Formal Financial Statements - BC Bookkeeping Tutorials|dwmbeancounter.com

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Formal Financial Statements

Closing The Books
Prepare Income Statement

All the information that we need to prepare our Income Statement is found in the Revenue and Expense Accounts Section of our After Closing Trial Balance Worksheet. All we need to do is transfer all the figures from our Worksheet to our formal Income Statement.

Don't Believe me ?

Just Sum the Revenues and Subtract the Cost of Goods Sold and Operating Expenses to arrive at the Net Income/Loss amount.
This is the amount that is transferred (closed) to the Owner's Capital Account with a Closing Entry.
Shabby Computer Systems
Income Statement
For Year Ended December 31, xxxx
Sales




Consulting Services
$50,000

Computer Sales
100,000

Total Sales

$150,000
Cost Of Goods Sold

72,500
Gross Profit

$77,500
Operating Expenses


Rent Expense
6,000
Utilities Expense
4,800
Office Supplies
1,200
Insurance Expense
6,000
Vehicle Operation Expense
3,600
Maintenance & Repairs
3,100
Depreciation Expense
3,100
Bad Debt Expense
1,000
Bank Charges
240
Advertising Expense
4,250
Professional Fees
2,250
Total Expenses

35,340
Net Income

$42,160

Prepare Capital Statement

All this statement does is show what caused the change in the Owner's Capital Account for the year. All the information needed to prepare this statement is contained in the Owner's Capital Account in our After Closing Trial Balance Worksheet.

Don't believe me ?
Prepare Balance Sheet

All the information that we need to prepare our Balance Sheet is found in the Balance Sheet Area of our After Closing Trial Balance Worksheet. All we need to do is transfer all the figures from the After Closing Trial Balance Column to our formal Balance Sheet.

Don't believe me ?
It's really quite simple. After all our closing entries have been posted, the only accounts that have a balance are our Balance Sheet Accounts- Assets, Liabilities, and Equity. Of course as you already know, the Balance Sheet is only made up of the Asset, Liability, and Equity Accounts.

This layout is called the account form. In this form the major categories are presented side by side.
Another layout sometimes used is called the report form. In this form the major categories are stacked on top of each other. An example of the report form follows.


General Journal

Finishing Touches
Hang tight, we've almost completed closing our books. Just a few more tasks. We've been using Worksheets as an aid for closing our books and recording our adjusting and closing entries in these worksheets.
It's time to use this information to prepare and record these entries in our formal General Journal and post our General Journal Entries to our formal General Ledger and any Subsidiary Ledgers.

Well, let's prepare our Formal General Journal Entries and Post To Our General Ledger.
General Journal Formal Adjusting Entries
General Journal Page
Entry NoDateAccount NamePost Ref.DebitCredit
Adjusting Entries
1
Dec 31, xxxx
Office Supplies
X1200


Office Supplies Inventory
X
1200
Record Supplies Expense and Adjust Inventory Account
2
Dec 31, xxxx
Bad Debt Expense
X1000


Accounts Receivable
X/X
1000
Record Write off of Bad Debt of Joe The Deadbeat
3
Dec 31, xxxx
Insurance Expense
X6000


Prepaid Insurance
X
6000
Record Insurance Expense & Adjust Prepaid Balance
4
Dec 31, xxxx
Inventory For Resale
X70000


Cost Of Goods Sold
X72500


Purchases
X
70000


Inventory For Resale
X
72500
Record Cost Of Goods Sold & Adjust Inventory For Resale Balance
5
Dec 31, xxxx
Bank Charges
X240


Cash
X
240
Record Bank Charges & Adjust Cash
6
Dec 31, xxxx
Depreciation Expense
X3100


Truck
X
3100
Record Depreciation Expense & Adjust Truck Balance
7
Dec 31, xxxx
Maintenance & Repairs Expense
X500


Other Accruals
X
500
Record Unrecorded & Unbilled Repair Expense & Liability
8
Dec 31, xxxx
Professional Fees
X250


Advertising Insurance
X
250
Correct Error In Recording Expenses
Where did we get the information for preparing the formal journal entries for our Adjusting Entries ? Would you believe our Adjusted Trial Balance Worksheet.
The X in the Posting Reference Column (Post Ref.) tells us that the entry has been posted to the General Ledger Accounts. The X/X denotes that the entry has been posted to the General Ledger Account and Subsidiary Accounts Receivable Ledger.
General Journal Formal Closing Entries
General Journal Page
Entry NoDateAccount NamePost Ref.DebitCredit
Closing Entries

Close Drawing Account
a
Dec 31, xxxx
Shabby Computer Systems, Capital
X
24000



Shabby Computer Systems, Drawing
X

24000
Close Drawing Account to Capital Account

Close Income/Expense Accounts
b
Dec 31, xxxx
Consulting Services
X
50000



Income Summary
X

50000
Close Revenue Account Consulting Services to Income Summary Account
c
Dec 31, xxxx
Computer Sales
X
100000



Income Summary
X

100000
Close Revenue Account Computer Sales To Income Summary Account
d
Dec 31, xxxx
Cost of Goods Sold
X
72500



Income Summary
X

72500
Close Expense Account Cost of Goods Sold To Income Summary Account
e
Dec 31, xxxx
Rent Expense
X

6000


Income Summary
X
6000

Close Expense Account Rent To Income Summary Account
f
Dec 31, xxxx
Utilities
X

4800


Income Summary
X
4800

Close Expense Account Utilities To Income Summary Account
g
Dec 31, xxxx
Office Supplies
X

1200


Income Summary
X
1200

Close Expense Account Office Supplies To Income Summary
h
Dec 31, xxxx
Insurance Expense
X

6000


Income Summary
X
6000

Close Expense Account Insurance To Income Summary Account
i
Dec 31, xxxx
Vehicle Operation Expense
X

3600


Income Summary
X
3600

Close Expense Account Vehicle Operation To Income Summary Account
j
Dec 31, xxxx
Maintenance & Repairs
X

2900


Income Summary
X
2900

Close Expense Account Maintenance & Repairs To Income Summary Account
k
Dec 31, xxxx
Depreciation Expense
X

3100


Income Summary
X
3100

Close Expense Account Depreciation To Income Summary Account
l
Dec 31, xxxx
Bad Debt Expense
X

1000


Income Summary
X
1000

Close Expense Account Bad Debts To Income Summary Account
m
Dec 31, xxxx
Bank Charges
X

240


Income Summary
X
240

Close Expense Account Bank Charges To Income Summary Account
n
Dec 31, xxxx
Advertising
X

4250


Income Summary
X
4250

Close Expense Account Advertising To Income Summary Account
o
Dec 31, xxxx
Professional Fees
X

2250


Income Summary
X
2250

Close Expense Account Professional Fees To Income Summary Account
p
Dec 31, xxxx
Income Summary Account
X
42160



Shabby Computer Systems, Capital
X

42160
Close Income Summary Account And Transfer Ending Balance To Owner's Capital Account (Balance Is Profit/Loss For Period)
Where did we get the information for preparing the formal journal entries for our Closing Entries ? Would you believe our After Closing Trial Balance Worksheet.

The X in the Posting Reference Column (Post Ref.) tells us that the entry has been posted to the General Ledger Accounts.


What's Next ?

Closing The Books Video
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