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From Recording Transactions (Including Adjusting Journal Entries) to Preparing Financial Statements and Closing Journal Entries (Chapters 2, 3, and 4):

Glenn Feltham and Gary Entwistle started Northland Physical Therapy on January 1, 2011. The annual reporting period ends December 31. The trial balance on January 1, 2012, was provided, with account balances rounded to thousands of dollars. Throughout 2012, various transactions occurred, including borrowing funds, purchasing equipment, issuing shares, earning revenue, paying wages, acquiring assets, collecting receivables, purchasing supplies, paying liabilities, receiving deposits, and declaring dividends.

Adjustments include supplies used, depreciation, accrued interest, wages earned but unpaid, and income tax expense for 2012 to be paid in 2013.

Required tasks include setting up T-accounts for the trial balance, recording journal entries for transactions and adjustments, preparing unadjusted and adjusted trial balances, creating financial statements, closing entries, and a post-closing trial balance. Additional analysis involves calculating net income, determining the business's financing structure, and computing the current ratio.

Sample Paper For Above instruction

Introduction

In this comprehensive analysis, we will explore the financial activities of Northland Physical Therapy during 2012, including recording transactions, adjusting entries, preparing financial statements, and conducting financial ratio analysis. This process illustrates key accounting principles such as journal entries, T-accounts, trial balances, and closing procedures, essential for accurate financial reporting and decision-making.

Step 1: Setting Up T-Accounts and Beginning Balances

The initial step involves constructing T-accounts based on the provided trial balance as of January 1, 2012. Each account's beginning balance is posted to the respective debit or credit side. For example, Cash started with a balance of $7,000, and Accounts Receivable had $3,000. These balances serve as the foundation for recording subsequent transactions and adjustments.

Step 2: Recording Transactions

The series of transactions during 2012 profoundly affected the company's accounts. Borrowing $20,000 on July 1 increased cash and notes payable. Purchasing equipment for $23,000 reduced cash and increased equipment. Issuing shares for $5,000 enhanced contributed capital. Revenue recognition of $53,000 included $8,000 on credit and $45,000 in cash, increasing service revenue. Wages paid totaled $28,000. Acquisition of assets and collection of receivables were recorded accordingly, along with supplies purchases, payments, deposits, and dividends.

Step 3: Unadjusted Trial Balance

After recording transactions, an unadjusted trial balance consolidates all account balances before adjustments, ensuring debits equal credits. This step verifies the accuracy of transactional entries and prepares the ledger for adjustments.

Step 4: Adjusting Journal Entries

Adjustments accommodate accrued and deferred items. Supplies used are recognized, depreciation is recorded for equipment, interest accrued on notes payable is noted, wages earned but unpaid are recorded, and income taxes are recognized for 2012, payable in 2013. These entries refine financial data, aligning it with the accrual accounting principles.

Step 5: Adjusted Trial Balance

Post adjustments, the adjusted trial balance reflects corrected balances, vital for accurate financial statement preparation. Adjustments impact asset depreciation, liabilities, and expenses, directly influencing net income calculations.

Step 6: Financial Statements Preparation

The income statement summarizes revenues and expenses, leading to net income for 2012. The statement of retained earnings begins with the starting balance, adds net income, subtracts dividends, and arrives at a closing retained earnings figure. The balance sheet displays assets, liabilities, and stockholders’ equity, with totals balancing as per accounting equation.

Step 7: Closing Entries

Closing journal entries transfer temporary account balances (revenues, expenses, dividends) to retained earnings, resetting these accounts to zero for the new period. This process ensures that income and expense accounts are prepared for the next accounting cycle.

Step 8: Post-Closing Trial Balance

The post-closing trial balance confirms that all temporary accounts are closed and ledger balances are accurate for the start of the new period. It ensures the accounting equation remains balanced after closing procedures.

Step 9: Financial Analysis

Net income for 2012 is calculated by subtracting total expenses from total revenues, providing insights into operational profitability. The primary financing source is assessed by comparing liabilities and stockholders' equity, revealing the company's leverage and financial structure. The current ratio, calculated as current assets divided by current liabilities, measures liquidity, indicating the company's ability to cover short-term obligations.

Conclusion

This comprehensive accounting cycle, from initial transactions through financial analysis, exemplifies core accounting practices. Accurate record-keeping, diligent adjustments, and precise financial reporting are essential for stakeholders' informed decision-making and maintaining organizational integrity.

References

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