Question

In: Accounting

Prepare a post closing trial balance indicating the balance of revenue, expenses and capital accounts.

Case Background

A sole proprietor (the owner) has established a service business specializing in recruitment for businesses needing specialized Tool Industry staff. The trail balance at the end of the first three months of operations is provided below. Part of the service is to train people before they are placed with companies. The owner has asked, you, the accountant for HR, to prepare the answers to the questions below considering the notes provided.

Trial Balance

Accounts

Debits

Credits

Cash

24,500

Accounts Receivable

10,000

Inventories / Supplies

3.500

Equipment

50,000

Accounts Payable

1,500

Notes Payable

50,000

Capital

15,000

Withdrawals

10,000

Sales

50,000

Salaries

15,000

Advertising

2,000

Accountants Fees

1,500

Total

116,500

116,500




Notes

  1. The owner issued a cheque for $2,000 for insurance for the next three month after discovering there was no insurance in place. The cheque has not been recorded as a reduction of cash to-date. There is no insurance expense for the first three months.

  2. The equipment must be depreciated for three months. The equipment has a service life of 5 years and monthly depreciation is estimated to be $833 a month.

  3. Recorded revenue of $5,000 is unearned and was an advance from a client. This revenue will be earned in the next three months.

  4. Salaries of $15,000 were paid in the first three months. However, $1,000 of salaries should be accrued as employees earned these salaries but will not be paid until the 4th month.

  5. The owner provided services of $2,500, which were not invoiced or billed to clients in the 3rd month but were earned in accordance with the Revenue Principle.

  6. Interest expense (Debit) needs to be recorded at the end of three months. The amount is $750 and should be recorded as a liability in Interest Payable (Credit) on the balance sheet. None of the $50,000 note has been paid to lenders yet. This note will be paid back at the end of 5 years.

  7. Supplies of $1,500 must be expensed to Cost of Goods Sold (i.e., moved out of inventory) and a new accrual of Accounts Payable should be established for $2,000 for supplies ordered at the end of the 3rd month, and not booked to-date.


Questions

  1. Prepare a post closing trial balance indicating the balance of revenue, expenses and capital accounts. Show the amounts in permanent and temporary accounts after the post closing entries.

Solutions

Expert Solution

Post Closing Trial Balance
Accounts Debits Credits
Cash $22,500
Accounts Receivable $12,500
Inventories / Supplies $4,000
Equipment $47,501
Accounts Payable $3,500
Notes Payable $50,000
Capital $15,000
Withdrawals $10,000
Sales $45,000
Salaries $16,000
Advertising $2,000
Accountants Fees $1,500
Prepaid Insurance $2,000
Depreciation $2,499
Advance Revenue $5,000
Salaries payable $1,000
Intesrest $750
Interest Payable $750
COGS $1,500
Service Revenue $2,500
Total $1,22750 $1,22750

permanent and temporary accounts after the post closing entries.

Dr                        Cash A/c                                     Cr Dr              Accounts Receivable A/c                   Cr Dr                   Inventories A/c                                Cr
Particulars Amount Particulars Amount Particulars Amount Particulars Amount Particulars Amount Particulars Amount
opening bal $24,500 Prepaid Insurance A/c $2,000 opening bal $10,000 opening bal $3,500 COGS A/c $1,500
Service Revenue A/c $2,500 Accounts Payable A/c $2,000
closing bal $22,500 Closing bal $12,500 Closing bal $4,000
Total $24,500 Total $24,500 Total $12,500 Total $12,500 Total $5,500 Total $5,500
Dr                   Equipment A/c                                Cr Dr              Accounts Payable A/c                   Cr Dr              Notes Payable A/c                   Cr
Particulars Amount Particulars Amount Particulars Amount Particulars Amount Particulars Amount Particulars Amount
opening bal $50,000 Depreciation A/c $2,499 opening bal $1,500 opening bal $50,000
Inventories A/c $2,000
Closing bal $47,501 Closing bal $3,500 Closing bal $50,000
Total $50,000 Total $50,000 Total $3,500 Total $3,500 Total $50,000 Total $50,000
Dr                        Capital A/c                                     Cr Dr                        Withdrawals A/c                                     Cr Dr                        Sales A/c                                     Cr
Particulars Amount Particulars Amount Particulars Amount Particulars Amount Particulars Amount Particulars Amount
opening bal $15,000 opening bal $10,000 Advance Revenue A/c $5,000 opening bal $50,000
closing bal $15,000 closing bal $10,000 closing bal $45,000
Total $15,000 Total $15,000 Total $10,000 Total $10,000 Total $50,000 Total $50,000
Dr                        Salaries A/c                                     Cr Dr                  Advertising A/c                               Cr Dr              Accountants Fees A/c                   Cr
Particulars Amount Particulars Amount Particulars Amount Particulars Amount Particulars Amount Particulars Amount
opening bal $15,000 opening bal $2,000 opening bal $1,500
Salaries Payable A/c $1,000
Closing bal $16,000 Closing bal $2,000 Closing bal $1,500
Total $16,000 Total $16,000 Total $2,000 Total $2,000 Total $1,500 Total $1,500
Dr              Prepaid Insurance A/c                   Cr Dr                   Depreciation A/c                                Cr Dr                   Advance Revenue A/c                                Cr
Particulars Amount Particulars Amount Particulars Amount Particulars Amount Particulars Amount Particulars Amount
Cash A/c $2,000 Equipment A/c $2,499 Sales A/c $5,000
Closing bal $2,000 Closing bal $2,499 Clsoing bal $5,000
Total $2,000 Total $2,000 Total $2,499 Total $2,499 Total $5,000 Total $5,000
Dr                   Salaries Payable A/c                                Cr Dr                   Interest A/c                                Cr Dr                   Interest Payable A/c                                Cr
Particulars Amount Particulars Amount Particulars Amount Particulars Amount Particulars Amount Particulars Amount
Salaries A/c $1,000 Interest Payable A/c $750 Interest A/c $750
Closing bal $1,000 Closing bal $750 Closing bal $750
Total $1,000 Total $1,000 Total $750 Total $750 Total $750 Total $750
Dr                   COGS A/c                                Cr Dr                   Service Revenue A/c                                Cr
Particulars Amount Particulars Amount Particulars Amount Particulars Amount
Inventory A/c $1,500 Sales A/c $5,000
Closing bal $1,500 Closing bal $5,000
Total $1,500 Total $1,500 Total $5,000 Total $5,000

Note: Depreciation for 3 months = $833 * 3 = $2,499

ekkarill92 answered 2 years ago
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