Step (6) of account cycle

Financial Statement ‫القوائم الماليه‬

Prepare The Income Statement & Statement Of Owner’s Equity & Balance Sheet

Xx Company
Income Statement
For The Year Ended 31/12/20—
Revenue

 Commission Revenue Xx
 Service Revenue Xx Xxx

Expensese

 Salaries Expense Xx
 Rent Expense Xx
 General Expense Xx
 Advertising Expense Xx
 Depreciation Expense-Fixed Asset Xx
 Office Supplies Expense Xx
 Interest Expense Xx Xxx

Net Income Or Net Loss Xxxx

Xx Company
statement of Owner’s Equity
For The Year Ended 31/12/20—
 Capital Xx
 Net Income Xx
 (-) Net Loss (Xx)
 (-) Drawing (Xx)

Capital 31/12/20--- Xxxx

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 Xx Company
Balance Sheet
At 31/12/20—

Assets Liabilities
A) Current Assets A)Current Liabilities
Cash Xx Accounts Payable Xx
Accounts Receivable Xx Notes Payable Xx
Notes Receivable Xx Loan Payable Xx
Prepaid Rent Xx Unearned Commission Rev Xx
Prepaid Salaries Xx Unearned Revenue Xx
Office Supplies Xx Total Current Liabilities Xxx
Total Current Asstes Xxxx B) Long Term Liabilities
B) Fixed Assets Mortgage Loan Xxx
Furniture Xx Total Liabilities Xxxx
(-)Acc-Depreciation-Furniture (Xx)
Net Furniture Xx Owner’s Equity
Equipment Xx Capital 31/12 Xxxx
(-)Acc-Depreciation-Equipment (Xx)
Net Equipment Xx
Vehicles Xx
(-)Acc-Depreciation-Vehicles (Xx)
Net Vehicles Xx
Total Fixed Assets Xxxx
Total Assets Xxxxx Total Liabilities &Owner’s Equity Xxxxx
Assets= liabilities & owner’s equity ‫للتاكد من صحه االجابه الزم‬

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Examples
Adam insurance agency adjusts and closes its accounts annually. Shown below is
the trial balance (before adjustments) prepared at 31 of December 2007

Account title Debit Credit

Cash 20,000
Accounts Receivable 35,000
Notes Receivable 25,000
Prepaid Rent 4,500
Office Supplies 2,500
Furniture 27,000
Accumulated Depreciation –Furniture 4,800
Vehicles 55,000
Accumulated Depreciation –Vehicles 10,000
Loan Payable (9 Months) 30,000
Accounts Payable 5,200
Notes Payable 10,000
Unearned Commissions 6,000
Adam’s Capital 85,000
Adam’s Drawing 4,000
Commissions Revenue 49,000
Salaries Expense 10,000
General Expense 8,000
Advertising Expense 9,000
Total 200,000 200,000

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other data
a) On November 1 , three months’ rent was paid in advance
b) Office Supplies on hand at December 31 amounted to 1,000
c) The Furniture is being depreciates over a period of 10 years
and the residual value is 3,000 . the vehicles is being depreciated over a period
of 5 years and the residual value is 5,000
d) A Nine month loan had been obtained on august 31. Interest is to be
computed at an annual rate of 10% and is payable when the loan is due.
No interest had been paid or recorded.
e) Some Clients made an advance payment for services to be rendered in future.
These advances were credited to the unearned commissions accounts. 4,000 of
these advances were earned by the business.
F) Salaries earned by employees but not recorded or paid yet amounted to 2,000
Required
1- prepares the adjusting entries required at December 31, 2007.
2- prepare the adjusted trial balance (after adjustment)
3- prepare an income statement for the year, a statement of owner’s equity and
a balance sheet at December 31, 2007
4- prepare the closing entries at December 31, 2007
Solution

(1)
A)
1) Adjustment
4500
 Monthly Rent = 3 = 1,500
 Rent Expense (2m) = 1,500 × 2 = 3,000  Adjusted T – B
 Prepaid Rent = 4,500 – 3,000 = 1,500  Adjusted T – B

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2) Adjusting Entry
Date Account Title Debit Credit
31/12/2007 Rent Expense 3,000
Prepaid Rent 3,000

B)
1) Adjustment
 Office Supplies Expense = 2,500 – 1,000 = 1,500  adjusted T–B
 Office Supplies (On Hand) = 1,000  adjusted T–B

2) Adjusting Entry
Date Account Title Debit Credit
31/12/2007 Office Supplies Expense 1,500
Office Supplies(Assets) 1,500

C)
Depreciation Of Furniture
1) Adjustment
27000 - 3000
 Depreciation Expense = 10 = 2,400

 Accumulated Depreciation-Furniture = 4,800 + 2,400 = 7,200

2) Adjusting Entry
Date Account Title Debit Credit
31/12 Depreciation Expense-Furniture 2,400
/2007 Accumulated Depreciation-Furniture 2,400
Depreciation Of Vehicles
1) Adjustment
55000 - 5000
 Depreciation Expense-Vehicles = 5 = 10,000  Adjusted T – B

 Accumulated Depreciation-Vehicles = 10,000 + 10,000 = 20,000

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2) Adjusting Entry
Date Account Title Debit Credit
31/12 Depreciation Expense-Vehicles 10,000
/2007 Accumulated Depreciation-Vehicles 10,000

D)
1) Adjustment
4
 Interest Expense (4m) = 30,000 × 10% × 12 = 1,000  Adjusted T – B

 Interest Payable = 1,000  Adjusted T – B

2) Adjusting Entry
Date Account Title Debit Credit
31/12/2007 Interest Expense 1,000
Interest Payable 1,000

E)
1) Adjustment
 Unearned Commissions = 6,000 – 4,000 = 2,000  Adjusted T – B
 Commissions Revenue =49,000 + 4,000 = 53,000  Adjusted T – B

2) Adjusting Entry
Date Account Title Debit Credit
31/12/2007 Unearned Commissions 4,000
Commission Revenue 4,000
F)
1) Adjustment
 Salaries Expense = 10,000 + 2,000 = 12,000  Adjusted T – B
 Salaries Payable = 2,000  Adjusted T – B
2) Adjusting Entry
Date Account Title Debit Credit
31/12/ Salaries Expense 2,000
2007 Salaries Payable 2,000
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2) Adjusted Trial Balance At Dec 31, 2007
Account Title Debt Credit
Cash 20,000
Accounts Receivable 35,000
Notes Receivable 25,000
Prepaid Rent 1,500
Office Supplies 1,000
Furniture 27,000
Accumulated Depreciation –Furniture 7,200
Vehicles 55,000
Accumulated Depreciation –Vehicles 20,000
Loan Payable (9 Months) 30,000
Accounts Payable 5,200
Notes Payable 10,000
Unearned Commissions 2,000
Interest Payable 1,000
Salaries Payable 2,000
Adam’s Capital 85,000
Adam’s Drawing 4,000
Commissions Revenue 53,000
Salaries Expense 12,000
General Expense 8,000
Advertising Expense 9,000
Rent Expense 3,000
Office Supplies Expense 1,500
Depreciation Expense-Furniture 2,400
Depreciation Expense-Vehicles 10,000
Interest Expense 1,000
Total 215,400 215,400

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3) Financial Statement
Adam Insurance Agency
Income Statement
For The Year Ended 31/12/2007
Revenue:
 Commission Revenue 53,000

(-) Expenses
 Salaries Expense 12,000
 General Expense 8,000
 Advertising Expense 9,000
 Rent Expense 3,000
 Office Supplies- Expense 1,500
 Depreciation Expense-Furniture 2,400
 Depreciation Expense-Vehicles 10,000
 Interest Expense 1,000

(46,900)

Net Income 6,100

Adam Insurance Agency

Owner’s Equity Statement
For The Year Ended 31/12/2007
Adam’s Capital 85,000
Net Income 6,100
(-) Adam’s Drawing (4,000)

Adam’s Capital 31/12 87,100

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 Adam Insurance Agency
Balance Sheet
At 31/12/2015

Assets Liabilities
A) Current Assets A) Current Liabilities
Cash 20,000 Loan Payable 30,000
Accounts Receivable 35,000 Accounts Payable 5,200
Notes Receivable 25,000 Notes Payable 10,000
Prepaid Rent 1,500 Unearned Commissions 2,000
Office Supplies 1,000 Interest Payable 1,000
Total Current Assets 82,500 Salaries Payable 2,000
B) Fixed Assets Total Current Liabilities 50,200
Furniture 27,000 B)Long Term Liabilities
(-) Accumulated Mortgage Loan -0-
Depreciation- Furniture (7,200) Total Liabilities 50,200
Net Furniture 19,800
Vehicle 55,000 Owner’s Equity
Accumulated Adam, Capital 13/12 87,100
Depreciation- Vehicles (20,000)
Net Vehicles 35,000
Total Fixed Assets 54,800
Total Assets 137,300 Total Liabilities &
Owner’s Equity 137,300

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4) Closing Entry
Date Account Title Debit Credit
31/12 1) Revenue
Commission Revenue 53,000
Income Summary 53,000
31/12 2) Expenses
Income Summary 46,900
Salaries Expense 12,000
General Expense 8,000
Advertising Expense 9,000
Rent Expense 3,000
Office Supplies- Expense 1,500
Depreciation Expense-Furniture 2,400
Depreciation Expense-Vehicles 10,000
Interest Expense 1,000
31/12 3) Net Income
Income summary 6,100
Adam’s Capital 6,100
31/12 4) Drawing
Adam, Capital 4,000
Adam, Drawing 4,000

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