Chapter 4

Completing the
Accounting Cycle
Accounting, 21st Edition
Warren Reeve Fess

© Copyright 2004 South-Western, a division

PowerPoint Presentation by Douglas Cloud of Thomson Learning. All rights reserved.
Professor Emeritus of Accounting
Pepperdine University Task Force Image Gallery clip art included in this
1
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2
 Objectives
1. Review the seven basic steps of the accounting
cycle. After studying this
2. Prepare a workchapter,
sheet.you should
3. Prepare financial be
statements
able to: from a work sheet.
4. Prepare adjusting and closing entries from a
work sheet.
5. Explain what is meant by the fiscal year and the
natural business year.
6. Analyze and interpret the financial solvency of a
business by computing working capital and the
current ratio.
3
 Seven Basic Steps of the
Accounting Cycle
1. Transactions are analyzed and recorded in the journal.
2. Transactions are posted to the ledger.
3. A trial balance is prepared, adjustment data are
assembled, and an optional work sheet is completed.
4. Financial statements are prepared.
5. Adjusting entries are journalized and posted.
6. Closing entries are journalized and posted.
7. A post-closing trial balance is prepared.
4
Assets are commonly divided into classes
and that two of these classes are current
assets and property, plant, and equipment.

5
That’s correct. Cash and other
assets that are expected to be
converted into cash, sold, or
used up usually in less than a
year are current assets.

6
 Well… besides cash, there’s
notes receivable, accounts
For example? receivable, supplies, and
other prepaid items.

7
 There are some exceptions, but
that’s basically correct. Assets
So, assets
such as office equipment, that have a life
over a year
machinery, buildings, and land are listed under
would appear under thatproperty,
heading. plant, and
equipment.

8
Liabilities due usually within one
year or less and that are to be paid
out of current assets are called
current liabilities.

 Accounts payable
 Wages payable
 Interest payable
 Unearned fees

9
 Liabilities not due for
more than a year usually
are long-term liabilities.

 Mortgage note
payable
 Mortgage payable
 Bond payable

10
 The work sheet is a useful
device for understanding the
flow of accounting data from
the unadjusted trial balance to
the financial statements.

11
 The Work Sheet

Trial Balance Adjustments Adjusted TB

Accounts Dr Cr Dr Cr Dr Cr

Prepared from the general ledger.

Accounts are listed in the following
order: assets, liabilities, owner’s
equity, revenues, and expenses.

12
 The Work Sheet

Trial Balance Adjustments Adjusted TB

Accounts Dr Cr Dr Cr Dr Cr

Adjustments are entered here.

Two possibilities:
1. Deferrals – Existing balances are
changed.
2. Accruals – New information is
entered.
13
 The Work Sheet

Trial Balance Adjustments Adjusted TB

Accounts Dr Cr Dr Cr Dr Cr

Adjustments are combined with

the trial balance. Account
balances are now adjusted.

14
 NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Adjusted
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220
3 Supplies 2,000
4 Prepaid Insurance 2,400
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360 The Unadjusted
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000 Trial Balance
11 Fees Earned 16,340
12 Wages Expense 4,275
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800
16 Miscellaneous Expense 455
17 42,600 42,600
18
19
20
15
21
22
(a) The Supplies account has a debit of
$2,000. A count of supplies at the end of
the period reveals that $760 is on hand.
Therefore, $1,240 in supplies was used
during the two-month period.

16
 NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Adjusted
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220
3 Supplies 2,000 (a) 1,240
4 Prepaid Insurance 2,400
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,340
12 Wages Expense 4,275
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800 (a) 1,240
16 Miscellaneous Expense 455
17 42,600 42,600
18
19
20
17
21
22
(b) The Prepaid Insurance account has a
debit balance of $2,400, which
represents prepayment of insurance for
24 months beginning December 1.
Thus, the insurance expense for this
month is $100 ($2,400 ÷ 24).

18
 NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Adjusted
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220
3 Supplies 2,000 (a) 1,240
4 Prepaid Insurance 2,400 (b) 100
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,340
12 Wages Expense 4,275
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800 (a) 1,240
16 Miscellaneous Expense 455
17 42,600 42,600
18 Insurance Expense (b) 100
19
20
19
21
22
Accounts are added as needed.
(c) The Unearned Rent account has a credit
balance of $360, which represents the
receipt of three-months’ rent beginning
with December 1. Thus, the rent revenue
for December is $120.

FOR
RENT

20
 NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Adjusted
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220
3 Supplies 2,000 (a) 1,240
4 Prepaid Insurance 2,400 (b) 100
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360 (c) 120
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,340
12 Wages Expense 4,275
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800 (a) 1,240
16 Miscellaneous Expense 455
17 42,600 42,600
18 Insurance Expense (b) 100
19 Rent Revenue (c) 120
20
21
21
22
(d) Wages accrued but not paid at
the end of December total $250.

22
 NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Adjusted
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220
3 Supplies 2,000 (a) 1,240
4 Prepaid Insurance 2,400 (b) 100
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360 (c) 120
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,340
12 Wages Expense 4,275 (d) 250
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800 (a) 1,240
16 Miscellaneous Expense 455
17 42,600 42,600
18 Insurance Expense (b) 100
19 Rent Revenue (c) 120
20 Wages Payable (d) 250
23
21
22
(e) Fees accrued at the end of
December, but not recorded,
total $500.

24
 NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Adjusted
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220 (e) 500
3 Supplies 2,000 (a) 1,240
4 Prepaid Insurance 2,400 (b) 100
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360 (c) 120
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,340 (e) 500
12 Wages Expense 4,275 (d) 250
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800 (a) 1,240
16 Miscellaneous Expense 455
17 42,600 42,600
18 Insurance Expense (b) 100
19 Rent Revenue (c) 120
20 Wages Payable (d) 250
25
21
22
(f) Depreciation of the office
equipment is $50 for December.

26
 NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Adjusted
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220 (e) 500
3 Supplies 2,000 (a) 1,240
4 Prepaid Insurance 2,400 (b) 100
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360 (c) 120
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,340 (e) 500
12 Wages Expense 4,275 (d) 250
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800 (a) 1,240
16 Miscellaneous Expense 455
17 42,600 42,600
18 Insurance Expense (b) 100
19 Rent Revenue (c) 120
20 Wages Payable (d) 250
21 Depreciation Expense (f) 50 27
22 Accum. Depreciation (f) 50
 NetSolutions
Work Sheet
For the Two Months Ended December 31, 2005
Adjusted
To make
Trial Balance
more
Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065 space, let’s remove
2 Accounts Receivable 2,220 (e) 500
3 Supplies 2,000 the heading. (a) 1,240
4 Prepaid Insurance 2,400 (b) 100
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360 (c) 120
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,340 (e) 500
12 Wages Expense 4,275 (d) 250
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800 (a) 1,240
16 Miscellaneous Expense 455
17 42,600 42,600
18 Insurance Expense (b) 100
19 Rent Revenue (c) 120
20 Wages Payable (d) 250
21 Depreciation Expense (f) 50 28
22 Accum. Depreciation (f) 50
 Adjusted 31
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220 (e) 500
3 Supplies 2,000 (a) 1,240
4 Prepaid Insurance 2,400 (b) 100
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360 (c) 120
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,340 (e) 500
12 Wages Expense 4,275 (d) 250
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800 (a) 1,240
16 Miscellaneous Expense 455
17 42,600 42,600
18 Insurance Expense (b) 100
19 Rent Revenue (c) 120
20 Wages Payable (d) 250
Depreciation Expense (f) 50
21
22 Accum. Depreciation
Summed (f) 50
23 and 2,260 2,260
24 29
25
ruled
Next, the unadjusted Trial
Balance columns and the
Adjustments columns are
combined to determine the
amounts displayed in the
Adjusted Trial Balance.

30
 Adjusted 33
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,220 (e) 500
3 Supplies 2,000 (a) 1,240
4 Prepaid Insurance 2,400 (b) 100
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 360 (c) 120
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,340 (e) 500
12 Wages Expense 4,275 (d) 250
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 800 (a) 1,240
16 Miscellaneous Expense 455
17 42,600 42,600
18 Insurance Expense (b) 100
19 Rent Revenue (c) 120
20 Wages Payable (d) 250
21 Depreciation Expense (f) 50
22 Accum. Depreciation (f) 50
23 2,260 2,260
24 31
25
 Adjusted 34
Trial Balance Adjustments Trial Balance
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065 2,065
2 Accounts Receivable 2,220 (e) 500 2,720
3 Supplies 2,000 (a) 1,240 760
4 Prepaid Insurance 2,400 (b) 100 2,300
5 Land 20,000 20,000
6 Office Equipment 1,800 1,800
7 Accounts Payable 900 900
8 Unearned Rent 360 (c) 120 240
9 Chris Clark, Capital 25,000 25,000
10 Chris Clark, Drawing 4,000 4,000
11 Fees Earned 16,340 (e) 500 16,840
12 Wages Expense 4,275 (d) 250 4,525
13 Rent Expense 1,600 1,600
14 Utilities Expense 985 985
15 Supplies Expense 800 (a) 1,240 2,040
16 Miscellaneous Expense 455 455
17 42,600 42,600
18 Insurance Expense (b) 100 100
19 Rent Revenue (c) 120 120
20 Wages Payable (d) 250 250
21 Depreciation Expense (f) 50 50
22 Accum. Depreciation (f) 50 50
23 2,260 2,260 43,400 43,400
24 32
25
 The Work Sheet

Adjusted TB Income State. Balance Sheet

Accounts Dr Cr Dr Cr Dr Cr

Revenue and expense balances in

the Adjusted Trial Balance column
are extended to the Income
Statement column.

33
 The Work Sheet

Adjusted TB Income State. Balance Sheet

Accounts Dr Cr Dr Cr Dr Cr

Asset, liability, owner’s equity, and

drawing balances in the Adjusted
Trial Balance column are extended
to the Balance Sheet column.

34
To make room on the slides for
the Income statement and
Balance Sheet columns, the
Trial Balance and Adjustments
columns have been removed.

35
 Adjusted
Trial Balance Income Statement Balance Sheet
38
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065
2 Accounts Receivable 2,720
3 Supplies 760
4 Prepaid Insurance 2,300
5 Land 20,000
6 Office Equipment 1,800
7 Accounts Payable 900
8 Unearned Rent 240
9 Chris Clark, Capital 25,000
10 Chris Clark, Drawing 4,000
11 Fees Earned 16,840
12 Wages Expense 4,525
13 Rent Expense 1,600
14 Utilities Expense 985
15 Supplies Expense 2,040
16 Miscellaneous Expense 455
17
18 Insurance Expense 100
19 Rent Revenue 120
20 Wages Payable 250
21 Depreciation Expense 50
22 Accum. Depreciation 50
23 43,400 43,400
24 36
25
Now, let’s extend the balances
from the Adjusted Trial
Balance column.

37
 Adjusted 40
Trial Balance Income Statement Balance Sheet
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065 2,065
2 Accounts Receivable 2,720 2,720
3 Supplies 760 760
4 Prepaid Insurance 2,300 2,300
5 Land 20,000 20,000
6 Office Equipment 1,800 1,800
7 Accounts Payable 900 900
8 Unearned Rent 240 240
9 Chris Clark, Capital 25,000 25,000
10 Chris Clark, Drawing 4,000 4,000
11 Fees Earned 16,840 16,840
12 Wages Expense 4,525 4,525
13 Rent Expense 1,600 1,600
14 Utilities Expense 985 985
15 Supplies Expense 2,040 2,040
16 Miscellaneous Expense 455 455
17
18 Insurance Expense 100 100
19 Rent Revenue 120 120
20 Wages Payable 250 250
21 Depreciation Expense 50 50
22 Accum. Depreciation 50 50
23 43,400 43,400
24 38
25
 These four
columns are
summed.

39
 Adjusted 42
Trial Balance Income Statement Balance Sheet
Account Title Debit Credit Debit Credit Debit Credit
1 Cash 2,065 2,065
2 Accounts Receivable 2,720 2,720
3 Supplies 760 760
4 Prepaid Insurance 2,300 2,300
5 Land 20,000 20,000
6 Office Equipment 1,800 1,800
7 Accounts Payable 900 900
8 Unearned Rent 240 240
9 Chris Clark, Capital 25,000 25,000
10 Chris Clark, Drawing 4,000 4,000
11 Fees Earned 16,840 16,840
12 Wages Expense 4,525 4,525
13 Rent Expense 1,600 1,600
14 Utilities Expense 985 985
15 Supplies Expense 2,040 2,040
16 Miscellaneous Expense 455 455
17
18 Insurance Expense 100 100
19 Rent Revenue 120 120
20 Wages Payable 250 250
21 Depreciation Expense 50 50
22 Accum. Depreciation 50 50
23 43,400 43,400 9,755 16,960 33,645 26,440
24 40
25
 The difference between the
Income Statement column
totals is the net income (or net
loss) for the period.

41
The difference between the
Balance Sheet column totals
is also the income (or net
loss) for the period.

42
 Income Statement Balance Sheet

9,755 16,960 33,645 26,440

7,205 7,205
16,960 16,960 33,645 33,645

Net Income Net Income

43
 NetSolutions
Income Statement
For Two Months Ended December 31, 2005

Fees earned $16,840

Rent revenue 120
Total revenues $16,960
Expenses:
Wages expense $ 4,525
Supplies expense 2,040
Rent expense 1,600
Utilities expense 985
Insurance expense 100
Depreciation expense 50
Miscellaneous expense 455
Total expenses 9,755
Net income $ 7,205

Every amount on this income statement was taken from the

Income Statement column of the work sheet. 44
 NetSolutions
Statement of Owner’s Equity
For the Two Months Ended December 31, 2005

Chris Clark, Capital, November 1, 2005 $ 0

Investment on November 1, 2005 $25,000
Net income for November and December 7,205
$32,205
Less withdrawals 4,000
Increase in owner’s equity 28,205
Fromfrom
Chris Clark, Capital, December 31, 2005Either the$28,205
the
Balance Sheet
income
debit column
statement of
or the
thework
worksheet.
sheet.

45
 NetSolutions
Balance Sheet
December 31, 2005
Assets Liabilities
Current assets: Current liabilities:
Cash $ 2,065 Accounts payable $900
Accounts receivable 2,720 Wages payable From
250 the
Supplies 760 Unearned rent Statement
240
Prepaid insurance 2,300 Total liabilities
$ 1,390
of Owner’s
Total current assets $ 7,845 Equity
Property, plant, and
equipment:
Land $20,000
Office equip. $1,800
Less accum.
depreciation 50 1,750 Owner’s Equity
Total property, plant Chris Clark, Capital
28,205
and equipment 21,750 Total liabilities and 46
Adjusting and Closing Entries

Adjusting entries are

recorded in the journal at the
end of the accounting
period.

47
Adjusting and Closing Entries
If a work sheet has been
prepared, the data for
these entries are in the
Adjustments columns.

48
 The Closing Process
Income Summary
Expenses are Revenues are
2 transferred to
Income Summary 1 transferred to
Income Summary

3 Net Income or Net Loss is

transferred to Owner’s Capital

OWNER’S CAPITAL

4
Drawings are transferred to
Owner’s Capital
49
 Adjusting and Closing Entries
Income Summary
Expenses are Revenues are
2 transferred to
Income Summary 1 transferred to
Income Summary

3
The
Net Income
Income orSummary
Net Loss is
account does not
transferred appear Capital
to Owner’s on
the financial statements.
OWNER’S CAPITAL

4
Drawings are transferred to
Owner’s Capital
50
 The Closing Process
Wages Expense Fees Earned

Bal. 4,525 Income Summary Bal. 16,840

Rent Expense Rent Revenue

Bal. 1,600 Bal. 120
Depreciation Expense
Bal. 50 Note: The
Utilities Expense balances shown
Chris Clark, Capital
Bal. 985 are adjusted
Bal. 25,000
Supplies Expense balances before
Bal. 2,040 closing. The
Insurance Expense following
Bal. 100
Chris Clark, Drawing sequence
Miscellaneous Expense
Bal. 4,000 demonstrates the
Bal. 455
closing process.
51
 The Closing Process
Wages Expense Fees Earned

Bal. 4,525 Income Summary 16,840 Bal. 16,840

Rent Expense 16,960 Rent Revenue
Bal. 1,600 120 Bal. 120
Depreciation Expense
Bal. 50
Utilities Expense
Bal. 985 Chris Clark, Capital Debit each revenue
Supplies Expense
Bal. 25,000
account for the
Bal. 2,040
amount of its
Insurance Expense
Bal. 100
balance, and credit
Miscellaneous Expense
Chris Clark, Drawing Income Summary
Bal. 4,000
Bal. 455 for the total
revenue. 52
 The Closing Process
Wages Expense Fees Earned

Bal. 4,525 4,525 Income Summary 16,840 Bal. 16,840

Rent Expense 9,775 16,960 Rent Revenue
Bal. 1,600 1,600
120 Bal. 120
Depreciation Expense
Bal. 50 50
Utilities Expense
Bal. 985 985 Chris Clark, Capital Debit Income
Supplies Expense
Bal. 25,000
Summary for the
Bal. 2,040 2,040
total expenses and
Insurance Expense
Bal. 100
credit each expense
100
Miscellaneous Expense
Chris Clark, Drawing account for its
Bal. 455 455
Bal. 4,000 balance.
53
 The Closing Process
Wages Expense Fees Earned

Bal. 4,525 4,525 Income Summary 16,840 Bal. 16,840

Rent Expense 9,775 16,960 Rent Revenue
1,600 7,205
Bal. 1,600 120 Bal. 120
Depreciation Expense
Bal. 50 50
Utilities Expense
Bal. 985 985 Chris Clark, Capital Debit Income
Supplies Expense
Bal. 25,000
7,205
Summary for the
Bal. 2,040 2,040
amount of its
Insurance Expense
Bal. 100 100
balance (in this
Miscellaneous Expense
Chris Clark, Drawing case, the net
Bal. 4,000
Bal. 455 455 income) and credit
the capital account.
54
 The Closing Process
Wages Expense Fees Earned

Bal. 4,525 4,525 Income Summary 16,840 Bal. 16,840

Rent Expense 9,775 16,960 Rent Revenue
Bal. 1,600 1,600 7,205
120 Bal. 120
Depreciation Expense
Bal. 50 50
Utilities Expense
Bal. 985 985 Chris Clark, Capital Debit the capital
Supplies Expense
4,000 Bal. 25,000
7,205
account for the
Bal. 2,040 2,040
balance of the
Insurance Expense
Bal. 100 100
drawing account,
Miscellaneous Expense
Chris Clark, Drawing and credit drawing
Bal. 4,000 4,000
Bal. 455 455 for the same
amount. 55
 Review of the Closing Process
Wages Expense Fees Earned

Bal. 4,525 4,525

4,525 Income Summary 16,480 Bal. 16,840
16,840
Rent Expense 9,775 16,960
16,960 Rent Revenue
Bal. 1,600 1,600
1,600 7,205
120 Bal.
120 120
Depreciation Expense
Bal. 50 50
50
Utilities Expense
Close Revenues
Bal. 985 985
985 Chris Clark, Capital
4,000 Bal. 25,000
4,000 Close Expenses
Supplies Expense
7,205
7,205
Bal. 2,040 2,040
2,040 Close Income Summary
Insurance Expense
Bal. 100 100
100 Close Drawing
Chris Clark, Drawing
Miscellaneous Expense
Bal. 4,000 4,000
Bal. 455 455
445
56
 After the closing entries
are posted, all of the
temporary accounts have
zero balances.

57
 Post-closing Trial Balance
NetSolutions
Post-Closing Trial Balance
December 31, 2005
Cash 2 065 00
Accounts Receivable 2 720 00
Supplies 760 00
Prepaid Insurance 2 300 00
Land 20 000 00
Office Equipment 1 800 00
Accumulated Depreciation 50 00
Accounts Payable 900 00
Wages Payable 250 00
Unearned Rent 240 00
Chris Clark, Capital 28 205 00
29 645 00 29 645 00
58
 Financial Analysis for
NetSolutions
Working Current Current
= –
Capital Assets Liabilities
Working
= $7,845 – $1,390
Capital
Working $6,455
Capital =

59
 Financial Analysis for
NetSolutions
Current Current Current
Ratio = Assets ÷ Liabilities

Current
Ratio = $7,845 ÷ $1,390
Current
= 5.6
Ratio

60
Financial Analysis for
NetSolutions
This ratio implies that
NetSolutions is able to pay
its current liabilities.

61
 Financial Analysis for
NetSolutions

Current Current Current

ratio = Assets ÷ Liabilities

Current
= $7,845 ÷ $1,390
ratio
Current
= 5.6
ratio

62
Financial Analysis for
NetSolutions
NetSolutions can use the current ratio
to make comparisons across
companies and with industry averages.

63
Chapter 4

The End

64