The Accounting Cycle

A) Prepare an unadjusted trial balance

B) Post adjusting journal entries and get an adjusted balance

Set up T accounts for the accounts in the adjusting journal entries.
Put the balance from the unadjusted trial balance as the beginning balance
Put the amount from the adjusting journal entry and get a new balance

C) Prepare an adjusted trial balance

Important:  You added new accounts from the adjusting entries that were not here before
You changed the account balance for the accounts used in adjusting entries

D) Use the adjusted trial balance to prepare an income statement

Use only revenue, expense, gains, and loss accounts from the trial balance.

 E) Prepare closing entries

List all the accounts and the amounts from the adjusted trial balance that are reported on the income statement and dividends paid.
Transfer these amounts to retained earnings and get a 0 balance.

F) Prepare a post closing trial balance

New Retained earning balance:

Beginning R.E                      95,000
+ Net Income                       33,700
– Dividends Paid                 (25,000)
= Ending R.E.                       103,700

G) Prepare a balance sheet

A.  Prepare closing journal entries

Ignore all accounts that are reported on the balance sheet.  These accounts do not go to 0 at the end of the period.

Transfer all revenue, expense, gains, and losses to retained earnings.

Transfer dividends paid to retained earnings

First –  Identify all expense and loss accounts and transfer them to retained earnings making the balance 0.  They are debit balances and must be credited to get to a 0 balance.

Retained Earnings       593,800
       Cost of goods sold              280,000
       Interest expense                   50,000
       Loss from flood                   130,000
       R & D expense                      25,000
       General & Admin expense    46,000
       Selling expense                     20,000
       Income Tax expense             42,000
       Supplies expense                      800
 
Credit all expense and loss accounts for the account balance and the total of all will be the amount that is transferred to retained earnings with a debit

Accrued expense is a liability.   Prepaid expense is an asset.
Unearned revenue is a liability.

Second – Identify all revenue and gain accounts and transfer them to retained earnings making the balance 0.  They are credit balances and must be debited to get to 0 balance.

Sales                                  480,000
Gain on sale                        65,000
Rent income                       12,000
       Retained earnings                  557,000

Debit all revenue and gain accounts for the account balance.  The amount for the retained earnings credit is a total of all debit amounts.

Third – Transfer dividends paid to the retained earnings account.  Dividends are paid out of retained earnings and reduce retained earnings.  Dividends paid is a debit balance and must be credited to make the balance 0.

Retained earnings               100,000
         Dividends Paid                         100,000

B.  Determine the balance in retained earnings to be reported on the balance sheet.

Do in a “T” account: