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Completing the Accounting Cycle

LO 2 – Preparing the Financial Statements

Income Statement

The income statement for NetSolutions is prepared directly from the Income Statement or Adjusted Trial Balance columns of the end-of-period spreadsheet (work sheet) beginning with fees earned of $16,840.

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Account Title Debit Credit Debit Credit Debit Credit

Trial Balance Income Statement Balance Sheet

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Adjusted

Cash 2,065 2,065Accounts Receivable 2,720 2,720Supplies 760 760Prepaid Insurance 2,200 2,200Land 20,000 20,000Office Equipment 1,800 1,800Accumulated Depr. 50 50Accounts Payable 900 900Wages Payable 250 250Unearned Rent 240 240Capital Stock 25,000 25,000Dividends 4,000 4,000Fees Earned 16,840 16,840Rent Revenue 120 120Wages Expense 4,525 4,525Rent Expense 1,600 1,600Depreciation Expense 50 50Utilities Expense 985 985Supplies Expense 2,040 2,040Insurance Expense 200 200Miscellaneous Exp. 455 455

43,400 43,400 9,855 16,960 33,545 26,440Net income 7,105 7,105

16,960 16,960 33,545 33,545

to retained earnings statement

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Income Statement

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Account Title Debit Credit Debit Credit Debit Credit

Trial Balance Income Statement Balance Sheet

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Adjusted

Cash 2,065 2,065Accounts Receivable 2,720 2,720Supplies 760 760Prepaid Insurance 2,200 2,200Land 20,000 20,000Office Equipment 1,800 1,800Accumulated Depr. 50 50Accounts Payable 900 900Wages Payable 250 250Unearned Rent 240 240Capital Stock 25,000 25,000Dividends 4,000 4,000Fees Earned 16,840 16,840Rent Revenue 120 120Wages Expense 4,525 4,525Rent Expense 1,600 1,600Depreciation Expense 50 50Utilities Expense 985 985Supplies Expense 2,040 2,040Insurance Expense 200 200Miscellaneous Exp. 455 455

43,400 43,400 9,855 16,960 33,545 26,440Net income 7,105 7,105

16,960 16,960 33,545 33,545

to retained earnings statement

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Income Statement

Retained Earnings Statement

The first item presented on the retained earnings statement is the balance of the Retained Earnings account at the beginning of the period.

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from the income statement

to the balance sheet

Retained Earnings Statement

Balance Sheet

The balance sheet is prepared directly from the Balance Sheet or Adjusted Trial Balance columns of the end-of-period spreadsheet (or work sheet), beginning with Cash of $2,065.

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Classified Balance Sheet

A classified balance sheet is a balance sheet that was expanded by adding subsections for current assets; property, plant, and equipment; current liabilities; and long-term liabilities.

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Current Assets

Cash and other assets that are expected to be converted into cash, sold, or used up usually within a year or less, through the normal operations of the business, are called current assets.

Cash Accounts

Receivable Notes

Receivable Supplies

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Fixed Assets

Property, plant, and equipment (also called fixed assets or plant assets) include assets that depreciate over a period of time. Land is an exception, as it is not subject to depreciation.

Equipment Machinery Buildings Land

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from the retained earnings statement

Balance SheetLO 2LO 2

Current Liabilities

Liabilities that will be due within a short time (usually one year or less) and that are to be paid out of current assets are called current liabilities.

Accounts payable Wages payable Interest payable Unearned fees

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Long-Term Liabilities

Liabilities not due for a long time (usually more than one year) are called long-term liabilities.

Long-term notes payable

Mortgage payable Bond payable

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Stockholders’ Equity

Stockholders’ equity is the stockholders’ right to the assets of the business. It is presented on the balance sheet below the liabilities section.

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Capital stock Retained earnings

from the retained earnings statement

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