mningage Reinforcement Activity 1-Part B. An Accounting Cycle for a Proprietorship: End-of-Fiscal-Period Work Sage 50c Accounting ОВ The general ledger prepared in Reinforcement Activity 1 –Part A is needed to complete Reinforcement Activity 1-Part B. Reinforcement Activity 1-Part B includes end-of-fiscal period activities studied in Chapters 6 through 8. Work Sheet INSTRUCTIONS 8. Prepare a trial balance on the work sheet given in the Working Papers. Use a one-month fiscal period ended August 31 of the current year. 9. Analyze the following adjustment information into debit and credit parts. Record the adjustments on the work sheet. Adjustment Information, August 31 Supplies on hand $ 845.00 Value of prepaid insurance 2,200.00 10. Total and rule the Adjustments columns. 11. Extend the up-to-date account balances to the Balance Sheet and Income Statement columns 12. Complete the work sheet Financial Statements INSTRUCTIONS 14. Prepare an income statement. Figure and record the vertical analysis ratios for sales, total expenses, and net income. Round percentage calculations to the nearest 0.1% 15. Prepare a statement of owner's equity. 16. Prepare a balance sheet Closing Entries INSTRUCTIONS 17. Continue using page 3 of the general journal. Journalize and post the closing entries. Post-Closing Trial Balance INSTRUCTIONS 18. Prepare a post-closing trial balance. Adjusting Entries INSTRUCTIONS 13. Use page 3 of the Journal Journalize and post the adjusting entries.
The correct answer and explanation is:
Here’s a detailed guide to complete Reinforcement Activity 1-Part B step by step, along with explanations for each requirement.
Step 8: Prepare a Trial Balance
- Use the general ledger from Part A to list all account titles and balances in the trial balance section of the work sheet.
- Ensure all debit and credit balances match, confirming the accounting equation remains balanced.
Step 9: Record Adjustments
Adjustment Information as of August 31:
- Supplies on Hand: $845
- Adjustment: Calculate the supplies used during the fiscal period. If the ledger shows a balance of $1,845 in the Supplies account, the adjustment is:
Supplies Expense (Debit): $1,000
Supplies (Credit): $1,000
- Adjustment: Calculate the supplies used during the fiscal period. If the ledger shows a balance of $1,845 in the Supplies account, the adjustment is:
- Prepaid Insurance: $2,200
- Adjustment: If $2,500 was initially recorded for Prepaid Insurance, the adjustment reflects insurance used during the period:
Insurance Expense (Debit): $300
Prepaid Insurance (Credit): $300
- Adjustment: If $2,500 was initially recorded for Prepaid Insurance, the adjustment reflects insurance used during the period:
Record these adjustments in the Adjustments columns of the work sheet.
Step 10: Total and Rule the Adjustments Columns
- Sum the Adjustments columns to confirm that total debits equal total credits.
Step 11: Extend Up-to-Date Balances
- Extend adjusted account balances into the Balance Sheet and Income Statement columns:
- Balance Sheet: Assets, Liabilities, and Owner’s Equity.
- Income Statement: Revenues and Expenses.
Step 12: Complete the Work Sheet
- Calculate net income or net loss by subtracting Total Expenses from Total Revenue.
- Ensure the net income or loss is reflected in both the Balance Sheet and Income Statement columns.
Step 13: Journalize and Post Adjusting Entries
- Use the adjustments from Step 9 and record them in the general journal on page 3.
- Post these entries to their respective general ledger accounts.
Step 14: Prepare an Income Statement
- Include revenue and expenses. Calculate and record vertical analysis ratios:
- Vertical Analysis Formula: Percentage=ItemSales×100\text{Percentage} = \frac{\text{Item}}{\text{Sales}} \times 100
- Example:
- Sales: $10,000
- Total Expenses: $7,000
- Net Income: $3,000
- Total Expenses Ratio: 7,00010,000×100=70.0%\frac{7,000}{10,000} \times 100 = 70.0\%
- Net Income Ratio: 3,00010,000×100=30.0%\frac{3,000}{10,000} \times 100 = 30.0\%
Step 15: Prepare a Statement of Owner’s Equity
- Begin with the beginning capital balance. Add net income and subtract withdrawals to determine the ending balance.
Step 16: Prepare a Balance Sheet
- Use the updated Balance Sheet column values to prepare the balance sheet. Ensure that:
- Assets = Liabilities + Owner’s Equity
Step 17: Journalize and Post Closing Entries
- Close revenue and expense accounts to Income Summary.
- Close Income Summary to Capital.
- Close the Owner’s Drawing account to Capital.
Step 18: Prepare a Post-Closing Trial Balance
- Include only balance sheet accounts (assets, liabilities, and owner’s equity).
- Verify that debits equal credits.
Explanation
The accounting cycle ensures accurate financial reporting. Adjusting entries align accounts with actual usage and financial events during the period. The work sheet helps summarize and classify account balances for preparation of financial statements. Vertical analysis offers insight into operational efficiency by relating individual line items to total sales. Closing entries reset temporary accounts for the new fiscal period, and the post-closing trial balance confirms the ledger is ready for the next cycle.
This systematic approach ensures financial records are complete and compliant with accounting principles.