PROJECT GOAL The goal of this graded project is to create the following financial statements for J & L Accounting, Inc.:
¦ Balance sheet
¦ Income statement
¦ Statement of retained earnings
B Post-closing trial balance
The financial statements must be created in one Microsoft
Word document (.doc or .docx file). Alternatively, an Excel
workbook may be used (.xls or .xlsx file). The Word or Excel
file will be uploaded for grading.
INSTRUCTIONS Read the following instructions thoroughly before beginning your work. This will help you to become familiar with what is involved in the project. Some students start on the project
right away, thinking they’ll save time. Those students tend to
get stuck and spend more time working through the project than is necessary. The material you need to know in order
to complete the project has been covered in the textbook and the assigned exercises and problems. If you understand the
chapters and completed the assigned homework problems,
you should have no problem with the project.
The project is to be done by hand with a pencil and paper. Use the blank forms provided. At the end of the project, you 11 be given instructions for creating and uploading the financial statements in a Word or Excel file for grading.
Note: The formatting of financial statements is important.
They follow Generally Accepted Accounting Principles (GAAP), which creates a uniformity of financial statements for analyz¬
ing. This allows for an easier comparison, as all businesses
follow GAAP. Therefore, the financial statements should be
created exactly the same way shown or referenced in the text¬
book. Failure to do so will result in a loss of points.
The project references “debits equaling credits.” This is a
fundamental principle of accounting that mustn’t be violated.
Doing so is not acceptable under any circumstance. Debits not
equaling credits allows for “cooking of the books,” which is presenting false information. It also allows for embezzlement,
which is theft by management or employees. If debits don’t equal credits, the cause may be a lack of understanding of
accounting principles, such as those presented in the text¬
book and assigned homework problems, or a lack of focus
and concentration when making journal entries, posting to
ledger accounts, or completing math. Remember—instructors
are available to help you with material you may be struggling with. Mistakes of the lack-of-focus variety are best corrected
by going back over the work until the error is found.
The accounting equation must balance on the balance sheet.
This is another fundamental principle of accounting that can’t be violated and if so is completely unacceptable. When
the equation doesn’t balance and the numbers are “fudged,”
this is easily detectable by someone who knows accounting. If
your debits equal your credits and you understand which
general ledger accounts belong on which financial state¬
ments, then the accounting equation should balance. It’s
really all about understanding the concepts and applying that understanding.
The following financial statements are provided from the prior accounting period for J & L Accounting, Inc.:
a) Post-closing trial balance
b) Balance sheet
c) Income statement
d) Statement of retained earnings
J & L Accounting, Inc. Post-Closing Trial Balance
December 31, 2014
ACCOUNT TITLE DEBIT CREDIT
Cash, Business Checking 20,500.00
Accumulated Depreciation, Vehicles 12,000.00
Accumulated Depreciation, Equipment
Retained Earnings zl,buu.ou
Office Supplies Expense
TOTALS 72,100.00 72,100.00
J & L Accounting, Inc. Balance Sheet
As of December 31, 2014
Cash, Business Checking 20,500.00 Accounts Receivable 0.00
Prepaid Rent 0.00 Vehicles 48,000.00 Less: Accumulated Depreciation, Vehicles 12,000.00 36,000,00 Equipment 3,600.00 Less: Accumulated Depreciation, Equipment 600.00 3,000.00
TOTAL ASSETS 59,500.00
LIABILITIES Accounts Payable 0.00
TOTAL LIABILITIES 0.00
Common Stock 38,000.00 Retained Earnings 21,500.00
TOTAL STOCKHOLDERS’ EQUITY 59,500.00
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 59,500.00
J & L Accounting, Inc. Income Statement
For the Month Ending December 31, 2014
Office Supplies Expense
3 & L Accounting, Inc. Statement of Retained Earnings
For the Month Ending December 31, 2014
Retained Earnings, December 1, 2014 19,875,00
Add: Net Income 1,625.00
Less: Dividends QiQQ.
Retained Earnings, December 31, 2014 21,500.00
l)Using the following blank forms (make as many copies
as necessary), set up the general ledger accounts for the
general ledger and insert the beginning balances for the accounts from the post-closing trial balance. The balances
from the post-closing trial balance become the beginning
balances of the accounts for the next account period.
DATE ITEM POST REF. DEBIT CREDIT
DATE ITEM POST REF. DEBIT
CREDIT DEBIT CREDIT
2) Journalize the following transactions in the general jour¬ nal using the following blank form (make as many copies
as needed). When making journal entries, each individ¬
ual journal entry’s debits should equal its credits. (The amount for a journal entry can be incorrect or the entry
can be incorrect. However, the debits still have to equal
the credits even though the entry is incorrect. If the jour¬
nal entry is incorrect, it can be corrected later when
making adjusting/correcting journal entries. For exam¬
ple, if the amount is supposed to be $1,100, and for some reason the amount of $1,010 is recorded, this is
acceptable—although incorrect, it can be corrected later.)
The total of the debits must always equal the total of the
credits for each journal entry—always. This is a funda¬
mental GAAP that cannot be violated.
a. On January 1, 2015, a payment in cash for $12,000
is made for prepaying rent for the entire year 2015.
b. On Januaiy 4, 2015, accounting services are
performed and payment is received in cash for
the amount of $1,900.
c. On January 9, 2015, a payment in cash for
advertising is made in the amount of $850.
d. On January 10, 2015, office supplies are purchased
in the amount of $75 with cash.
e. On January 14, 2015, accounting services are
performed and payment is received in cash for
the amount of $2,725.
f. On January 20, 2015, the telephone bill for the amount of $660 is received and paid with cash.
g. On Januaiy 20, 2015, the utilities bill for $2,925 is received. The bill won’t be paid until it is due on
February 15, 2015.
h. On Januaiy 27, 2015, accounting services are
performed on account in the amount of $3,750.
i. On Januaiy 28, 2015, a payment in cash for $1,500 is made for a bill from an advertising agency.
DATE ACCOUNTS POST REF. Dr. Cr.
3) Post the general journal entries from the journal to the corresponding general ledger accounts, paying particular
attention to the posting being made (debit or credit). Use the Post Ref. column to ensure that each line item of the
journal entries is posted correctly to each general ledger
account. Posting from the journal to the general ledger is
nothing more than rearranging the information. If the
debits equal the credits for a particular journal entry and the information is posted correctly, the total of the debits should equal the total of the credits in the general ledger.
4) Calculate the balances in the general ledger accounts.
(Use an Excel spreadsheet or a printing calculator, and
run the numbers several times for accuracy. Often, deb¬
its won’t equal credits on the trial balance because a
hand-held calculator is used and the math is done only
once. Using a hand-held calculator can introduce errors.
This is why an Excel spreadsheet is recommended. However,
if a hand-held calculator is all that’s available to you, be
sure to do the math enough times that you know the cal¬
culations are accurate.) To calculate the balances in the
ledger accounts, you’ll need to do the following:
1) Add the debits.
2) Add the credits.
3) Subtract the larger amount from the other, or,
alternatively, keep the running balance of the
amount in the account and whether it’s a debit
or credit on the ledger.
5) Create an unadjusted trial balance from the balances in the general ledger accounts. (Once again, be very careful
when doing the math. When calculating the totals of the debit and credit columns, they should be equal. If not,
do not continue until the debits equal the credits. An
error has been made and must be found and corrected
from the previous steps.) See page 129 of the text for an example of an unadjusted trial balance. Use the following
ACCOUNT DEBIT CREDIT
6) Journalize the following adjusting journal entries in the general journal, being sure that the debits equal
a. Calculate and make the adjustment for the amount
of pre-paid rent that has been used.
b. Make an adjusting journal entry in the amount
of $1,000 for depreciation of the vehicles.
c. Make an adjusting journal entry in the amount
of $100 for depreciation of the equipment.
7) Post the adjusting journal entries to the respective gen¬ eral ledger accounts, again being sure that the postings
are to the correct debit or credit side and that the Post Ref. column is used.
8) Calculate the new balances in the general ledger accounts.
Create an adjusted trial balance from the balances in the general ledger accounts using the same blank form
provided in step 5 when you created the unadjusted trial balance. See Exhibit 3-3 on page 114 in your textbook for an example of an adjusted trial balance. Make sure
the math is correct and that the debit column is equal to the credit column. If not, don’t continue until the error
has been found.
9) Create the income statement for J & L Accounting, Inc.
using the information from the adjusted trial balance. Use the following blank form to create the income statement.
Its format should be the same as the format used for the statement provided at the beginning of the project for the
prior accounting period.
10) Create the closing journal entries in the general journal to close the revenue, expense, and dividend accounts to
the retained earnings account, paying attention to debits
11) Post the closing journal entries to the respective general
12) Calculate the balances in the general ledger accounts.
13) Create a post-closing trial balance from the balances
in the general ledger accounts using the same blank
form that was provided in step 5 when you created the unadjusted trial balance. The post-closing trial balance
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