ACCTY 121

Objectives
 Review basic concepts of accounting
 Differentiate the 3 types of business structure
 Perform the complete accounting cycle
Accounting Equation

A LIABILITIES
S
S
E
T
S OWNER’S EQUITY
Review of Accounting Process
 Nature of accounting
 Accounting is a service activity
 Accounting is the language of business
 Function of accounting
 Main function – to provide quantitative information, primarily
financial in nature, about economic entities, that is intended to
be useful in making economic decision.
 Basic function – to record and report accurately the economic
reality of the business.
 Audit function – to test the truthfulness of the financial reports,
to trace fraudulent transactions and to locate and rectify
accounting errors.
Step 1: Analyze the transaction
Jan 1 A paid 24,000 for 2-year insurance. (use asset method)
Step 2: Journalize the transaction
Jan 1 A paid 24,000 for 2-year insurance. (use asset method)

Journal Entry:
Jan 1 Prepaid Insurance 24,000
Cash 24,000
Step 3: Posting to the ledger
Jan 1 A paid 24,000 for 2-year insurance. (use asset method)

Prepaid Insurance Cash

24,000 beg 425,570

24,000
24,000 401,570
Step 4: Trial Balance
Step 5&6: Worksheet and
Adjusting Entries
Unadjusted TB Adjustments
Step 7: Adjusted Trial Balance
Unadjusted TB Adjustments Adjusted TB
Step 8: Financial Statements
ASSETS
Current Assets
Cash 401,570.00
Accounts Receivable 4,000.00
Office Supplies 250.00
Prepaid Insurance 12,000.00
Total Current Assets 417,820.00
Non-Current Assets
Office Equipment 4,500.00
Total Non-Current Assets 4,500.00
TOTAL ASSETS 422,320.00

LIABILITIES AND OWNER'S EQUITY

Current Liabilities
Accounts Payable 4,500.00
Dividends Payable 2,000.00
Total Current Liabilities 6,500.00
Non-Current Liabilities
Notes Payable 15,000.00
Total Non-Current Liabilities 15,000.00
TOTAL LIABILITIES 21,500.00
OWNER'S EQUITY
A, Capital 400,820.00
TOTAL LIABILITIES AND OWNER'S EQUITY 422,320.00
Step 9: Closing Entry
Closing Entries:
Dec 31 Client Revenue 24,000
Prepaid Insurance Expense 12,000
Salaries Expense 7,500
Utilities Expense 180
Income Summary 4,320

Income Summary 4,320

A, Capital 4,320
Step 9: Closing Entry

Closing Entries:
A, Capital 3,000
A, Withdrawal 3,000
Step 10: Post Closing Trial Balance
Thank you!