Exercise 4-9 Preparing closing entries and a post-closing trial balance LO P2, P3 The following adjusted trial balance contains the accounts and year-end balances of Cruz Company as of December 31. No. Account Title Debit Credit 101 Cash $ 18,000 126 Supplies 8,100 128 Prepaid insurance 2,000 167 Equipment 23,000 168 Accumulated depreciation—Equipment $ 6,500 301 A. Cruz, Capital 41,078 302 A. Cruz, Withdrawals 6,000 404 Services revenue 41,900 612 Depreciation expense—Equipment 2,000 622 Salaries expense 24,428 637 Insurance expense 1,760 640 Rent expense 2,807 652 Supplies expense 1,383 Totals $ 89,478 $ 89,478 1. Prepare the December 31, closing entries for Cruz Company. Assume the account number for Income Summary is 901. 2. Prepare the December 31, post-closing trial balance for Cruz Company. Note: A. Cruz, Capital was $41,078 on December 31 of the prior year.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Exercise 4-9 Preparing closing entries and a post-closing trial balance LO P2, P3
The following adjusted trial balance contains the accounts and year-end balances of Cruz Company as of December 31.
| No. | Account Title | Debit | Credit | ||||
| 101 | Cash | $ | 18,000 | ||||
| 126 | Supplies | 8,100 | |||||
| 128 | Prepaid insurance | 2,000 | |||||
| 167 | Equipment | 23,000 | |||||
| 168 | $ | 6,500 | |||||
| 301 | A. Cruz, Capital | 41,078 | |||||
| 302 | A. Cruz, Withdrawals | 6,000 | |||||
| 404 | Services revenue | 41,900 | |||||
| 612 | Depreciation expense—Equipment | 2,000 | |||||
| 622 | Salaries expense | 24,428 | |||||
| 637 | Insurance expense | 1,760 | |||||
| 640 | Rent expense | 2,807 | |||||
| 652 | Supplies expense | 1,383 | |||||
| Totals | $ | 89,478 | $ | 89,478 | |||
1. Prepare the December 31, closing entries for Cruz Company. Assume the account number for Income Summary is 901.
2. Prepare the December 31, post-closing trial balance for Cruz Company. Note: A. Cruz, Capital was $41,078 on December 31 of the prior year.
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