Comprehensive Financial Statement Analysis and Preparation Report

This report details the process of finalizing accounts for Paul Services, encompassing the preparation of financial statements for the period ending June 30, 2016. It begins with adjusting entries, followed by an adjusted trial balance, an income statement, and closing entries. The report also includes a statement of changes in equity and a balance sheet, providing a comprehensive overview of the company's financial performance and position. Key aspects such as trial balance preparation, adjusting entries, and the distinction between adjusting and closing entries are thoroughly explained, offering insights into accounting principles and practices. The report utilizes standard accounting practices to demonstrate the financial health of the organization. It provides a detailed breakdown of various financial statements, including the income statement, balance sheet, and statement of changes in equity, which are crucial for understanding the company's financial performance and position.

Finalization of accounts
Introduction
Financial statements of the organization are a mirror image of the financial performance of the
organization during the financial period and financial position of the organization at the end of
the financial period. This report is presented for preparation of financial statements of the
organization and providing explanations for trail balance and adjusting entries.
This report will start with the preparation of adjustment entries for the Paul services at the end of
year 30 June 2016. Continued with adjusted trial balance for the Paul services at the end of year
30 June 2016, income statement for the Paul services for the period ending 30 June 2016, closing
entries for the Paul services at the end of year 30 June 2016, statement of changes in equity and
balance sheet for the Paul services at the end of year 30 June 2016 and ends with explanation
regarding trail balance, adjusting entries and differentiating then with closing entries.
Adjustment transactions
Adjusting journal entries are prepared by the organization for recognition of some transactions
for complying with the accounting standards and accrual basis of accounting (Beams,
Brozovsky, & Shoulders, 2017).
Journal entries for adjustment transactions for the Paul services at the end of year 30 June 2016,
Date Description
Posting
reference Debit Credit
30-Jun Interest Expense 201 $12,320.00
Interest Payable 201 $12,320.00
(Interest expense recognized)
30-Jun Supplies Expense 201 $ 307.50
Supplies 115 $ 307.50
(Supplies expense recognized)
30-Jun Insurance Expense 201 $ 492.00
Prepaid Insurance 120 $ 492.00
(Insurance expense recognized)
30-Jun Depreciation Expense - Furniture 201 $ 6,000.00
Acc. Depreciation. - Furniture 137 $ 6,000.00
(Depreciation expense recognized)
30-Jun Depreciation Expense - Equipment 201 $12,000.00

Acc. Depreciation - Equipment 141 $12,000.00
(Depreciation expense recognized)
30-Jun Depreciation Expense - Store Equipment 201 $ 9,000.00
Acc. Depreciation - Equipment 145 $ 9,000.00
(Depreciation expense recognized)
30-Jun Depreciation Expense - Automobile 201 $ 12,000.00
Acc. Depreciation - Automobile 171 $ 12,000.00
(Depreciation expense recognized)
30-Jun Unearned revenue 201 $ 7,700.00
Revenue 201 $ 7,700.00
(Revenue income recognized)
Trial balance worksheet
Trial balance worksheet is a statement which shows the account balances of the organization
prior to making adjusting entries and after making those adjusting entries, it shows the direct
impact of adjusting entries on various account balances (Wild, 2015).
Adjusted trial balance for the Paul services at the end of year 30 June 2016,
Paul services
Trial balance worksheet
For the year ends on 30 June 2016
Pre adjustment Adjustments Post Adjustments
Debit Credit Debit Credit Debit Credit
Cash at Bank $ 22,750 $ 22,750
Accounts Receivable $ 7,580 $ 7,580
Supplies $ 1,230 $ 308 $ 923
Prepaid Insurance $ 2,460 $ 492 $ 1,968
Office Furniture $ 30,800 $ 30,800
Acc. Depreciation. $ 6,000 $ 6,000
Office Equipment $ 61,600 $ 61,600
Acc. Depreciation $ 12,000 $ 12,000
Store Equipment $ 92,400 $ 92,400
Acc. Depreciation $ 9,000 $ 9,000
Automobile $ 123,200 $ 123,200
Acc. Depreciation $ 12,000 $ 12,000
Accounts Payable $ 15,160 $ 15,160
Interest Payable $ 22,740 $ 12,320 $ 35,060

Unearned revenue $ 15,400 $ 7,700 $ 7,700
Loan Payable $ 6,160 $ 6,160
Mortgage Payable $ 123,200 $ 123,200
Paul's Capital $ 46,063 $ 46,063
Paul's Drawings $ 123 $ 123
Revenue $ 123,000 $ 7,700 $ 130,700
Advertising Expense $ 500 $ 500
Automobile Expense $ 5,775 $ 5,775
Depreciation Expense
- Furniture $ 6,000 $ 6,000
Depreciation Expense
- Equipment $ 12,000 $ 12,000
Depreciation Expense
- Store Equipment $ 9,000 $ 9,000
Depreciation Expense
- Automobile $ 12,000 $ 12,000
Insurance Expense $ 400 $ 492 $ 892
Maintenance Expense $ 1,750 $ 1,750
Miscellaneous
Expense $ 1,155 $ 1,155
Rent Expense
Supplies Expense $ 308 $ 308
Utility Expense
Interest Expense $ 12,320 $ 12,320
Total $ 351,723 $ 351,723 $ 59,820 $ 59,820 $ 403,043 $ 403,043
Income statement
It is one of the major financial reports of the organization; this statement is the indicator of
financial performance of the organization. This statement concludes the net income earned or net
loss made by the organization during the period for by performing various financial transactions
(Weygandt, Kimmel, & Kieso, 2015).
The income statement for the Paul services for the period ending 30 June 2016,
Paul services
Statement of comprehensive income
For the year ends on 30 June 2016
Revenue $ 130,700.00
Less: Expenses
Advertising Expense $ 500.00
Automobile Expense $ 5,775.00
Depreciation Expense - Furniture $ 6,000.00

Depreciation Expense - Equipment $ 12,000.00
Depreciation Expense - Store Equipment $ 9,000.00
Depreciation Expense - Automobile $ 12,000.00
Insurance Expense $ 892.00
Maintenance Expense $ 1,750.00
Miscellaneous Expense $ 1,155.00
Supplies Expense $ 307.50
Interest Expense $ 12,320.00
Total expenses $ 61,699.50
Net income $ 69,000.50
Closing entries
Closing entries are prepared by the organization for transferring various income and expanse to
the profit and loss account and transferring profit and loss account balance i.e. net income or net
loss to the equity account (Weygandt, Kimmel, & Kieso, 2015).
Closing entries for the Paul services at the end of year 30 June 2016,
Date
Description Posting
reference
Debit Credit
30-Jun Profit and loss account 201 $ 61,699.50
Advertising Expense 201 $ 500.00
Automobile Expense 201 $ 5,775.00
Depreciation Expense - Furniture 201 $ 6,000.00
Depreciation Expense - Equipment 201 $ 12,000.00
Depreciation Expense - Store Equipment 201 $ 9,000.00
Depreciation Expense - Automobile 201 $ 12,000.00
Insurance Expense 201 $ 892.00
Maintenance Expense 201 $ 1,750.00
Miscellaneous Expense 201 $ 1,155.00
Supplies Expense 201 $ 307.50
Interest Expense 201 $ 12,320.00
(closing entry for expenses)
30-Jun Revenue 201 $ 130,700.00
Profit and loss account 201 $ 130,700.00
(closing entry for incomes)
30-Jun Profit and loss account 201 $ 69,000.50
Paul's Capital 201 $ 69,000.50
(closing entry for income transferred to capital

account)
Statement of changes in equity
Statement of changes in equity shows a change in the various equity balances during the period
due to reasons of drawings, new capital introduction, and adjustment of net profit and loss and
other equity transactions occurred during the period.
Statement of changes in equity for the Paul services at the end of year 30 June 2016,
Paul services
Statement of changes in equity
at the end of year 30 June 2016
Paul's Capital
Opening balance $ 46,063.00
Less: Drawings $ 123.00
Add: income earned $ 69,000.50
Closing balance $ 114,940.50
Balance sheet
The balance sheet of the organization is a financial statement which shows the financial position
of the organization at the end of the financial period (Deegan, 2016). It shows the total assets,
liabilities, and equity of the organization at the end of the period.
Balance sheet for the Paul services at the end of year 30 June 2016
Paul services
Balance sheet
at the end of year 30 June 2016
Assets
Current assets
Cash at Bank $ 22,750.00
Accounts Receivable $ 7,580.00
Supplies $ 922.50
Prepaid Insurance $ 1,968.00
Total current assets $ 33,220.50
Noncurrent assets
Office Furniture $ 30,800.00
Acc. Depreciation. - Furniture -$ 6,000.00
Office Equipment $ 61,600.00
Acc. Depreciation - Equipment -$ 12,000.00
Store Equipment $ 92,400.00

Acc. Depreciation - Equipment -$ 9,000.00
Automobile $ 123,200.00
Acc. Depreciation - Automobile -$ 12,000.00
Total non-current assets $ 269,000.00
Total assets $ 302,220.50
Liabilities
Current liabilities
Accounts Payable $ 15,160.00
Interest Payable $ 35,060.00
Unearned revenue $ 7,700.00
Total current liabilities $ 57,920.00
Noncurrent liabilities
Loan Payable $ 6,160.00
Mortgage Payable $ 123,200.00
Total noncurrent liabilities $ 129,360.00
Total liabilities $ 187,280.00
Net assets $ 114,940.50
Equity
Paul's Capital $ 114,940.50
Total equity $ 114,940.50
Required explanations
Trial balance and reason of preparation of trial balance
It is an accounting schedule that shows a list of all ledger accounts at the end of the year which
compares the total of all debit balances and a total of all credit balances (Wild, 2015). The trial
balance is a statement which shows all account balances of the organization at the end of the
financial period. It checks the correctness of debits and credits of all account balances by making
a sum of all debit balances and the sum of all credit balances.
As per fundamental principle of accounting, at any point of time, all debits must be equal to all
credits. Hence this statement ensures the arithmetical accuracy of account balances, however,
two-sided errors cannot be detected by the trial balance, only one-sided errors can only defect by
this statement.
In addition to checking arithmetically accuracy of all account balances, this statement also
provides the information which required for preparation of financial statements i.e. income
statement, balances sheet and statement of changes in equity.
Adjustment entries

Adjusting entries are the journal entries prepared at the end of the accounting period for
converting closing account balances from the cash basis of accounting to the accrual basis of
accounting. It prepares for recording noncash expanse like depreciation expense, expenses
incurred but not paid during the year like wages payables or other expense, expenses paid but not
incurred like prepaid expense, incomes received but not incurred like unearned revenues and
incomes earned but not received like interest receivable (Beams, Brozovsky, & Shoulders, 2017).
These adjusting entries are recorded by the accountant at the end of the financial period after
making the pre-adjusted trial balance for converting various account balances from cash basis
accounting to the accrual basis of accounting. This also plays a significant role in the estimation
of true financial performance during the period as well as estimation of the true financial position
of the organization at the end of the period.
Purpose of writing adjusted trial balance
Adjusted trial balance is a statement which shows the all account balances of the organization
after passing the adjusting entries. It helps in checking the impact of adjusting accounting entries
on the various account balances. It provides a raw data for the financial statements of the
organization.
Adjusted trial balance also make a check of the arithmetical accuracy of the account balances for
the posting of all adjusting entries to the pre-adjusted account balance of the organization.
Difference between the adjustment journal entries and closing entries
Adjusting entries are the journal entries prepared at the end of the accounting period for
converting closing account balances from the cash basis of accounting to the accrual basis of
accounting. It prepares for recording noncash expanse like depreciation expense, expenses
incurred but not paid during the year like wages payables or other expense, expenses paid but not
incurred like prepaid expense, incomes received but not incurred like unearned revenues and
incomes earned but not received like interest receivable.
However, closing entries are the accounting entries which prepared for transferring various
nominal account balances to the profit and loss account. It also transfers the profit and loss
accounts balances to the equity account o the balances sheet it may be owner’s capital account in
proprietorship or partnership business or retained earnings account for the company (Deegan,
2016).
Adjusting accounting entries and closing entries are two different types of accounting entries;
these are not connected to each other in any way. Adjusting entries are the entries for recording
adjustment transactions at the end of the period and closing entries are the entries for closing all
nominal accounts.

Works Cited
Beams, F., Brozovsky, J., & Shoulders, C. (2017). Advanced accounting. Pearson.
Deegan, C. (2016). Financial accounting. McGraw-Hill Education Australia.
Weygandt, J., Kimmel, P., & Kieso, D. (2015). Financial & Managerial Accounting. John Wiley
& Sons.
Wild, J. (2015). Financial accounting fundamentals. McGraw-Hill Higher Education.