Business Accounting: Trial Balance, Adjusting Entries, Worksheet, Income Statement and Closing Entries

This document covers the trial balance, adjusting entries, worksheet, income statement and closing entries for Paul Services in Business Accounting. It includes step by step procedures and examples.

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Business Accounting

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Step 1: Trial Balance achieved after entering the student id
Accounts Title Trial balance
Debit Credit
Cash at Bank $ 149,890.00
Accounts Receivable $ 49,960.00
Supplies $ 2,500.00
Prepaid Insurance $ 5,000.00
Office Furniture $ 62,500.00
Acc. Depreciation. - Furniture $ -
Office Equipment $ 125,000.00
Acc. Depreciation - Equipment $ -
Store Equipment $ 187,500.00
Acc. Depreciation - Equipment $ -
Automobile $ 250,000.00
Acc. Depreciation - Automobile $ -
Accounts Payable $ 99,920.00
Interest Payable $ 149,880.00
Unearned revenue $ 31,250.00
Loan Payable $ 12,500.00
Mortgage Payable $ 250,000.00
Paul's Capital $ 61,980.00
Paul's Drawings $ 250.00
Revenue $ 250,000.00
Advertising Expense $ 3,000.00
Automobile Expense $ 5,775.00
Depreciation Expense - Furniture $ -
Depreciation Expense - Equipment $ -

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Depreciation Expense - Store Equipment $ -
Depreciation Expense - Automobile $ -
Insurance Expense $ 2,500.00
Maintenance Expense $ 10,500.00
Miscellaneous Expense $ 1,155.00
Supplies Expense $ -
Interest Expense $ -
$ 855,530.00 $ 855,530.00
(Brigham and Michael, 2013)

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Step 2: Journal Entries of all adjustments
Adjusting Entries in the books of Paul Services
at the year end,2016
Dat
e Account Tiles Debit Credit
Amount in $
30-
Jun Interest Expenses
$
25,000.00
30-
Jun Interest Payable
$
25,000.00
(Interest accrued but not paid on mortgage)
30-
Jun Supplies Expenses
$
1,875.00
Supplies
$
1,875.00
(Being supplies used during the year)
30-
Jun Insurance Expenses
$
4,000.00
Prepaid Insurance
$
4,000.00
(being prepaid insurance amount adjusted )
30-
Jun Depreciation Expenses-Furniture
$
12,000.00
Acc. Depreciation. - Furniture
$
12,000.00
(Being depreciation charged on office furniture)
30-
Jun Depreciation Expenses-Office equipment
$
24,000.00
Acc. Depreciation - Equipment
$
24,000.00
(Being depreciation charged on office Equipment)
30-
Jun Depreciation Expenses-Store equipment
$
18,000.00
Acc. Depreciation - store Equipment
$
18,000.00
(Being depreciation charged on Store Equipment)
30- Depreciation Expenses-Automobile $

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Jun 25,000.00
Acc. Depreciation - Automobile
$
25,000.00
(Being depreciation charged on Automobile)
30-
Jun Unearned Revenue
$
15,625.00
Revenue
$
15,625.00
(Being portion of unearned revenue transferred to
revenue)
(Saguinsin, 2013)

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Step 3: Posting of adjusting entries in worksheet
10 Column Worksheet
Accounts Title Trial balance Adjustment Adjusted Trial
Balance Income Statement Balance sheet
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash at Bank
$
149,890
$
149,890
$
149,890
Accounts
Receivable
$
49,960
$
49,960
$
49,960
Supplies
$
2,500
$
1,875
$
625
$
625
Prepaid
Insurance
$
5,000
$
4,000
$
1,000
$
1,000
Office Furniture
$
62,500
$
62,500
$
62,500
Acc.
Depreciation. -
Furniture
$
-
$
12,000
$
12,000
$
12,000
Office
Equipment
$
125,000
$
125,000
$
125,000
Acc.
Depreciation -
Equipment
$
-
$
24,000
$
24,000
$
24,000
Store Equipment
$
187,500
$
187,500
$
187,500
Acc.
Depreciation -
Equipment
$
-
$
18,000
$
18,000
$
18,000
Automobile
$
250,000
$
250,000
$
250,000
Acc. $ $ $ $

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Depreciation -
Automobile - 25,000 25,000 25,000
Accounts
Payable
$
99,920
$
99,920
$
99,920
Interest Payable
$
149,880
$
25,000
$
174,880
$
174,880
Unearned
revenue
$
31,250
$
15,625
$
15,625
$
15,625
Loan Payable
$
12,500
$
12,500
$
12,500
Mortgage
Payable
$
250,000
$
250,000
$
250,000
Paul's Capital
$
61,980
$
61,980
$
61,980
Paul's Drawings
$
250
$
250
$
250
Revenue
$
250,000
$
15,625
$
265,625
$
265,625
Advertising
Expense
$
3,000
$
3,000
$
3,000
Automobile
Expense
$
5,775
$
5,775
$
5,775
Depreciation
Expense -
Furniture
$
-
$
12,000
$
12,000
$
12,000
Depreciation
Expense -
Equipment
$
-
$
24,000
$
24,000
$
24,000
Depreciation
Expense - Store
Equipment
$
-
$
18,000
$
18,000
$
18,000
Depreciation
Expense -
$
-
$
25,000
$
25,000
$
25,000

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Automobile
Insurance
Expense
$
2,500
$
4,000
$
6,500
$
6,500
Maintenance
Expense
$
10,500
$
10,500
$
10,500
Miscellaneous
Expense
$
1,155
$
1,155
$
1,155
Supplies
Expense
$
-
$
1,875
$
1,875
$
1,875
Interest Expense
$
-
$
25,000
$
25,000
$
25,000
$
855,530
$
855,530
$
125,500
$
125,500
$
959,530
$
959,530
$
132,805
$
265,625
$
826,725
$
693,905
Profit for the
year
$
132,820
$
132,820
$
826,725
$
826,725
(Brigham and Michael, 2013)

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Step 4: Income Statement through of worksheet
Profit and loss Statement of Paul Services
for the year ending on Jun, 2016
Particulars Amount Amount
Revenue
$
265,625.00
Less: Expenses
Advertising Expense
$
3,000.00
Automobile Expense
$
5,775.00
Depreciation Expense - Furniture
$
12,000.00
Depreciation Expense - Equipment
$
24,000.00
Depreciation Expense - Store
Equipment
$
18,000.00
Depreciation Expense - Automobile
$
25,000.00
Insurance Expense
$
6,500.00
Maintenance Expense
$
10,500.00
Miscellaneous Expense
$
1,155.00
Supplies Expense
$
1,875.00
Interest Expense
$
25,000.00
Total Expenses
$
132,805.00
Profit Before Tax
$
132,820.00
Tax
$
-
Profit After Tax
$
132,820.00
(Epstein, 2011)

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Step 5: Closing Entries
Closing Entries in the books of Paul Services
at the year end,2016
Date Account Tiles Debit Credit
Amount in $
30-
Jun Revenue $ 265,625.00
Income Summary $ 265,625.00
(To Close Temporary Account of credit balance)
30-
Jun Income Summary $ 132,805.00
Advertising Expense $ 3,000.00
Automobile Expense $ 5,775.00
Depreciation Expense - Furniture $ 12,000.00
Depreciation Expense - Equipment $ 24,000.00
Depreciation Expense - Store Equipment $ 18,000.00
Depreciation Expense - Automobile $ 25,000.00
Insurance Expense $ 6,500.00
Maintenance Expense $ 10,500.00
Miscellaneous Expense $ 1,155.00
Supplies Expense $ 1,875.00
Interest Expense $ 25,000.00
(To Close Temporary Account of debit balance)
30-
Jun Income Summary $ 132,820.00
Retained Earnings $ 132,820.00
(To Close income summary as net profit balance)
(Davies and Crawford, 2011)

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Step 6: Change in Equity and Balance Sheet from using the balance sheet
Statement of Equity of Paul Services
as on Jun, 2016
Particulars Amount Amount
Common Stock
Opening Capital $ 61,980.00
Add: Any
addition
$
-
Less:
Withdrawal
$
250.00 $ 250.00
Closing Capital $ 61,730.00
Retained Earnings
Opening Balance $ -
Add: Profit $ 132,820.00
Less: Dividend $ -
Closing Balance $ 132,820.00
Balance Sheet of Paul Services
as on Jun, 2016
Particulars Amount Amount
Assets
Current Assets
Cash at Bank $ 149,890.00
Accounts Receivable $ 49,960.00
Supplies
$
625.00
Prepaid Insurance $ 1,000.00
Total Current Assets $ 201,475.00
Non Current Assets
Office Furniture $ 62,500.00
Acc. Depreciation. - Furniture $ (12,000.00)
Office Equipment $ 125,000.00
Acc. Depreciation - Equipment $ (24,000.00)
Store Equipment $ 187,500.00
Acc. Depreciation - Equipment $ (18,000.00)
Automobile $ 250,000.00
Acc. Depreciation - Automobile $ (25,000.00)
Total Non Current Assets $ 546,000.00

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Total Assets $ 747,475.00
Liabilities and Equity
Current Liabilities
Accounts Payable $ 99,920.00
Interest Payable $ 174,880.00
Unearned revenue $ 15,625.00
Loan Payable $ 12,500.00
Total Current Liabilities $ 302,925.00
Non Current Liabilities
Mortgage Payable $ 250,000.00
Equity
Capital $ 61,980.00
Less: Drawing
$
(250.00)
Add: Retained Earnings $ 132,820.00
Total Equity $ 194,550.00
Total Liabilities and Equity $ 747,475.00
(Damodaran, 2011)

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Step 7: Solution of given questions
1. Trial Balance and Importance of Trial Balance
Trial Balance: A Trial Balance is an Internal Report in which the balances of all ledgers are
listed in each of an entity’s General Ledger accounts. It can be understand in this way if we
record all the transactions in a book. At the period end we need to summarize and classify it into
different categories. To do the same we make a sheet and put the balances of ledgers by dividing
it into productive and non-productive category. This is nothing but a trial balance.
In debit column we put debit balance and in the credit column we put credit balance. At
the end the total of each of these two columns should be equal. In case the trial balance does not
match that indicate an error somewhere between the journal and the trial balance (Feldman and
Libman, 2011).
Importance of Trial Balance: Trial balance is considered as the heart of the business because of
its importance. We need to make trial balance as it is more valuable for companies that are doing
manual book keeping. It helps in detecting any mathematical errors occurred in the double –
entry accounting system. If the total amount of Debit column and Credit column is match then it
seems to be properly balanced and all entries in general ledger is done correctly. If not matched
then it indicates one or more transactions are not properly recorded in the ledger (Baker, &
Powell, 2009).
Trial balance is used to create financial statements. Auditors of the entity also use the trial
balance in performing their audit procedures.
Trial balance is known as summary sheet of all ledgers and their balances and it provides a bird
eye view of the accounting transaction of entity.
Trial balances is also used by banks and lending agencies to make a decision or to understand the
borrowing capacity of the entity and its credibility (Arnold, 2013).

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2. Adjustment Journal Entries and reason for recording adjustment entries:
Adjustment Journal Entries: Adjustment entries are journal entries which generally
recorded on the last day of accounting period to comply with the accrual method of accounting.
Adjustment generally falls into one of the five categories as stated below:
 Prepaid Expenses
 Unearned revenues
 Accrued revenues
 Depreciation
 Accrued expenses
Reason to record adjustment entries: Generally we record adjustment entries so that
company can record Revenue which belongs to accounting period only as well as record
expenses occurred in the accounting period only in the profit and loss account. And balance sheet
will be stated at the receivables company has the right to receive and liabilities are recorded
which are payable in accounting period. Adjusted journal entries are important to keep accurate
track of what you earned during accounting period and what you need to pay during the
accounting period. Adjustment entries are made so that company can comply with the general
principal of accounting as matching principal and revenue recognition. As we know entities have
to follow double entry of accounting system so error in any single transaction canaffect
expenses and revenues in more than one accounting period. To remove such discrepancies
adjustment journal entries become more necessary (Bragg, 2011).
3. Purpose of writing an Adjusted Trial Balance
Trial balances are adjusted with the transactions that happened after the end of
accounting period. Adjustment trial balance is also written to correct errors which were revealed
in the non-adjusted trial balances. Ultimately the trial balances are adjusted to depict the true and
correct view of the balance sheet as balance sheet is prepared with the help of the trial balances
and with the adjusted ledger balances of revenue and expenses profit and loss account can be
prepared. Company’s stakeholders can review the performance of the business and new investors
can make a decision as whether to invest in a particular company or not (Epstein, 2011).

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4. Difference between adjusted journal entries and Closing entries:
Adjustment Entries are journal entries recorded to make company’s financial records on
accrual basis and make trial balance to give a correct view. On the other side, closing entries are
journal entries recorded at the accounting period’s end to transfer balance of general ledger to an
income statement or balance sheet to make their balance zero.
Adjusted journal entries and closing entries are different. Adjusted journal entries are
passed at the end of accounting period but before finalization of financial statements whereas
closing entries are done at the end of accounting period after preparation of financial statements.
Adjustment entries are an update in order to comply company’s books, records and financial
statements on accrual basis. Closing entries comes in income statement and make the balances of
revenue accounts and expenses accounts to zero it means in the New Year Company will left
with zero (0) balance of revenue and expense and will start from zero. Net of the balance of
revenue and expenses is considered profit or loss then transferred to retained earnings with the
help of closing entries (Saguinsin, 2013).

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References
Arnold, G. 2013. Corporate financial management. USA: Pearson Higher Ed.
Baker, K. & Powell, G. 2009.Understanding Financial Management: A Practical Guide. USA:
John Wiley & Sons.
Bragg, S. 2011. Bookkeeping Essentials: How to Succeed as a Bookkeeper. US: John Wiley &
Sons.
Brigham, F., and Michael, C. 2013. Financial management: Theory & practice. Canada:
Cengage Learning.
Damodaran, A. 2011.Applied corporate finance. USA: John Wiley & sons.
Davies, T. and Crawford, I. 2011.Business accounting and finance. USA: Pearson.
Epstein, L. 2011. Bookkeeping For Dummies. US: John Wiley & Sons.
Feldman, M. and Libman, L. 2011.Crash Course in Accounting and Financial Statement
Analysis. USA: John Wiley & Sons.
Saguinsin, A.T. 2013.Basic Concept of Accounting: Fundamentals of Accounting. Bloomington:
Booktango.