ACCOUNTING QUESTION

MODULE 7 – CLOSING THE BOOKS

The units in Module 7, Units 17 through 19, deal with the procedures carried out at the end of an accounting year to close the books and complete the accounting cycle. You will learn about adjusting and closing entries, balance and ruling ledger accounts, the Post-Closing Trial Balance, and reversing entries.

ASSIGNMENT 19

Problem 19-1: Complete all the steps in the accounting cycle.

On December 1, XXX1, Penelope opens her own dental hygiene practice. During the month of December, she has the following transactions:

December 1 Penelope opens her own dental hygiene practice with an investment of $20,000 from her personal savings account.

December 2 Penelope pays $4,500 for 3 months’ rent (December XXX1 through February XXX2) in advance for a fully equipped office with telephone service.

December 3 Penelope purchases uniforms for $150 in cash (Uniform Expense).

December 4 She pays $2,400 in cash for one year’s liability insurance (December XXX1 through

November XXX2).

December 5 She purchases medical supplies for $1,500 in cash (Medical Supplies).

December 6 Income from fees received in cash for the week totals $100.

December 9 Penelope purchases $300 worth of office supplies (billing forms and calling cards) for cash from Office Max (Office Supplies).

December 13 Penelope pays her bookkeeper/secretary $200 salary in cash.

December 13 She bills the Beverly School (Beverly) $400 for services rendered (4 lectures and demonstrations on oral hygiene).

December 13 Income from fees received during the week in cash totals $300.

December 16 Penelope pays $85 in cash for telephone expense.

December 17 She pays an accountant $500 to design an accounting system for her business (Accounting and Legal Expense).

December 18 She purchases embossed toothbrushes to give away to patients for $100 (Promotion

Expense).

December 20 She pays the bookkeeper/secretary $200 salary in cash.

December 20 She withdraws $1,000 in cash for personal expenses.

December 20 Income from fees received in cash for the week totals $400.

December 24 Penelope pays the monthly maintenance charge of $500 in cash.

December 27 She pays her bookkeeper/secretary $200 salary in cash.

December 27 Income from fees received in cash for the week totals $400.

The following adjustment information is provided on December 31st:

a. An inventory shows $1,300 worth of medical supplies in house.

b. One month’s prepaid rent (for January) has expired.

c. One month’s insurance coverage (for January) has expired.

d. $30 worth of office supplies has been used in January.

e. $80 in salaries payable has accrued, although the salary will actually be paid in February.

Steps in Accounting Cycle:

1. Journalize and post all daily transactions, beginning with the December 1 transaction.

2. Prepare trial balance.

3. Prepare worksheet.

4. Prepare financial statements.

5. Journalize and post adjusting entries.

6. Journalize and post closing entries.

7. Prepare post-closing trial balance.

8. Journalize and post reversing entries.

Complete all the steps in the accounting cycle for Penelope Francis, Branding Specialist. Remember that the last three steps in the accounting cycle are done only once a year; however, for purposes of this assignment, complete them all because Penelope’s year end is December 31 even though she just started her business on December 1.

Problem 19-1 Journal Entries
GENERAL JOURNAL Page 1
DATE	ACCOUNTS AND EXPLANATION	REF.	DEBIT	CREDIT
XXX1		Daily Entries
Dec.	1
		Opened practice as dental hygienist
	2
		Paid rent for December through February
	3
		Purchased uniforms
	4
		Paid one year of liability insurance coverage
	5
		Purchased medical supplies
	6
		Fee income for week ending December 6
	9
		Purchased office supplies
	13
		Paid weekly salary for bookkeeper/secretary
	13
		Billed Beverly for lectures and demonstrations
	13
		Fee income for week ending December 13

Problem 19-1 (continued) Journal Entries
GENERAL JOURNAL Page 2
DATE	ACCOUNTS AND EXPLANATION	REF.	DEBIT	CREDIT
		Daily Entries (continued)
	16
		Paid for telephone and internet services
	17
		Paid for accounting system set-up
	18
		Purchased toothbrushes, picks, and floss
	20
		Paid weekly salary for bookkeeper/secretary
	20
		Penelope withdrew cash for personal use
	20
		Fee income for week ending January 20
	24
		Paid monthly maintenance charge
	27
		Paid weekly salary for bookkeeper/secretary
	27
		Fee income for week ending January 27

Note: After completing the journal entries, post them to the general ledger accounts on pages 10-14. Then come back to the following page 4 and prepare the Trial Balance from the General Ledger account balances.

Problem 19-1 Trial Balance (Unadjusted)
Note: Check your Trial balance totals against the Trial Balance totals included on the Worksheet on the next page.

Note: Now prepare the worksheet, entering the trial balance amounts from in the first two columns of the worksheet.

Problem 19-1 (continued) Worksheet
Penelope Francis, Branding Specialist Worksheet For the Month Ended December 31, XXX1
Acct. No.	Accounts	Trial Balance	Adjustments	Adjusted Trial Balance	Income Statement	Balance Sheet
		Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit
	Cash	9,565
	Account Receivable – Beverly	400
	Medical Supplies	1,500
	Prepaid Rent	4,500
	Prepaid Insurance	2,400
	Office Supplies	300
	P. Francis, Capital		20,000
	P. Francis, Drawing	1,000
	Income from Fees		1,600
	Salary Expense	600
	Telephone and Internet Expense	85
	Uniform Expense	150
	Accounting and Legal Expense	500
	Promotion Expense	100
	Maintenance Expense	500
	Totals	21,600	21,600

Note: In this assignment, the company has a net loss. The net loss is added back to the smaller of the two Income Statement totals and the smaller of the two Balance Sheet columns, which is the inner two columns

Note: Using the worksheet on the previous page (page 5), complete the Income Statement, Statement of Owner Equity, and the Balance Sheet (classified/report form).

Problem 19-1 (continued) Income Statement

Problem 19-1 (continued) Statement of Owner Equity

Problem 19-1 (continued) Balance Sheet

Note: Using the worksheet Adjustments columns on page 5, journalize the adjusting entries in the General Journal below. Then post them to the General Ledger Accounts on pages 10-14.

Problem 19-1 (continued) Adjusting Entries
GENERAL JOURNAL Page 3
DATE	ACCOUNTS AND EXPLANATION	REF.	DEBIT	CREDIT
XXX1		Adjusting Entries
Dec.	31
		To adjust medical supplies
	31
		To record expired rent expense
	31
		To record expired liability insurance
	31
		To adjust office supplies
	31
		To record accrued salaries

Note: Using the worksheet Adjusted Trial Balance columns on page 5, journalize the closing entries in the General Journal below. Then post them to the General Ledger Accounts on pages 10-14. Then prepare Post-Closing Trial Balance using form on next page (page 10).

Problem 19-1 (continued) Closing Entries
GENERAL JOURNAL Page 3
DATE	ACCOUNTS AND EXPLANATION	REF.	DEBIT	CREDIT
XXX1		Closing Entries
Dec.	31
		To close the income account
	31
	31
	31
		To close expense accounts
	31
		To transfer net loss
	31
		To close drawing account

Problem 19-1 (continued) Post-Closing Trial Balance

Note: Last, using the Adjustments column of the worksheet on page 5 or the adjusting entry for salaries in the General Journal on page 8, journalize the Reversing Entry. Then post it to the appropriate general ledger accounts on pages 10-14.

Remember, reversing entries are just the reverse of any accrued expense or accrued revenue adjusting entries; and they are dated the first day of the next year. Reversing entries are not mandatory; they are optional. The reason they are done is that they make follow-up entries easier that must be done in the new year and thus save time.

Problem 19-1 (continued) Reversing Entries
GENERAL JOURNAL Page 5
DATE	ACCOUNTS AND EXPLANATION	REF.	DEBIT	CREDIT
XXX2		Reversing Entry
Jan.	1
		To reverse accrued salary expense adjustment

Problem 19-1 SOLUTION (continued) General Ledger Posting from General Journal to General Ledger Using 3-Column Balance-Form Accounts
Cash Account No. 101
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Dr.	0
		Owner made investment
	2	Paid for three months of rent
	3	Purchased uniforms
	4	Paid for one year of insurance
	5	Purchased medical supplies
	6	Earned income and received cash
	9	Purchased office supplies
	13	Paid salary
	13	Earned income and received cash
	16	Paid telephone and internet fees
	17	Paid accounting and legal fees
	18	Purchased promotion items
	20	Paid salary
	20	Owner withdrew cash
	20	Earned income and received cash
	24	Paid maintenance fees
	27	Paid salary
	27	Earned income and received cash
Account Receivable–Beverly Account No. 112
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Dr.	0
	13	Billed customer for services
Medical Supplies Account No. 114
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Dr.	0
	5	Purchased medical supplies
	31	To adjust for medical supplies used
Prepaid Rent Account No. 115
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Dr.	0
	2	Paid for three months of rent
	31	To adjust for expired rent
Office Supplies Account No. 116
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Dr.	0
	9	Purchased office supplies
	31	To adjust for office supplies used
Prepaid Insurance Account No. 117
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Dr.	0
	4	Paid for one year of insurance
	31	To adjust for expired insurance
Accrued Salaries Payable Account No. 213
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Cr.	0
	31	To accrue salaries
Penelope Francis, Capital Account No. 311
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Cr.	0
	2	Owner made investment
	31	To transfer net loss
	31	To close drawing
Penelope Francis, Drawing Account No. 312
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Dr.	0
	20	Owner made withdrawal
	31	To close drawing
Income and Expense Summary Account No. 313
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Cr.	0
	31	To close revenues
	31	To close expenses
	31	To transfer net loss
Income from Fees Account No. 411
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Dr.	0
	6	Earned income and received cash
	13	Billed customer for services
	13	Earned income and received cash
	20	Earned income and received cash
	27	Earned income and received cash
	31	To close revenue
Rent Expense Account No. 511
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Dr.	0
	31	To adjust for expired rent
	31	To close account
Salary Expense Account No. 512
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Dr.	0
	13	Paid salary
	20	Paid salary
	27	Paid salary
	31	Part of adjusting entry to accrue salaries
	31	To close account
Jan.	1	To reverse adjusting entry
Telephone and Internet Expense Account No. 513
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Dr.	0
	16	Paid telephone and internet fees
	31	To close account
Uniform Expense Account No. 514
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Dr.	0
	3	Purchased uniforms
	31	To close account
Accounting and Legal Expense Account No. 515
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Dr.	0
	17	Paid accounting and legal fees
	31	To close account
Promotion Expense Account No. 516
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Dr.	0
	18	Purchased promotional items
	31	To close account
Maintenance Expense Account No. 517
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Dr.	0
	24	Paid maintenance fees
	31	To close account
Medical Supplies Expense Account No. 518
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Dr.	0
	31	To adjusting for medical supplies used
	31	To close account
Office Supplies Expense Account No. 519
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Dr.	0
	31	To adjust for office supplies used
	31	To close account
Insurance Expense Account No. 520
DATE	EXPLANATION	REF.	DEBITS	CREDITS	DR. OR CR.	BALANCE
Dec.	1	Balance	√			Dr.	0
	31	To adjust for expired insurance
	31	To close account

Note: Just review the following. You don’t need to do anything else with it. It’s just an example to show you how balancing and ruling would be done if you were using two-sided debit and credit column accounts instead of the 3-column, balance-form accounts for this assignment.

Problem 19-1 (continued) General Ledger Posting from General Journal to General Ledger Accounts Using 2-Column Accounts with Balancing and Ruling
Cash Account No. 111
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	1	Balance	√	0	Dec.	2	Paid for three months of rent	J1	4,500
	2	Owner made investment	J1	20,000		3	Purchased uniforms	J1	150
	6	Earned income and received cash	J1	100		4	Paid for one year of insurance	J1	2,400
	13	Earned income and received cash	J1	300		5	Purchased medical supplies	J1	1,500
	20	Earned income and received cash	J2	400		9	Purchased office supplies	J1	300
	27	Earned income and received cash	J2	400		13	Paid salary	J1	200
						16	Paid telephone and internet fees	J2	85
						17	Paid accounting and legal fees	J2	500
						18	Purchased promotion items	J2	100
						20	Paid salary	J2	200
						20	Owner withdrew cash	J2	1,000
						24	Paid maintenance fees	J2	500
						27	Paid salary	J2	200
				21,200					11,635
Jan.	1	Balance	√	9,565
Account Receivable—Beverly Account No. 112
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	1	Balance	√	0
	13	Billed customer for services	J1	400
				400
Jan.	1	Balance	√	400
Medical Supplies Account No. 114
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	1	Balance	√	0	Dec.	31	To adjust for medical supplies used	J3	200
	5	Purchased medical supplies	J1	1,500
				1,500					200
Jan.	1	Balance	√	1,300
Prepaid Rent Account No. 115
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	1	Balance	√	0	Dec.	31	To adjust for expired rent	J3	1,500
	2	Paid for three months of rent	J1	4,500
				4,500					1,500
Jan.	1	Balance	√	3,000
Office Supplies Account No. 116
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	1	Balance	√	0	Dec.	31	To adjust for office supplies used	J3	30
	9	Purchased office supplies	J1	300
				300					30
Jan.	1	Balance	√	270
Prepaid Insurance Account No. 117
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	1	Balance	√	0	Dec.	31	To adjust for expired insurance	J3	200
	4	Paid for one year of insurance	J1	2,400
				2,400					200
Jan.	1	Balance	√	2,200
Accrued Salaries Payable Account No. 213
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
					Dec.	31	To accrue salaries	J3	80
									80
					Jan.	1	Balance	√	80
Penelope Francis, Capital Account No. 311
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	31	To close drawing	J4	1,000	Dec.	1	Balance	√	0
	31	To transfer net loss	J4	2,345		2	Owner made investment	J1	20,000
				3,345					20,000
					Jan.	1	Balance	√	16,655
Penelope Francis, Drawing Account No. 312
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	20	Owner withdrew cash	J2	1,000	Dec.	31	To close drawing	J4	1,000
Jan.	1	Balance	√	0
Income and Expense Summary Account No. 313
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	31	To close expenses	J4	3,945	Dec.	31	To close revenues	J4	1,600
						31	To transfer net loss	J4	2,345
				3,945					3,945
					Jan.	1	Balance	√	0
Income from Fees Account No. 411
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	31	To close revenue	J4	1,600	Dec.	6	Earned income and received cash	J1	100
						13	Billed customer for services	J1	400
						13	Earned income and received cash	J1	300
						20	Earned income and received cash	J2	400
						27	Earned income and received cash	J2	400
				1,600					1,600
					Jan.	1	Balance	√	0
Rent Expense Account No. 511
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	31	To adjust for expired rent	J3	1,500	Dec.	31	To close expense	J4	1,500
Jan.	1	Balance	√	0
Salary Expense Account No. 512
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	13	Paid salary	J1	200	Dec.	31	To close expense	J4	680
	20	Paid salary	J2	200
	27	Paid salary	J2	200
	31	To accrue salaries	J3	80
				680					680
Jan.	1	Balance	√	0	Jan.	1	To reverse adjusting entry	J3	80
Telephone and Internet Expense Account No. 513
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	16	Paid telephone and internet fees	J2	85	Dec.	31	To close expense	J4	85
Jan.	1	Balance	√	0
Uniform Expense Account No. 514
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	3	Purchased uniforms	J1	150	Dec.	31	To close	J4	150
Jan.	1	Balance	√	0
Accounting and Legal Expense Account No. 515
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	17	Paid accounting and legal fees	J2	500	Dec.	31	To close	J4	500
Jan.	1	Balance	√	0
Promotion Expense Account No. 516
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	18	Purchased promotional items	J2	100	Dec.	31	To close	J4	100
Jan.	1	Balance	√	0
Maintenance Expense Account No. 517
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	24	Paid maintenance fees	J2	500	Dec.	31	To close	J4	500
Jan.	1	Balance	√	0
Medical Supplies Expense Account No. 518
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	31	To adjust for medical supplies used	J3	200	Dec.	31	To close	J4	200
Jan.	1	Balance	√	0
Office Supplies Expense Account No. 519
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	31	To adjust for office supplies used	J3	30	Dec.	31	To close	J4	30
Jan.	1	Balance	√	0
Insurance Expense Account No. 520
DATE	EXPLANATION	REF.	DEBIT	DATE	EXPLANATION	REF.	CREDIT
Dec.	31	To adjust for expired insurance	J3	200	Dec.	31	To close	J4	200
Jan.	1	Balance	√	0

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