Financial Report: Analysis of Accounting Cycle for Paul Services

This report provides a comprehensive analysis of the financial accounting cycle for Paul Services, covering the period ending June 30, 2016. It begins with an executive summary and table of contents, followed by an introduction outlining the report's aim and scope, which is to demonstrate financial statement preparation using journal entries and trial balances. The report includes the initial unadjusted trial balance, adjustment journal entries, and the adjusted trial balance. It then presents the income statement and closing journal entries. Finally, the balance sheet and statement of changes in equity are presented. The report also includes a discussion of the purpose of internal reports such as the trial balance, adjustment journal entries, and closing journal entries. The report concludes with the key learnings from the financial report preparation.

1
By student name
Professor
University
Date: 25 April 2018.
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Executive Summary
The financial report preparation has been done using the adjustment and closing entries and
then the financial reports including profit and loss account, statement of changes in equity and
the balance sheet has been prepared. Post this the reason as to why all these statemets are
being prepared has also been stated in the report.
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Contents
Contents......................................................................................................................................................3
Introduction and background......................................................................................................................4
Aim and scope of report..............................................................................................................................4
Analysis and Calculation..............................................................................................................................5
Discussion on the requirements of internal reports..................................................................................11
Trial Balance..........................................................................................................................................11
Adjustment Journal Entries...................................................................................................................11
Adjusted Trial balance...........................................................................................................................12
Closing Journal Entries...........................................................................................................................12
Conclusion.................................................................................................................................................12
References.................................................................................................................................................12
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Introduction and background
A report has been prepared on the financial accounting cycle for Paul services as on 30 June
2016. It includes all the business concepts and all the steps for preparation and finalization of
the books of accounts including the posting of the journal entries, posting them to the
respective ledger accounts, preparing the unadjusted trial balance on the basis of the same,
posting the adjustment entries at the end of the accounting period and preparing the adjusted
trial balance based on the same (Bizfluent, 2017). Post all this done the income statement is
being prepared and the closing journal entries is being passed for closing the books of accounts.
Post all this, the balance sheet and the statement of changes in equity is being prepared at the
end of the period and that marks the closure of books for an accounting period. (Grenier,
2017).
Aim and scope of report
The aim of the report is to learn the financial statement preparation through the set of inputs
lkike journal entries and the trial balance of the company. Towards the end, the reason for
preparing each of the reports and passing journal entries has been mentioned. . It includes all
the business concepts and all the steps for preparation and finalization of the books of
accounts.
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Analysis and Calculation
The initial unadjusted trial balance of the given company as on 30th June has been shown
below:
Paul services Trial Balance As At 30 June 2016
Acc
No Account Name Unadjusted
Debit Credit
101 Cash at Bank 48,100
105 Accounts Receivable 16,030
115 Supplies 1,480
120 Prepaid Insurance 2,960
135 Office Furniture 37,000
137 Acc. Depreciation. - Furniture -
140 Office Equipment 74,000
141 Acc. Depreciation - Equipment -
145 Store Equipment 111,000
146 Acc. Depreciation - Equipment -
170 Automobile 148,000
171 Acc. Depreciation - Automobile -
201 Accounts Payable 32,060
201 Interest Payable 48,090
201 Unearned revenue 18,500
201 Loan Payable 7,400
201 Mortgage Payable 148,000
201 Paul's Capital 48,898
201 Paul's Drawings 148
201 Revenue 148,000
201 Advertising Expense 1,000
201 Automobile Expense 5,775
201 Depreciation Expense - Furniture -
201 Depreciation Expense - Equipment -
201 Depreciation Expense - Store Equipment -
201 Depreciation Expense - Automobile -
201 Insurance Expense 800
201 Maintenance Expense 3,500
201 Miscellaneous Expense 1,155
201 Rent Expense -
201 Supplies Expense -
201 Utilities Expense -
201 Interest Expense -
Total 450,948 450,948
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For the given year, the adjustment journal entries have been shown below:
Paul Services
Adjustment Journal Entries
Date Particulars Dr./Cr. Amt Amt
30-Jun Interest Expense Dr. 14,800
To Accrued Interest Cr. 14,800
30-Jun Insurance Expense Dr. 2,368
To Prepaid Insurance Cr. 2,368
30-Jun Depreciation Expense - Furniture Dr. 2,219
To Acc. Depreciation. - Furniture Cr. 2,219
30-Jun Depreciation Expense - Equipment Dr. 5,370
To Acc. Depreciation - Office Equipment Cr. 5,370
30-Jun Depreciation Expense - Store Equipment Dr. 4,370
To Acc. Depreciation - Store Equipment Cr. 4,370
30-Jun Depreciation Expense - Automobile Dr. 6,521
To Acc. Depreciation - Automobile Cr. 6,521
30-Jun Revenue Dr. 9,250
To Unearned Revenue Cr. 9,250
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The Trial balance post all the adjustments has been shown below:
Paul services Trial Balance As At 30 June 2016
Acc
No Account Name Unadjusted Adjustments Adjusted
Debit Credit Debit Credit Debit Credit
101 Cash at Bank 48,100 48,100
105 Accounts Receivable 16,030 16,030
115 Supplies 1,480 1,480
120 Prepaid Insurance 2,960 2,368 592
135 Office Furniture 37,000 37,000
137 Acc. Depreciation. -
Furniture - 2,219 2,219
140 Office Equipment 74,000 74,000
141 Acc. Depreciation -
Equipment - 5,370 5,370
145 Store Equipment 111,000 111,000
146 Acc. Depreciation -
Equipment - 4,370 4,370
170 Automobile 148,000 148,000
171 Acc. Depreciation -
Automobile - 6,521 6,521
201 Accounts Payable 32,060 32,060
201 Interest Payable 48,090 14,800 62,890
201 Unearned revenue 18,500 9,250 27,750
201 Loan Payable 7,400 7,400
201 Mortgage Payable 148,000 148,000
201 Paul's Capital 48,898 48,898
201 Paul's Drawings 148 148
201 Revenue 148,000 9,250 138,750
201 Advertising Expense 1,000 1,000
201 Automobile Expense 5,775 5,775
201 Depreciation Expense -
Furniture - 2,219 2,219
201 Depreciation Expense -
Equipment - 5,370 5,370
201 Depreciation Expense -
Store Equipment - 4,370 4,370
201 Depreciation Expense -
Automobile - 6,521 6,521
201 Insurance Expense 800 2,368 3,168
201 Maintenance Expense 3,500 3,500
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201 Miscellaneous Expense 1,155 1,155
201 Rent Expense - -
201 Supplies Expense - -
201 Utilities Expense - -
201 Interest Expense - 14,800 14,800
Total 450,948 450,948 44,897 44,897 484,227 484,227
Below shown is the income statement for the company for the year ended 30th June 2016:
Paul Services
Income Statement
For the period ended 30th June 2016
Particulars Amt ($) Amt ($)
Revenue 138,750
Less: Expenses
Advertising Expense 1,000
Automobile Expense 5,775
Depreciation Expense - Furniture 2,219
Depreciation Expense - Equipment 5,370
Depreciation Expense - Store Equipment 4,370
Depreciation Expense - Automobile 6,521
Insurance Expense 3,168
Maintenance Expense 3,500
Miscellaneous Expense 1,155
Supplies Expense 1,110
Interest Expense 14,800 48,987
Net Profit 89,763
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The journal entries at the time of closing of the books of accounts are mentioned below:
Paul Services
Closing Journal Entries
Date Particulars Dr./Cr. Amt Amt
30-
Jun Revenue Account Dr. 138,750
To Profit and Loss Account Cr. 138,750
30-
Jun Profit and Loss Account Dr. 48,987
To Advertising Expense Cr. 1,000
To Automobile Expense Cr. 5,775
To Depreciation Expense - Furniture Cr. 2,219
To Depreciation Expense - Equipment Cr. 5,370
To Depreciation Expense - Store Equipment Cr. 4,370
To Depreciation Expense - Automobile Cr. 6,521
To Insurance Expense Cr. 3,168
To Maintenance Expense Cr. 3,500
To Miscellaneous Expense Cr. 1,155
To Supplies Expense Cr. 1,110
To Interest Expense Cr. 14,800
30-
Jun Profit and Loss Account Dr. 89,763
To Retained Earnings Cr. 89,763
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Below shown is the proft and loss account and the statement of changes in equity for the
period 30th June 2016 (Fay & Negangard, 2017).
Paul Services
Balance Sheet
as on 30th June 2016
Particulars Amt ($) Amt ($)
Assets -
Non Current Assets
Office Furniture 37,000
Acc. Depreciation. - Furniture (2,219)
Office Equipment 74,000
Acc. Depreciation - Equipment (5,370)
Store Equipment 111,000
Acc. Depreciation - Equipment (4,370)
Automobile 148,000
Acc. Depreciation - Automobile (6,521) 351,521
Current Assets
Cash at Bank 48,100
Accounts Receivable 16,030
Supplies 370
Prepaid Insurance 592 65,092
Total Assets 416,613
Equity & Liabilities
Non Current Liabilities
Loan Payable 7,400
Mortgage Payable 148,000 155,400
Current Liabilities
Accounts Payable 32,060
Interest Payable 62,890
Unearned revenue 27,750 122,700
Equity
Paul's Capital 48,898
Paul's Drawings (148)
Proft for the year 89,763 138,513
Total Equity and Liabilities 416,613
Paul Services
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Statement of Changes in Equity
As on 30th June 2016
Particulars Amt ($) Amt ($)
Equity
Paul's Capital 48,898
Less: Paul's Drawings (148)
Add: Profit for the year 89,763 138,513
Total Equity at the end of year 138,513
Discussion on the requirements of internal reports
Trial Balance
A trial balance is the list of all the ledger accounts with the debit and credit balances listed alongside. It
is prepared to check the arithmetical accuracy of the accounting being done throughout the year and in
case the debit and the credit balances are not matching, it indicates that there is an error in accounting
and the same needs to be revised. It is a prerequisite to the financial statement preparation and helps in
the final closing of the books of accounts (Visinescu, et al., 2017).
Adjustment Journal Entries
Adjustment journal entries are being passed to accommodate for the accounting, compensating or
period errors, which might have occurred in the books of accounts, during the normal accounting, cycle
(Kuhn & Morris, 2016). The types of errors, which may be included here, are like prepaid expenses,
which might have been paid earlier during the year, but then the adjustment is being done now or the
depreciation has not been posted for the different assets and the same is being done now. The common
types of transactions include accrual of incomes or accounting for outstanding liabilities or prepaid
incomes (Linden & Freeman, 2017). For a business, there are always a few transactions, which may start
in a given year, but the same is not completed in current year and may just be carried to New Year.
There comes the need of the adjustment entries in the books.
Adjusted Trial balance
Adjusted Trial balance is the final trial balance based on which the financial statements are being
prepared (Sithole, et al., 2017). It is the trial balance post adjustment of all the adjusting entries. It
shows the debit and credit balances of all the accounts reconciled and thereby helping in the
preparation of financial statements. It is always an internal document of the company and reported
nowhere in the annual report, however, the financial statements including balance sheet, profit and loss
account and equity statement is prepared based on this (Félix, 2017).
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