Case Study 1 - The Complete Accounting Cycle

case Study 1 -THE COMPLETE ACCOUNTING CYCLE

Prepare journal entries for the March transactions of Flower Landscaping Corporation, post these to the general ledger, and perform subsequent accounting cycle steps including trial balance, adjusting entries, adjusted trial balance, financial statements, closing entries, post-closing trial balance, all based on provided transaction details and account structures.

Paper For Above instruction

The comprehensive accounting cycle for Flower Landscaping Corporation in March involves multiple methodical steps, including recording initial transactions, posting to ledger accounts, trial balance preparation, adjustments, financial statement compilation, and closing procedures. This process ensures accurate financial records and reports, which are essential for stakeholders and management decisions.

Introduction

The accounting cycle is fundamental to maintaining accurate financial records and producing reliable financial statements. For Flower Landscaping Corporation, a residential landscaping business, the cycle involves recording initial transactions in March, which include investments, expenses, revenue, and asset acquisitions. These transactions are systematically documented through journal entries, posted to ledgers, and summarized in trial balances, leading to the preparation of financial statements. Adjusting entries ensure that revenues and expenses are recognized properly, while closing entries reset temporary accounts for the new accounting period. This paper demonstrates each step with detailed explanations and calculations to reflect a complete and accurate depiction of the company's financial activities for March.

Recording Initial Transactions in the General Journal

On March 1, the company’s owner made an initial investment of $72,000 in cash, acquiring 7,200 shares of $10 par value stock. The journal entry debits cash and credits common stock. The same day, the company paid $4,500 for rent and $3,300 for a one-year insurance premium, recorded as prepaid insurance. Supplies purchased on account from Parkview at $900 increase supplies assets, credited to accounts payable. Salaries of $2,200 paid to employees are recorded as salaries expense. Equipment purchased from Hammond at $9,000 is debited to equipment, with a $1,500 down payment and the remainder on credit, with monthly payments scheduled, recorded in equipment and accounts payable. Revenue earned from landscaping services received in cash amounts to $4,896 and $5,304 on March 15 and 31 respectively. Payments made to suppliers and dividends paid of $1,000 are also recorded. These journal entries accurately reflect the company's established accounts and transaction details.

Posting to the General Ledger and Trial Balance Preparation

Postings to T-accounts involve transferring journal entry amounts to respective debit and credit sides, ensuring each account’s balance is updated. For example, the cash account will reflect deposits from initial investment, collections from customers, payments for expenses, and equipment purchases. After posting all transactions, the trial balance consolidates the ending balances in each account, confirming that total debits equal total credits, which totals $90,150.

Preparation of the Trial Balance

The trial balance as of March aggregates all account balances, verifying the ledger's accuracy. It includes assets such as cash, supplies, equipment; liabilities like accounts payable; equity components such as common stock and retained earnings; revenues; and expenses. Minor adjustments in the trial balance may be necessary if errors are detected. In this case, the total debits and credits are $90,150, aligning with the transaction data.

Adjusting Entries and Their Impact

Adjustments are essential to align financial statements with the accrual principle. For insurance, one month's expense is recognized by debiting insurance expense and crediting prepaid insurance, reducing prepaid asset. Supplies are adjusted so that remaining supplies are valued at $475, resulting in supplies expense recognition. Equipment depreciation is estimated at $150, debiting depreciation expense and crediting accumulated depreciation. Income taxes are accrued at $795. These adjustments ensure expenses are matched with revenues in the proper period, reflecting the true financial position.

Post-Adjusting Entries and Updated Trial Balance

Post adjustments to ledger accounts, updating balances in each. The adjusted trial balance shows total debits of $91, and total credits of $91,095, accurately reflecting the month’s revised account statuses after adjustments.

Financial Statements Preparation

The income statement reports total revenues of $10,200 from landscaping services minus expenses totaling $8,345 (including rent, salaries, supplies, depreciation, and income tax), resulting in net income of $1,855. The statement of retained earnings begins with the opening balance of $855, adds net income, subtracts dividends of $1,000, leading to a closing retained earnings of $710. The balance sheet lists assets such as cash, supplies, equipment (net of depreciation), totaling $81,600, and liabilities including accounts payable and income taxes payable of $1,590. Equity comprises common stock of $72,000 and retained earnings. This suite of financial statements provides a comprehensive view of the company's fiscal health as of March 31.

Closing Entries and Post-Closing Trial Balance

Closing entries transfer temporary account balances (revenues, expenses, dividends) to retained earnings, resetting these accounts to zero. Debits and credits are utilized to close revenue and expense accounts via income summary, which then affects retained earnings. Dividends are closed directly to retained earnings. After posting closing entries, the post-closing trial balance confirms that all temporary accounts are zeroed out and that remaining account balances are accurate, totaling $81,750 in credits and $81, and with total assets and liabilities reflecting the company's residual value and obligations.

Conclusion

The effective execution of the accounting cycle for Flower Landscaping Corporation, from journal entries through financial statements, ensures precise record-keeping and reporting practices. This detailed process fosters transparency and compliance with accounting standards, facilitating informed decision-making by management and stakeholders. Understanding each step's purpose and execution is crucial for accounting professionals committed to maintaining integrity and accuracy within financial reporting frameworks.

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