounts that have been closed.
4. Prepare the financial statements:
- Income Statement: Summarize the revenue and expenses for the first three months to calculate the net income. Net income is transferred from the Income Statement to the Statement of Owner's Equity.
- Statement of Owner's Equity: Start with the owner's capital at the beginning of the period and add any additional investments made by the owner. Subtract owner's withdrawals and add net income from the Income Statement to arrive at the ending capital balance.
- Balance Sheet: List the assets, liabilities, and the ending balance of the owner's equity as of the end of the period. Assets = Liabilities + Owner's Equity.
Please note that these steps should be completed using the specific numbers and information provided in your assignment. If you are having difficulty understanding a particular part, it may be helpful to review relevant accounting principles or consult with your instructor or classmates for further clarification.