COLLEGE ACCOUNTING CHAPTERS 1 27

22ND EDITION HEINTZ

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CHAPTER 6

FINANCIAL STATEMENTS AND THE CLOSING PROCESS

REVIEW QUESTIONS

1. The information needed to prepare the income statement is found in the Income Statement columns
of the work sheet. Revenue is shown first, followed by an itemized and totaled list of expenses. Net
income may be calculated or copied from the Income Statement columns of the work sheet.

2. Two approaches to listing the expenses in the income statement are:

a. the expenses could be listed in the same order that they appear in the chart of accounts.
b. the expenses could be listed in descending order, by dollar amount.

3. The Balance Sheet columns of the work sheet provide most of the information needed to prepare a
statement of owner’s equity. The capital account balance and the drawing account balance are in
the Balance Sheet columns of the work sheet. The net income for the year can be found either on
the work sheet at the bottom of the Balance Sheet columns or on the income statement. Additional
investments must be identified in the owner’s capital account.

4. If additional investments are made during the year, the owner’s capital account in the general ledger
must be reviewed. The owner’s capital account in the general ledger contains the beginning
balance. The additional investments will also be shown in the owner’s capital account in the general
ledger.

5. The work sheet and the statement of owner’s equity are used to prepare the balance sheet. The
asset and liability amounts can be found in the Balance Sheet columns of the work sheet. The
ending balance for the owner’s capital has been computed on the statement of owner’s equity. This
amount should be copied from the statement of owner’s equity to the balance sheet.

175
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176 CHAPTER 6

6. A permanent account is an account in which the balance is brought forward for each new period.
Assets, liabilities, and the owner’s capital account accumulate information across accounting
periods. Their balances are brought forward for each new period. All accounts reported on the
balance sheet are permanent accounts.

7. Three types of temporary accounts are revenue, expense, and drawing accounts. These accounts
accumulate information for a specific accounting period.

8. The four steps in the closing process are:

Step 1: Close revenue accounts to Income Summary.
Step 2: Close expense accounts to Income Summary.
Step 3: Close Income Summary to the owner’s capital account.
Step 4: Close Drawing to the owner’s capital account.

9. The net effect of the four closing entries on the balance of the owner’s capital account is that the
balance from Income Summary is transferred to the owner’s capital account and the drawing
account is closed to the owner’s capital account. Upon completion of the four steps, all temporary
accounts have zero balances and the earnings and withdrawals for the period have been
transferred to the owner’s capital account. This same amount, the increase or decrease in capital, is
calculated on the statement of owner’s equity.

10. The purpose of the post-closing trial balance is to prove the equality of the debit and credit balances
in the general ledger accounts, after posting the closing entries.

11. The 10 steps in the accounting cycle are:

During the Accounting Period
1. Analyze source documents.
2. Journalize the transactions.
3. Post to the ledger accounts.

End of Accounting Period

4. Prepare a trial balance.
5. Determine and prepare the needed adjustments on the work sheet.
6. Complete an end-of-period work sheet.
7. Journalize and post the adjusting entries.
8. Prepare an income statement, a statement of owner’s equity, and a balance sheet.
9. Journalize and post the closing entries.
10. Prepare a post-closing trial balance.

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CHAPTER 6 177

Exercise 6-1A

Major Advising
Income Statement
For Month Ended January 31, 20--

Revenue:
Advising fees $4,140
Expenses:
Wages expense $700
Advertising expense 90
Rent expense 500
Supplies expense 150
Phone expense 67
Electricity expense 48
Insurance expense 89
Gas and oil expense 53
Depreciation expense—office equipment 200
Miscellaneous expense 23
Total expenses 1,920
Net income $2,220

Exercise 6-2A
Major Advising
Statement of Owner’s Equity
For Month Ended January 31, 20--

Ed Major, capital, January 1, 20-- $4,100

Net income for January $2,220
Less withdrawals for January 900
Increase in capital 1,320
Ed Major, capital, January 31, 20-- $5,420

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178 CHAPTER 6

Exercise 6-3A
Major Advising
Balance Sheet
January 31, 20--

Assets
Current assets:
Cash $1,339
Accounts receivable 935
Supplies 346
Prepaid insurance 800
Total current assets $3,420
Property, plant, and equipment:
Office equipment $3,500
Less accumulated depreciation 200 3,300
Total assets $6,720
Liabilities
Current liabilities:
Accounts payable $1,000
Wages payable 300
Total current liabilities $1,300
Owner’s Equity
Ed Major, capital 5,420
Total liabilities and owner’s equity $6,720

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CHAPTER 6 179

Exercise 6-4A
GENERAL JOURNAL PAGE 1

POST.
DATE DESCRIPTION DEBIT CREDIT
REF.
1 Closing Entries 1
20--
2 Jan. 31 Advising Fees 401 4 1 4 0 00 2

3 Income Summary 313 4 1 4 0 00 3

4 4

5 31 Income Summary 313 1 9 2 0 00 5

6 Wages Expense 511 7 0 0 00 6

7 Advertising Expense 512 9 0 00 7

8 Rent Expense 521 5 0 0 00 8

9 Supplies Expense 524 1 5 0 00 9

10 Phone Expense 525 6 7 00 10

11 Electricity Expense 533 4 8 00 11

12 Insurance Expense 535 8 9 00 12

13 Gas and Oil Expense 538 5 3 00 13

14 Depreciation Expense—Office Equipment 541 2 0 0 00 14

15 Miscellaneous Expense 549 2 3 00 15

16 16

17 31 Income Summary 313 2 2 2 0 00 17

18 Ed Major, Capital 311 2 2 2 0 00 18

19 19

20 31 Ed Major, Capital 311 9 0 0 00 20

21 Ed Major, Drawing 312 9 0 0 00 21

22 22

23 23

Cash 101 Accounts Receivable 122

Bal. 1,339 Bal. 935

Supplies 141 Prepaid Insurance 145

Bal. 346 Bal. 800

Office Equipment 181 Accum. Depr.—Office Equip. 181.1

Bal. 3,500 Bal. 200

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180 CHAPTER 6

Exercise 6-4A (Concluded)

Accounts Payable 202 Wages Payable 219
Bal. 1,000 Bal. 300

Ed Major, Capital 311 Ed Major, Drawing 312

Closing 900 Bal. 4,100 Bal. 900 Closing 900
Closing 2,220 — —
6,320

Bal. 5,420

Income Summary 313 Advising Fees 401

Closing 1,920 Closing 4,140 Closing 4,140 Bal. 4,140
Closing 2,220 — — —
4,140
—

Wages Expense 511 Advertising Expense 512

Bal. 700 Closing 700 Bal. 90 Closing 90
— — — —

Rent Expense 521 Supplies Expense 524

Bal. 500 Closing 500 Bal. 150 Closing 150
— — — —

Phone Expense 525 Electricity Expense 533

Bal. 67 Closing 67 Bal. 48 Closing 48
— — — —

Insurance Expense 535 Gas and Oil Expense 538

Bal. 89 Closing 89 Bal. 53 Closing 53
— — — —

Depr. Exp.—Office Equip. 541 Miscellaneous Expense 549

Bal. 200 Closing 200 Bal. 23 Closing 23
— — — —

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CHAPTER 6 181

Exercise 6-5A
GENERAL JOURNAL PAGE

POST.
DATE DESCRIPTION DEBIT CREDIT
REF.
1 Closing Entries 1
20—
2 2
Apr. 30 Golf Instruction Fees 401 4 0 0 0 00
3 Income Summary 313 4 0 0 0 00 3

4 4

5 30 Income Summary 313 2 4 8 0 00 5

6 Wages Expense 511 8 0 0 00 6

7 Advertising Expense 512 2 0 0 00 7

8 Travel Expense 515 6 0 0 00 8

9 Supplies Expense 524 5 0 0 00 9

10 Insurance Expense 535 1 0 0 00 10

11 Postage Expense 536 5 0 00 11

12 Gas and Oil Expense 538 1 5 0 00 12

13 Miscellaneous Expense 549 8 0 00 13

14 14

15 30 Income Summary 313 1 5 2 0 00 15

16 Chris Williams, Capital 311 1 5 2 0 00 16

17 17

18 30 Chris Williams, Capital 311 1 0 0 0 00 18

19 Chris Williams, Drawing 312 1 0 0 0 00 19

20 20

21 21

22 22

23 23

24 24

25 25

26 26

27 27

28 28

29 29

30 30

31 31

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182 CHAPTER 6

Exercise 6-5A (Concluded)

Cash 101 Advertising Expense 512
Bal. 500 Bal. 200 Closing 200
— —

Accounts Receivable 122 Travel Expense 515

Bal. 1,500 Bal. 600 Closing 600
— —

Wages Payable 219 Supplies Expense 524

Bal. 400 Bal. 500 Closing 500
— —

Chris Williams, Capital 311 Insurance Expense 535

Bal. 9,000 Bal. 100 Closing 100
Closing 1,000 Closing 1,520 — —
10,520
Bal. 9,520

Chris Williams, Drawing 312 Postage Expense 536

Bal. 1,000 Closing 1,000 Bal. 50 Closing 50
— — — —

Income Summary 313 Gas and Oil Expense 538

Closing 2,480 Closing 4,000 Bal. 150 Closing 150
Closing 1,520 — —
4,000
— —

Golf Instruction Fees 401 Miscellaneous Expense 549

Closing 4,000 Bal. 4,000 Bal. 80 Closing 80
— — — —

Wages Expense 511

Bal. 800 Closing 800
— —

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CHAPTER 6 183

Exercise 6-6A
GENERAL JOURNAL PAGE

POST.
DATE DESCRIPTION DEBIT CREDIT
REF.
1 Closing Entries 1
20--
2 Jan. 31 Delivery Fees 401 2 2 0 0 00 2

3 Income Summary 313 2 2 0 0 00 3

4 4

5 31 Income Summary 313 2 8 0 3 00 5

6 Wages Expense 511 1 8 0 0 00 6

7 Advertising Expense 512 8 0 00 7

8 Rent Expense 521 5 0 0 00 8

9 Supplies Expense 523 1 2 0 00 9

10 Phone Expense 525 5 8 00 10

11 Electricity Expense 533 4 4 00 11

12 Insurance Expense 535 3 0 00 12

13 Gas and Oil Expense 538 3 8 00 13

14 Depreciation Expense—Delivery Equipment 541 1 0 0 00 14

15 Miscellaneous Expense 549 3 3 00 15

16 16

17 31 Saburo Goto, Capital 311 6 0 3 00 17

18 Income Summary 313 6 0 3 00 18

19 19

20 31 Saburo Goto, Capital 311 8 0 0 00 20

21 Saburo Goto, Drawing 312 8 0 0 00 21

22 22

23 23

24 24

25 25

26 26

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184 CHAPTER 6

Exercise 6-6A (Concluded)

Accum. Depr.—Delivery Equip. 185.1 Wages Payable 219
Bal. 100 Bal. 200

Saburo Goto, Capital 311 Saburo Goto, Drawing 312

Closing 603 Bal. 4,000 Bal. 800 Closing 800
Closing 800 — —
1,403
Bal. 2,597

Income Summary 313 Delivery Fees 401

Closing 2,803 Closing 2,200 Closing 2,200 Bal. 2,200
Closing 603 — —
2,803
— —

Wages Expense 511 Advertising Expense 512

Bal. 1,800 Closing 1,800 Bal. 80 Closing 80
— — — —

Rent Expense 521 Supplies Expense 523

Bal. 500 Closing 500 Bal. 120 Closing 120
— — — —

Phone Expense 525 Electricity Expense 533

Bal. 58 Closing 58 Bal. 44 Closing 44
— — — —

Insurance Expense 535 Gas and Oil Expense 538

Bal. 30 Closing 30 Bal. 38 Closing 38
— — — —

Depr. Exp.—Delivery Equip. 541 Miscellaneous Expense 549

Bal. 100 Closing 100 Bal. 33 Closing 33
— — — —

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CHAPTER 6 185

Problem 6-7A
1.
Megaffin’s Repairs
Income Statement
For Month Ended January 31, 20--

Revenue:
Repair fees $4,700
Expenses:
Wages expense $2,150
Advertising expense 200
Rent expense 640
Supplies expense 300
Phone expense 50
Insurance expense 230
Gas and oil expense 200
Depreciation expense—delivery equipment 55
Miscellaneous expense 37
Total expenses 3,862
Net income $ 838

2.
Megaffin’s Repairs
Statement of Owner’s Equity
For Month Ended January 31, 20--

Don Megaffin, capital, January 1, 20-- $8,000)

Net income for January $ 838
Less withdrawals for January 1,100
Decrease in capital (262)
Don Megaffin, capital, January 31, 20-- $7,738)

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186 CHAPTER 6

Problem 6-7A (Concluded)

3.
Megaffin’s Repairs
Balance Sheet
January 31, 20--

Assets
Current assets:
Cash $3,673
Accounts receivable 1,450
Supplies 400
Prepaid insurance 670
Total current assets $6,193
Property, plant, and equipment:
Delivery equipment $3,200
Less accumulated depreciation 55 3,145
Total assets $9,338
Liabilities
Current liabilities:
Accounts payable $1,200
Wages payable 400
Total current liabilities $1,600
Owner’s Equity
Don Megaffin, capital 7,738
Total liabilities and owner’s equity $9,338

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CHAPTER 6 187

Problem 6-8A
1.
GENERAL JOURNAL PAGE 10

POST.
DATE DESCRIPTION DEBIT CREDIT
REF.
1 Adjusting Entries 1
20--
2 Jan. 31 Supplies Expense 523 3 0 0 00 2

3 Supplies 141 3 0 0 00 3

4 4

5 31 Insurance Expense 535 2 3 0 00 5

6 Prepaid Insurance 145 2 3 0 00 6

7 7

8 31 Wages Expense 511 4 0 0 00 8

9 Wages Payable 219 4 0 0 00 9

10 10

11 31 Depreciation Expense—Delivery Equipment 541 5 5 00 11

12 Accumulated Depreciation—Delivery Equipment 185.1 5 5 00 12

13 13

14 14

15 15

16 16

17 17

18 18

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188 CHAPTER 6

Problem 6-8A (Continued)

2.
GENERAL JOURNAL PAGE 11

POST.
DATE DESCRIPTION DEBIT CREDIT
REF.
1 Closing Entries 1
20--
2 Jan. 31 Repair Fees 401 4 7 0 0 00 2

3 Income Summary 313 4 7 0 0 00 3

4 4

5 31 Income Summary 313 3 8 6 2 00 5

6 Wages Expense 511 2 1 5 0 00 6

7 Advertising Expense 512 2 0 0 00 7

8 Rent Expense 521 6 4 0 00 8

9 Supplies Expense 523 3 0 0 00 9

10 Phone Expense 525 5 0 00 10

11 Insurance Expense 535 2 3 0 00 11

12 Gas and Oil Expense 538 2 0 0 00 12

13 Depreciation Expense—Delivery Equipment 541 5 5 00 13

14 Miscellaneous Expense 549 3 7 00 14

15 15

16 31 Income Summary 313 8 3 8 00 16

17 Don Megaffin, Capital 311 8 3 8 00 17

18 18

19 31 Don Megaffin, Capital 311 1 1 0 0 00 19

20 Don Megaffin, Drawing 312 1 1 0 0 00 20

21 21

22 22

23 23

GENERAL LEDGER
1. and 2.

ACCOUNT Cash ACCOUNT NO. 101

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Balance ✓ 3 6 7 3 00

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CHAPTER 6 189

Problem 6-8A (Continued)

ACCOUNT Accounts Receivable ACCOUNT NO. 122
POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Balance ✓ 1 4 5 0 00

ACCOUNT Supplies ACCOUNT NO. 141

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Balance ✓ 7 0 0 00
31 Adjusting J10 3 0 0 00 4 0 0 00

ACCOUNT Prepaid Insurance ACCOUNT NO. 145

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Balance ✓ 9 0 0 00
31 Adjusting J10 2 3 0 00 6 7 0 00

ACCOUNT Delivery Equipment ACCOUNT NO. 185

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Balance ✓ 3 2 0 0 00

ACCOUNT Accumulated Depreciation⎯Delivery Equipment ACCOUNT NO. 185.1

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Adjusting J10 5 5 00 5 5 00

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190 CHAPTER 6

Problem 6-8A (Continued)

ACCOUNT Accounts Payable ACCOUNT NO. 202
POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Balance ✓ 1 2 0 0 00

ACCOUNT Wages Payable ACCOUNT NO. 219

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Adjusting J10 4 0 0 00 4 0 0 00

ACCOUNT Don Megaffin, Capital ACCOUNT NO. 311

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Balance ✓ 8 0 0 0 00
31 Closing J11 8 3 8 00 8 8 3 8 00
31 Closing J11 1 1 0 0 00 7 7 3 8 00

ACCOUNT Don Megaffin, Drawing ACCOUNT NO. 312

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Balance ✓ 1 1 0 0 00
31 Closing J11 1 1 0 0 00

ACCOUNT Income Summary ACCOUNT NO. 313

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Closing J11 4 7 0 0 00 4 7 0 0 00
31 Closing J11 3 8 6 2 00 8 3 8 00
31 Closing J11 8 3 8 00

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CHAPTER 6 191

Problem 6-8A (Continued)

ACCOUNT Repair Fees ACCOUNT NO. 401
POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Balance ✓ 4 7 0 0 00
31 Closing J11 4 7 0 0 00

ACCOUNT Wages Expense ACCOUNT NO. 511

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Balance ✓ 1 7 5 0 00
31 Adjusting J10 4 0 0 00 2 1 5 0 00
31 Closing J11 2 1 5 0 00

ACCOUNT Advertising Expense ACCOUNT NO. 512

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Balance ✓ 2 0 0 00
31 Closing J11 2 0 0 00

ACCOUNT Rent Expense ACCOUNT NO. 521

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Balance ✓ 6 4 0 00
31 Closing J11 6 4 0 00

ACCOUNT Supplies Expense ACCOUNT NO. 523

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Adjusting J10 3 0 0 00 3 0 0 00
31 Closing J11 3 0 0 00

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192 CHAPTER 6

Problem 6-8A (Continued)

ACCOUNT Phone Expense ACCOUNT NO. 525

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Balance ✓ 5 0 00
31 Closing J11 5 0 00

ACCOUNT Insurance Expense ACCOUNT NO. 535

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Adjusting J10 2 3 0 00 2 3 0 00
31 Closing J11 2 3 0 00

ACCOUNT Gas and Oil Expense ACCOUNT NO. 538

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Balance ✓ 2 0 0 00
31 Closing J11 2 0 0 00

ACCOUNT Depreciation Expense⎯Delivery Equipment ACCOUNT NO. 541

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Adjusting J10 5 5 00 5 5 00
31 Closing J11 5 5 00

ACCOUNT Miscellaneous Expense ACCOUNT NO. 549

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
Jan. 31 Balance ✓ 3 7 00
31 Closing J11 3 7 00

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CHAPTER 6 193

Problem 6-8A (Concluded)

3.
Megaffin’s Repairs
Post-Closing Trial Balance
January 31, 20--

ACCOUNT ACCT. DEBIT CREDIT

NO. BALANCE BALANCE
Cash 101 3 6 7 3 00
Accounts Receivable 122 1 4 5 0 00
Supplies 141 4 0 0 00
Prepaid Insurance 145 6 7 0 00
Delivery Equipment 185 3 2 0 0 00
Accumulated Depreciation—Delivery Equipment 185.1 5 5 00
Accounts Payable 202 1 2 0 0 00
Wages Payable 219 4 0 0 00
Don Megaffin, Capital 311 7 7 3 8 00
9 3 9 3 00 9 3 9 3 00

Problem 6-9A
Autumn’s Home Designs
Statement of Owner’s Equity
For Month Ended January 31, 20--

Autumn Chou, capital, January 1, 20-- $4,800

Investments during January 1,200
Total investment $6,000
Net income for January $1,820
Less withdrawals for January 1,000
Increase in capital 820
Autumn Chou, capital, January 31, 20-- $6,820

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194 CHAPTER 6

Exercise 6-1B

Adams’ Shoe Shine

Income Statement
For Month Ended June 30, 20--

Revenue:
Service fees $4,813
Expenses:
Wages expense $1,080
Advertising expense 34
Rent expense 900
Supplies expense 322
Phone expense 133
Utilities expense 102
Insurance expense 120
Gas and oil expense 88
Depreciation expense—office equipment 110
Miscellaneous expense 98
Total expenses 2,987
Net income $1,826

Exercise 6-2B
Adams’ Shoe Shine
Statement of Owner’s Equity
For Month Ended June 30, 20--

Mary Adams, capital, June 1, 20-- $6,000)

Net income for June $1,826
Less withdrawals for June 2,000
Decrease in capital (174)
Mary Adams, capital, June 30, 20-- $5,826)

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CHAPTER 6 195

Exercise 6-3B
Adams’ Shoe Shine
Balance Sheet
June 30, 20--

Assets
Current assets:
Cash $3,262
Accounts receivable 1,244
Supplies 800
Prepaid insurance 640
Total current assets $5,946
Property, plant, and equipment:
Office equipment $2,100
Less accumulated depreciation—office equipment 110 1,990
Total assets $7,936
Liabilities
Current liabilities:
Accounts payable $1,850
Wages payable 260
Total current liabilities $2,110
Owner’s Equity
Mary Adams, capital 5,826
Total liabilities and owner’s equity $7,936

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196 CHAPTER 6

Exercise 6-4B
GENERAL JOURNAL PAGE 1

POST.
DATE DESCRIPTION DEBIT CREDIT
REF.
1 Closing Entries 1
20--
2 June 30 Service Fees 401 4 8 1 3 00 2

3 Income Summary 313 4 8 1 3 00 3

4 4

5 30 Income Summary 313 2 9 8 7 00 5

6 Wages Expense 511 1 0 8 0 00 6

7 Advertising Expense 512 3 4 00 7

8 Rent Expense 521 9 0 0 00 8

9 Supplies Expense 523 3 2 2 00 9

10 Phone Expense 525 1 3 3 00 10

11 Utilities Expense 533 1 0 2 00 11

12 Insurance Expense 535 1 2 0 00 12

13 Gas and Oil Expense 538 8 8 00 13

14 Depreciation Expense—Office Equipment 542 1 1 0 00 14

15 Miscellaneous Expense 549 9 8 00 15

16 16

17 30 Income Summary 313 1 8 2 6 00 17

18 Mary Adams, Capital 311 1 8 2 6 00 18

19 19

20 30 Mary Adams, Capital 311 2 0 0 0 00 20

21 Mary Adams, Drawing 312 2 0 0 0 00 21

22 22

23 23

Cash 101 Accounts Receivable 122

Bal. 3,262 Bal. 1,244

Supplies 141 Prepaid Insurance 145

Bal. 800 Bal. 640

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CHAPTER 6 197

Office Equipment 181 Accum. Depr.—Office Equip. 181.1

Bal. 2,100 Bal. 110

Exercise 6-4B (Concluded)

Accounts Payable 202 Wages Payable 219
Bal. 1,850 Bal. 260

Mary Adams, Capital 311 Mary Adams, Drawing 312

Closing 2,000 Bal. 6,000 Bal. 2,000 Closing 2,000
Closing 1,826 — —
7,826
Bal. 5,826

Income Summary 313 Service Fees 401

Closing 2,987 Closing 4,813 Closing 4,813 Bal. 4,813
Closing 1,826 — —
4,813
— —

Wages Expense 511 Advertising Expense 512

Bal. 1,080 Closing 1,080 Bal. 34 Closing 34
— — — —

Rent Expense 521 Supplies Expense 523

Bal. 900 Closing 900 Bal. 322 Closing 322
— — — —

Phone Expense 525 Utilities Expense 533

Bal. 133 Closing 133 Bal. 102 Closing 102
— — — —

Insurance Expense 535 Gas and Oil Expense 538

Bal. 120 Closing 120 Bal. 88 Closing 88
— — — —

Depr. Exp.—Office Equip. 542 Miscellaneous Expense 549

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198 CHAPTER 6

Bal. 110 Closing 110 Bal. 98 Closing 98

— — — —

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CHAPTER 6 199

Exercise 6-5B
GENERAL JOURNAL PAGE

POST.
DATE DESCRIPTION DEBIT CREDIT
REF.
1 Closing Entries 1
20--
2 May 31 Lawn Service Fees 401 5 0 0 0 00 2

3 Income Summary 313 5 0 0 0 00 3

4 4

5 31 Income Summary 313 3 2 4 0 00 5

6 Wages Expense 511 4 0 0 00 6

7 Advertising Expense 512 6 0 0 00 7

8 Travel Expense 515 1 0 0 00 8

9 Supplies Expense 524 9 0 0 00 9

10 Insurance Expense 535 3 0 0 00 10

11 Postage Expense 536 4 0 00 11

12 Gas and Oil Expense 538 7 0 0 00 12

13 Miscellaneous Expense 549 2 0 0 00 13

14 14

15 31 Income Summary 313 1 7 6 0 00 15

16 Mark Thrasher, Capital 311 1 7 6 0 00 16

17 17

18 31 Mark Thrasher, Capital 311 8 0 0 00 18

19 Mark Thrasher, Drawing 312 8 0 0 00 19

20 20

21 21

22 22

23 23

24 24

25 25

26 26

27 27

28 28

29 29

30 30

31 31

32 32

33 33

34 34

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200 CHAPTER 6

Exercise 6-5B (Concluded)

Cash 101 Advertising Expense 512
Bal. 600 Bal. 600 Closing 600
— —

Accounts Receivable 122 Travel Expense 515

Bal. 1,800 Bal. 100 Closing 100
— —

Wages Payable 219 Supplies Expense 524

Bal. 500 Bal. 900 Closing 900
— —

Mark Thrasher, Capital 311 Insurance Expense 535

Bal. 8,000 Bal. 300 Closing 300
Closing 800 Closing 1,760 — —
9,760
Bal. 8,960

Mark Thrasher, Drawing 312 Postage Expense 536

Bal. 800 Closing 800 Bal. 40 Closing 40
— — — —

Income Summary 313 Gas and Oil Expense 538

Closing 3,240 Closing 5,000 Bal. 700 Closing 700
Closing 1,760 — —
5,000
— —

Lawn Service Fees 401 Miscellaneous Expense 549

Closing 5,000 Bal. 5,000 Bal. 200 Closing 200
— — — —

Wages Expense 511

Bal. 400 Closing 400
— —

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CHAPTER 6 201

Exercise 6-6B
GENERAL JOURNAL PAGE

POST.
DATE DESCRIPTION DEBIT CREDIT
REF.
1 Closing Entries 1
20--
2 June 30 Referral Fees 401 2 8 1 3 00 2

3 Income Summary 313 2 8 1 3 00 3

4 4

5 30 Income Summary 313 2 9 8 7 00 5

6 Wages Expense 511 1 0 8 0 00 6

7 Advertising Expense 512 3 4 00 7

8 Rent Expense 521 9 0 0 00 8

9 Supplies Expense 523 3 2 2 00 9

10 Phone Expense 525 1 3 3 00 10

11 Utilities Expense 533 1 0 2 00 11

12 Insurance Expense 535 1 2 0 00 12

13 Gas and Oil Expense 538 8 8 00 13

14 Depreciation Expense—Office Equipment 541 1 1 0 00 14

15 Miscellaneous Expense 549 9 8 00 15

16 16

17 30 Raquel Zapata, Capital 311 1 7 4 00 17

18 Income Summary 313 1 7 4 00 18

19 19

20 30 Raquel Zapata, Capital 311 2 0 0 0 00 20

21 Raquel Zapata, Drawing 312 2 0 0 0 00 21

22 22

23 23

24 24

25 25

26 26

27 27

28 28

29 29

30 30

31 31

32 32

33 33

34 34

35 35

36 36

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202 CHAPTER 6

Exercise 6-6B (Concluded)

Accum. Depr.—Office Equip. 181.1 Wages Payable 219
Bal. 110 Bal. 260

Raquel Zapata, Capital 311 Raquel Zapata, Drawing 312

Closing 174 Bal. 6,000 Bal. 2,000 Closing 2,000
Closing 2,000 — —
2,174
Bal. 3,826

Income Summary 313 Referral Fees 401

Closing 2,987 Closing 2,813 Closing 2,813 Bal. 2,813
Closing 174 — —
2,987
— —

Wages Expense 511 Advertising Expense 512

Bal. 1,080 Closing 1,080 Bal. 34 Closing 34
— — — —

Rent Expense 521 Supplies Expense 523

Bal. 900 Closing 900 Bal. 322 Closing 322
— — — —

Phone Expense 525 Utilities Expense 533

Bal. 133 Closing 133 Bal. 102 Closing 102
— — — —

Insurance Expense 535 Gas and Oil Expense 538

Bal. 120 Closing 120 Bal. 88 Closing 88
— — — —

Depr. Exp.—Office Equip. 541 Miscellaneous Expense 549

Bal. 110 Closing 110 Bal. 98 Closing 98
— — — —

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CHAPTER 6 203

Problem 6-7B
1.
Juanita’s Consulting
Income Statement
For Month Ended June 30, 20--

Revenue:
Consulting fees $4,204
Expenses:
Wages expense $1,600
Advertising expense 60
Rent expense 500
Supplies expense 250
Phone expense 46
Electricity expense 39
Insurance expense 100
Gas and oil expense 28
Depreciation expense—office equipment 110
Miscellaneous expense 21
Total expenses 2,754
Net income $1,450

2.
Juanita’s Consulting
Statement of Owner’s Equity
For Month Ended June 30, 20--

Juanita Alvarez, capital, June 1, 20-- $7,000

Net income for June $1,450
Less withdrawals for June 800
Increase in capital 650
Juanita Alvarez, capital, June 30, 20-- $7,650

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204 CHAPTER 6

Problem 6-7B (Concluded)

3.
Juanita’s Consulting
Balance Sheet
June 30, 20--

Assets
Current assets:
Cash $5,285
Accounts receivable 1,075
Supplies 500
Prepaid insurance 400
Total current assets $7,260
Property, plant, and equipment:
Office equipment $2,200
Less accumulated depreciation 110 2,090
Total assets $9,350
Liabilities
Current liabilities:
Accounts payable $1,500
Wages payable 200
Total current liabilities $1,700
Owner’s Equity
Juanita Alvarez, capital 7,650
Total liabilities and owner’s equity $9,350

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CHAPTER 6 205

Problem 6-8B
1.
GENERAL JOURNAL PAGE 10

POST.
DATE DESCRIPTION DEBIT CREDIT
REF.
1 Adjusting Entries 1
20--
2 June 30 Supplies Expense 523 2 5 0 00 2

3 Supplies 141 2 5 0 00 3

4 4

5 30 Insurance Expense 535 1 0 0 00 5

6 Prepaid Insurance 145 1 0 0 00 6

7 7

8 30 Wages Expense 511 2 0 0 00 8

9 Wages Payable 219 2 0 0 00 9

10 10

11 30 Depreciation Expense—Office Equipment 541 1 1 0 00 11

12 Accumulated Depreciation—Office Equipment 181.1 1 1 0 00 12

13 13

14 14

15 15

16 16

17 17

18 18

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206 CHAPTER 6

Problem 6-8B (Continued)

2.
GENERAL JOURNAL PAGE 11

POST.
DATE DESCRIPTION DEBIT CREDIT
REF.
1 Closing Entries 1
20--
2 June 30 Consulting Fees 401 4 2 0 4 00 2

3 Income Summary 313 4 2 0 4 00 3

4 4

5 30 Income Summary 313 2 7 5 4 00 5

6 Wages Expense 511 1 6 0 0 00 6

7 Advertising Expense 512 6 0 00 7

8 Rent Expense 521 5 0 0 00 8

9 Supplies Expense 523 2 5 0 00 9

10 Phone Expense 525 4 6 00 10

11 Electricity Expense 533 3 9 00 11

12 Insurance Expense 535 1 0 0 00 12

13 Gas and Oil Expense 538 2 8 00 13

14 Depreciation Expense—Office Equipment 541 1 1 0 00 14

15 Miscellaneous Expense 549 2 1 00 15

16 16

17 30 Income Summary 313 1 4 5 0 00 17

18 Juanita Alvarez, Capital 311 1 4 5 0 00 18

19 19

20 30 Juanita Alvarez, Capital 311 8 0 0 00 20

21 Juanita Alvarez, Drawing 312 8 0 0 00 21

22 22

23 23

GENERAL LEDGER
1. and 2.
ACCOUNT Cash ACCOUNT NO. 101
POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Balance ✓ 5 2 8 5 00

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CHAPTER 6 207

Problem 6-8B (Continued)

ACCOUNT Accounts Receivable ACCOUNT NO. 122

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Balance ✓ 1 0 7 5 00

ACCOUNT Supplies ACCOUNT NO. 141

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Balance ✓ 7 5 0 00
30 Adjusting J10 2 5 0 00 5 0 0 00

ACCOUNT Prepaid Insurance ACCOUNT NO. 145

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Balance ✓ 5 0 0 00
30 Adjusting J10 1 0 0 00 4 0 0 00

ACCOUNT Office Equipment ACCOUNT NO. 181

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Balance ✓ 2 2 0 0 00

ACCOUNT Accumulated Depreciation⎯Office Equipment ACCOUNT NO. 181.1

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Adjusting J10 1 1 0 00 1 1 0 00

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208 CHAPTER 6

Problem 6-8B (Continued)

ACCOUNT Accounts Payable ACCOUNT NO. 202

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Balance ✓ 1 5 0 0 00

ACCOUNT Wages Payable ACCOUNT NO. 219

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Adjusting J10 2 0 0 00 2 0 0 00

ACCOUNT Juanita Alvarez, Capital ACCOUNT NO. 311

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Balance ✓ 7 0 0 0 00
30 Closing J11 1 4 5 0 00 8 4 5 0 00
30 Closing J11 8 0 0 00 7 6 5 0 00

ACCOUNT Juanita Alvarez, Drawing ACCOUNT NO. 312

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Balance ✓ 8 0 0 00
30 Closing J11 8 0 0 00

ACCOUNT Income Summary ACCOUNT NO. 313

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Closing J11 4 2 0 4 00 4 2 0 4 00
30 Closing J11 2 7 5 4 00 1 4 5 0 00
30 Closing J11 1 4 5 0 00

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CHAPTER 6 209

Problem 6-8B (Continued)

ACCOUNT Consulting Fees ACCOUNT NO. 401

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Balance ✓ 4 2 0 4 00
30 Closing J11 4 2 0 4 00

ACCOUNT Wages Expense ACCOUNT NO. 511

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Balance ✓ 1 4 0 0 00
30 Adjusting J10 2 0 0 00 1 6 0 0 00
30 Closing J11 1 6 0 0 00

ACCOUNT Advertising Expense ACCOUNT NO. 512

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Balance ✓ 6 0 00
30 Closing J11 6 0 00

ACCOUNT Rent Expense ACCOUNT NO. 521

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Balance ✓ 5 0 0 00
30 Closing J11 5 0 0 00

ACCOUNT Supplies Expense ACCOUNT NO. 523

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Adjusting J10 2 5 0 00 2 5 0 00
30 Closing J11 2 5 0 00

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210 CHAPTER 6

Problem 6-8B (Continued)

ACCOUNT Phone Expense ACCOUNT NO. 525

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Balance ✓ 4 6 00
30 Closing J11 4 6 00

ACCOUNT Electricity Expense ACCOUNT NO. 533

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Balance ✓ 3 9 00
30 Closing J11 3 9 00

ACCOUNT Insurance Expense ACCOUNT NO. 535

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Adjusting J10 1 0 0 00 1 0 0 00
30 Closing J11 1 0 0 00

ACCOUNT Gas and Oil Expense ACCOUNT NO. 538

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Balance ✓ 2 8 00
30 Closing J11 2 8 00

ACCOUNT Depreciation Expense—Office Equipment ACCOUNT NO. 541

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Adjusting J10 1 1 0 00 1 1 0 00
30 Closing J11 1 1 0 00

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CHAPTER 6 211

Problem 6-8B (Concluded)

ACCOUNT Miscellaneous Expense ACCOUNT NO. 549

POST. BALANCE
DATE ITEM DEBIT CREDIT
REF. DEBIT CREDIT
20--
June 30 Balance ✓ 2 1 00
30 Closing J11 2 1 00

3.
Juanita’s Consulting
Post-Closing Trial Balance
June 30, 20--

ACCOUNT ACCT. DEBIT CREDIT

NO. BALANCE BALANCE
Cash 101 5 2 8 5 00
Accounts Receivable 122 1 0 7 5 00
Supplies 141 5 0 0 00
Prepaid Insurance 145 4 0 0 00
Office Equipment 181 2 2 0 0 00
Accumulated Depreciation—Office Equipment 181.1 1 1 0 00
Accounts Payable 202 1 5 0 0 00
Wages Payable 219 2 0 0 00
Juanita Alvarez, Capital 311 7 6 5 0 00
9 4 6 0 00 9 4 6 0 00

Problem 6-9B
Minta’s Editorial Services
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212 CHAPTER 6

Statement of Owner’s Equity

For Month Ended January 31, 20--

Minta Berry, capital, January 1, 20-- $3,600

Investments during January 2,900
Total investment $6,500
Net income for January $5,175
Less withdrawals for January 1,700
Increase in capital 3,475
Minta Berry, capital, January 31, 20-- $9,975

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CHAPTER 6 213

MANAGING YOUR WRITING

The purposes of closing entries are listed below.

1. To prepare temporary accounts (revenue, expense, and drawing) for the next accounting period by
giving them zero balances.

2. To transfer the balances of revenue and expense accounts to Income Summary, and then to the
owner’s capital account.

3. To transfer the balance of the drawing account to the owner’s capital account.

Students are often concerned about when closing entries should be made. Some argue that they should
be made before preparing the financial statements. Others argue that “closing the books” is the last thing
done in the accounting cycle. If the financial statements are prepared from the work sheet, it does not
really matter when the closing entries are made. The amounts reported in the Income Statement and
Balance Sheet columns are the amounts that should be used when preparing the financial statements,
except for the owner’s capital account. The ending balance of the capital account reported on the
statement of owner’s equity and balance sheet should reflect the net income and withdrawals for the
accounting period. Of course, revenues, expenses, and drawing will not be reflected in the capital
account until the closing entries are made. Thus, when using the work sheet, the ending balance of the
capital account must be computed on the statement of owner’s equity and transferred to the balance
sheet.

If accounting software is used, the closing entries should be made in a manner consistent with the design
of the software. Generally, closing entries are made following preparation of the financial statements.
This implies that accounting software follows the same approach described above. The ending balance
of the owner’s capital account must be computed (by the software) on the statement of owner’s equity
and transferred to the balance sheet.

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214 CHAPTER 6

Mastery Problem
GENERAL JOURNAL PAGE 4

POST.
DATE DESCRIPTION DEBIT CREDIT
REF.
1 Adjusting Entries 1
20--
2 2
Dec. 31 Styling Supplies Expense 1 4 5 0 00
3 Styling Supplies 1 4 5 0 00 3

4 4

5 31 Insurance Expense 6 5 0 00 5

6 Prepaid Insurance 6 5 0 00 6

7 7

8 31 Wages Expense 4 0 00 8

9 Wages Payable 4 0 00 9

10 10

11 31 Depreciation Expense—Salon Equipment 9 0 0 00 11

12 Accumulated Depreciation—Salon Equipment 9 0 0 00 12

13 13

14 14

15 Closing Entries 15

16 31 Styling Fees 32 0 0 0 00 16

17 Income Summary 32 0 0 0 00 17

18 18

19 31 Income Summary 18 2 9 0 00 19

20 Wages Expense 8 0 4 0 00 20

21 Rent Expense 6 0 0 0 00 21

22 Styling Supplies Expense 1 4 5 0 00 22

23 Phone Expense 4 5 0 00 23

24 Utilities Expense 8 0 0 00 24

25 Insurance Expense 6 5 0 00 25

26 Depreciation Expense—Salon Equipment 9 0 0 00 26

27 27

28 31 Income Summary 13 7 1 0 00 28

29 Elizabeth Soltis, Capital 13 7 1 0 00 29

30 30

31 31 Elizabeth Soltis, Capital 12 0 0 0 00 31

32 Elizabeth Soltis, Drawing 12 0 0 0 00 32

33 33

34 34

35 35

36 36

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CHAPTER 6 215

Mastery Problem (Continued)

Aunt Ibby’s Styling Salon

Income Statement
For Year Ended December 31, 20--

Revenue:
Styling fees $32,000
Expenses:
Wages expense $8,040
Rent expense 6,000
Styling supplies expense 1,450
Phone expense 450
Utilities expense 800
Insurance expense 650
Depreciation expense—salon equipment 900
Total expenses 18,290
Net income $13,710

Aunt Ibby’s Styling Salon

Statement of Owner’s Equity
For Year Ended December 31, 20--

Elizabeth Soltis, capital, January 1, 20-- $2,765

Net income for 20-- $13,710
Less withdrawals for 20-- 12,000
Increase in capital 1,710
Elizabeth Soltis, capital, December 31, 20-- $4,475

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216 CHAPTER 6

Mastery Problem (Concluded)

Aunt Ibby’s Styling Salon
Balance Sheet
December 31, 20--

Assets
Current assets:
Cash $ 940
Styling supplies 50
Prepaid insurance 150
Total current assets $1,140
Property, plant, and equipment:
Salon equipment $4,500
Less accumulated depreciation 900 3,600
Total assets $4,740
Liabilities
Current liabilities:
Accounts payable $ 225
Wages payable 40
Total current liabilities $ 265
Owner’s Equity
Elizabeth Soltis, capital 4,475
Total liabilities and owner’s equity $4,740

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CHAPTER 6 217

Challenge Problem

Ardery Advising
Income Statement
For Month Ended January 31, 20--

Revenue:
Advising fees $ 3,802)
Expenses:
Wages expense $1,800
Advertising expense 400
Rent expense 1,500
Supplies expense 120
Phone expense 300
Electricity expense 44
Insurance expense 200
Gas and oil expense 38
Depreciation expense—office equipment 1,000
Miscellaneous expense 500
Total expenses 5,902)
Net loss $(2,100)

Ardery Advising
Statement of Owner’s Equity
For Month Ended January 31, 20--

Sam Ardery, capital, January 1, 20-- $ 1,000)

Investments during January 1,200)
Total investment $ 2,200)
Net loss for January $2,100
Plus withdrawals for January 800
Net decrease in capital (2,900)
Sam Ardery, capital, January 31, 20-- $ (700)

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218 CHAPTER 6

Challenge Problem (Concluded)

Ardery Advising
Balance Sheet
January 31, 20--

Assets
Current assets:
Cash $2,412
Accounts receivable 896
Supplies 482
Prepaid insurance 900
Total current assets $4,690)
Property, plant, and equipment:
Office equipment $3,000
Less accumulated depreciation 2,000 1,000)
Total assets $5,690)
Liabilities
Current liabilities:
Accounts payable $2,190
Wages payable 1,200
Notes payable 3,000
Total current liabilities $6,390)
Owner’s Equity
Sam Ardery, capital (700)
Total liabilities and owner’s equity $5,690)

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CHAPTER 6 219

APPENDIX: STATEMENT OF CASH FLOWS

REVIEW QUESTIONS

1. The purpose of the statement of cash flows is to explain what the business did to generate cash and
how the cash was used. This is done by categorizing all cash transactions into three types of
activities: operating, investing, and financing.
2. Operating activities are related to the revenues and expenses reported on the income statement.
Examples include cash received for services performed and the payment of cash for expenses.
Investing activities are those transactions involving the purchase and sale of long-term assets,
lending money, and collecting the principal on related loans. Examples include buying trucks
and equipment.
Financing activities are those transactions dealing with the exchange of cash between the
business and its owners and creditors. Examples include cash received from the owner to
finance the operations and cash paid to the owner as withdrawals. Financing activities also
include the receipt of cash from loans and the repayment of the loans.

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220 CHAPTER 6

Exercise 6Apx-1A

a. Financing g. Operating
b. Operating h. Operating
c. Investing i. Operating
d. Operating j. Financing
e. Operating k. Operating
f. Financing

Problem 6Apx-2A

Dolores Lopez, Consulting

Statement of Cash Flows
For Month Ended January 31, 20--

Cash flows from operating activities:

Cash received from clients $(1,700)
Cash paid for rent $ (500)
Cash paid for phone (65)
Cash paid for wages (1,000)
Cash paid for electricity (85)
Total cash paid for operations (1,650)
Net cash provided by operating activities $(0,050)

Cash flows from investing activities:

Cash paid for office equipment $(1,500)
Net cash used for investing activities (1,500)

Cash flows from financing activities:

Cash investment by owner $10,000)
Cash withdrawal by owner (100)
Payment made on loan (500)
Net cash provided by financing activities 9,400)
Net increase in cash $(7,950)

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CHAPTER 6 221

Exercise 6Apx-1B

a. Financing g. Financing
b. Investing h. Operating
c. Operating i. Operating
d. Operating j. Financing
e. Operating k. Operating
f. Operating

Problem 6Apx-2B

Bob Jacobs Advertising Agency

Statement of Cash Flows
For Month Ended January 31, 20--

Cash flows from operating activities:

Cash received from clients $ 1,300)
Cash paid for rent $ (400)
Cash paid for phone (95)
Cash paid for wages (1,400)
Cash paid for electricity (100)
Total cash paid for operations (1,995)
Net cash used for operating activities $ (695)

Cash flows from investing activities:

Cash paid for office equipment $(2,500)
Net cash used for investing activities (2,500)

Cash flows from financing activities:

Cash investment by owner $ 5,000)
Cash withdrawal by owner (500)
Payment made on loan (500)
Net cash provided by financing activities 4,000)
Net increase in cash $ 805)

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