5-2 Milestone Two

Chart of Accounts

This chart of accounts should help you identify the appropriate accounts to record to as you are analyzing and journaling transactions for this workbook. There is nothing to complete on this page; this chart is simply a resource for you.
Asset Accounts		Liability Accounts		Equity Accounts
	Acct #		Acct #		Acct #
Cash	101	Notes Payable	201	Common Stock	301
Accounts Receivable	102	Accounts Payable	202	Retained Earnings	302
Prepaid Rent	103	Wages Payable	203
Prepaid Insurance	104
Office Supplies	105
Vehicle	106
Accumulated Depreciation (contra asset)	107
				Revenue Accounts
					Acct #
				Service Revenue	401
				Expense Accounts
					Acct #
				Rent Expense	501
				Legal Fees	502
				Utilities Expense	503
				Repairs and Maintenance	504
				Advertising Expense	506
				Wages Expense	507
				Depreciation Expense	508
Cash
Baking Supplies
Prepaid Rent
Prepaid Insurance
Baking Equipment
Office Supplies
Accounts Receivable
Accumulated Depreciation
Merchandise Inventory
Notes Payable
Accounts Payable
Wages Payable
Interest Payable
Common Stock
Dividends
Bakery Sales
Merchandise Sales
Baking Supplies Expense
Rent Expense
Insurance Expense
Misc. Expense
Business License Expense
Advertising Expense
Wages Expense
Telephone Expense
Interest Expense
Depreciation Expense
Office Supplies Expense
Cost of Goods Sold

General Journal

	A Company
	General Journal Entries				Journal Entry Tips
					The debited account is recorded first and credited account is recorded second.
					Debits and credits must always equal!
Date	Accounts	Debit	Credit		There can be compound entries in which two accounts receive a debt to an equivalent credited amount to one account.
					Be certain to use your chart of accounts (the first page of this workbook).
					Each account you will record to is already listed and organized by classification of the account.
	Total	- 0	- 0	If Red, it means your debits and credits do not equal. Be certain to review for errors.

Ledger Accounts

Assets					Liabilities					Equity					Revenue					Expenses
	Cash					Notes Payable					Common Stock					Service Revenue					Rent Expense
	$ - 0	$ - 0				$ - 0	$ - 0				$ - 0	$ - 0				$ - 0	$ - 0				$ - 0	$ - 0
	$ - 0						$ - 0					$ - 0					$ - 0				$ - 0
	Accounts Rec.				Accounts Payable						Retained Earnings									Legal Fees
	$ - 0	$ - 0				$ - 0	$ - 0				$ - 0	$ - 0				$ - 0	$ - 0				$ - 0	$ - 0
	$ - 0						$ - 0				$ - 0										$ - 0
	Prepaid Rent					Wages Payable															Utilities Expense
										Posting to the ledger or T accounts
										Don't overthink it!
										You are just posting each debit and credit from the journal entries to the account you identified in the entry.
										These accounts are set to calculate your balances for you.
										Be careful not to delete the running totals as those will calculate the ending balance.
										The ending balance will transfer to the Trial Balance sheet.
										If you have posted all entries and your trial balance is not in balance (total debits = total credits),
	$ - 0	$ - 0				$ - 0	$ - 0			this means that there is an error.											$ - 0	$ - 0
	$ - 0						$ - 0														$ - 0
	Prepaid Insurance																				Repairs & Maint.
	$ - 0	$ - 0																			$ - 0	$ - 0
	$ - 0																				$ - 0
	Office Supplies																				Advertising Expense
	$ - 0	$ - 0																			$ - 0	$ - 0
	$ - 0																				$ - 0
	Vehicle																				Wages Expense
	$ - 0	$ - 0																			$ - 0	$ - 0
	$ - 0																				$ - 0
	Accumulated Depreciation																				Depreciation Expense
	$ - 0	$ - 0																			$ - 0	$ - 0
		$ - 0																			$ - 0

Trial Balance

Trial Balance
As of 06/30/20XX
	Unadjusted Trial Balance
Account	Debit	Credit		Trial Balance
Cash	- 0			Balances from the t accounts will autofill your trial balance.
Accounts Receivable	- 0			If total debits do not equal total credits in the trial balance, you know you have an error.
Prepaid Rent	- 0			These are the balances that will be used to prepare the financial statements.
Prepaid Insurance	- 0			Be certain to implement feedback provided by your instructor for this Milestone One submission!
Vehicle	- 0
Office Supplies	- 0
Accumulated Depreciation		- 0
Notes Payable		- 0
Accounts Payable		- 0
Wages Payable		- 0
Common Stock		- 0
Retained Earnings	- 0
Service Revenue		- 0
Rent Expense	- 0
Legal Fees	- 0
Utilities Expense	- 0
Repairs and Maintenance Expense	- 0
Advertising Expense	- 0
Wages Expense	- 0
Depreciation Expense	- 0
Retained Earnings
Total:	- 0	- 0
	Debits should equal credits
`

Income Statement

A Company
Income Statement
For Month Ending 06/30/20XX
Revenues
Total Revenues	$ - 0
Operating Expenses:
Total Operating Expenses:	- 0
Net Income	- 0

StatementofStockholderEquity

Company Name
Statement of Stockholders' Equity
Period Ending 06/30/20XX
		Common Stock	Retained Earnings	Total
Beginning Stockholders' Equity on 6/01/20XX
	Net income/loss:
	Common Stock Issued
Ending Stockholders' Equity as of 06/30/20XX		$0	$0	$0

Balance Sheet

		A Company
		Balance Sheet
		As of June 30, 20XX
Assets				Liabilities and Owners' Equity
Current Assets:				Current Liabilities:
				Total Current Liabilities	- 0
				Long-Term Liabilities:
Total Current Assets	- 0			Total Long-Term Liabilities:	- 0
				Total Liabilities:	- 0
				Stockholders' Equity
Non-Current Assets:
				Total Equity	- 0
Total Non-Current/Fixed Assets	- 0
Total Assets:	- 0			Total Liabilities and Equity	- 0	<== Total Assets on the left should equal Liabilities + Owner's Equity on the right.

Closing Entries

	A Company
	Closing Entries
	Month Ending 06/30/20XX
Date	Accounts	Debit	Credit
30-Jun
	Close Revenues
30-Jun
	Close Expenses
		- 0	- 0

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Course Documents/Transcript for ACC 201 Milestone Two Walkthrough.docx

ACC 201 Milestone Two: Video Walkthrough Transcript

[00:00:06.01] INSTRUCTOR: In this video, we're going to take a look at the specific requirements for the Milestone Two workbook submission, as well as demonstrate, again, how to use the workbook and completion of the required components of the task. So we're going to start again with the Milestone Two guidelines and rubric document which, of course, reiterates our scenario for us and then tells us specifically what we're going to accomplish with this Milestone Two submission.

[00:00:33.67] So we're going to take the unadjusted trial balance results from our first submission and use those results to prepare the income statement, the statement of owner's equity, the balance sheet, and to prepare our closing entries.

[00:00:48.74] So it's going to be very important for you, after you receive the feedback from that first milestone submission, to ask any questions that you might need to ask to get clarification and return to any errors in that first submission and correct those so that you can start this second half of the workbook with accurate balances, and, of course, maximize on the points available so that you can prepare accurate financial statements having accurate balances to work from that unadjusted trial balance result in the first milestone submission.

[00:01:21.34] So you'll also find in the Milestone Two guidelines and rubric document, again, the rubric that will tell you specifically what would be required from you to perform your best or achieve an exemplary demonstration in this task. So as always, it's very important for you to familiarize yourself with the rubric so that you do know exactly what is expected to maximize on the points available.

[00:01:46.10] So before we start to look at the workbook in completion of the financial statements for this task, I want to take a quick look or share a resource with you that's also available to you in the course, and this resource is the Financial Statement Structure and Interrelationships document. And so this document is going to be helpful for you in preparing the financial statements because it shows you, based on a classification of accounts, where these different accounts are reported.

[00:02:15.10] For instance, we start with the income statement, because you can see, there's a direct relationship between the income statement and the statement of equity. We can't prepare an accurate statement of equity unless we prepare an accurate income statement first. And our income statement is going to show revenues minus our expenses to reveal the net income or loss. And that net income or loss is going to show up in the statement of owner's equity.

[00:02:39.16] Our statement of ownership equity is going to start with the beginning equity, which, if you recall, this is the company's first month in business, so they will not have a beginning equity balance. Plus, additional owner investment, plus net income, minus owner withdrawals to give us our ending owner's equity balance. And that ending owner's equity balance is going to transfer to the equity section or the right side of the balance sheet.

[00:03:02.71] And our balance sheet, of course, showing us total assets. So current assets plus long-term or fixed assets for total assets. And on the right side, we're looking at current liabilities plus long-term liabilities for total liabilities plus that ending equity amount from the statement of equities—from the statement of owner's equity, sorry, should equal the same as our total assets.

[00:03:25.68] So again, now we're looking at that accounting equation in complex form. Assets are equal to liabilities plus owner's equity. That's what's reported on the balance sheet. So if you recall from our first walkthrough video, we talked about what differentiates the current liability from the long-term liability. Remember, we talked about accounts payable, those things that we anticipate will be paid like in the next 30 days or so. Those are current, whereas those long-term loan agreements like with the bank, that's going to be represented as a long-term liability.

[00:03:59.38] And similarly with current assets, we're looking at those assets that are liquid that are going to be used up or converted to cash quickly versus those fixed or long-term assets which are those assets that we use year after year to help us generate—provide our product or service to our customers.

[00:04:19.58] So now that we've reviewed this and we get a good idea where everything's going to be reported, we can go into our—back into our workbook for the task. And again, we're going to start with the unadjusted trial balance results from our first milestone submission. Because these are the balances that we're going to use to prepare the income statement, the statement of equity, the balance sheet, and the closing entries.

[00:04:44.57] So we're going to start with the income statement. And as we just visited, income statement is revenues and minus expenses. So I'm looking for my revenue accounts here. I just have one, that service revenue. So I am going to type in the service revenue account. There's $7,500 in revenue. And you'll notice that this, too, is set up to help you with the math.

[00:05:07.68] We only have one revenue account in this particular example, so we won't be filling in this second line. But if we had two revenue accounts, then we would add that here so that we could total all revenues regardless of the type of revenue. Then we're going to enter or itemize our expenses. And I think we had a rent expense account for this scenario, a $1,500 balance. We had a depreciation expense. I don't remember the total of that depreciation expense.

[00:05:36.69] And we had—there was another type of expense there. But we would list each expense account and its balance, and you'll notice it totals our expenses for us. So that ending result is going to be—our revenues minus our expenses is going to reveal our net income here at the bottom. And this net income result, of course, we're going to need for that statement of owner's equity. So our net income result would go here, for example.

[00:06:03.49] So even though we know this is not complete, just for demonstration’s sake, we'll transfer that $6,000 in net income to our statement of equity. And as you can see again, we have added in some formulas to assist you along the way. We mentioned there's not a beginning balance. So there's not a beginning balance because this is the company's first month in business. So we have net income from operations plus we have the owner contributions to capital that we had, of course—I think we had $50,000 in owner contributions in this particular scenario.

[00:06:37.75] So that gives us our total increases to capital for the month. And then we subtract the owner withdrawals from that. And as you can see, those owner withdrawals decrease equity, giving us an ending equity balance that we'll use to prepare our balance sheet. So here in owner's equity, we're going to have—oh, not sure I did that, sorry. We're going to have the owner's capital.

[00:07:02.16] And I don't—in the amount of—and again, this is incomplete, but I'm just giving these—going ahead and inputting these items as an example of those interrelationships and how you will enter these items. So otherwise, once we get to the balance sheet, we know that the owner's capital is going to transfer over. That's going to take care of the equity section on the right side.

[00:07:24.87] We'll enter our current asset accounts and their balances. We'll enter our long-term asset less accumulated depreciation to get our total assets on the left side. Then we'll enter and itemize our current liabilities plus our long-term liability for total liabilities on the right side. Once we've determined or entered all of our assets and liabilities, our total assets on the left side should be equal to total liabilities plus equity on the right side. We're in balance.

[00:07:56.76] Our last step for this second workbook submission is going to be the closing entries. So before we take a look at each of the closing entries, I do want to take a moment and show you the example in the text. Because if you go to the text looking for an example, you're going to notice that they're not exactly the same.

[00:08:18.93] Our text is really unique. This is the only text I've ever worked with where I've seen the author combine all of the first three entries into one large entry. So in our example here, in the text, what has happened is the author has closed all revenues, expenses, and then earnings in one big entry versus taking those step by step, which is the common practice. And then, of course, they closed dividends into retained earnings.

[00:08:51.91] So note that the terminology could throw you off a little bit, too, because the reason they're using dividends and retained earnings here is because this is a corporate scenario. So the corporate scenario is going to say dividends instead of withdrawals or cash draws, and retained earnings versus that owner's capital account. So it's really the same function. The capital accounts just have different names in that corporate scenario than what they have in the sole proprietorship scenario that we are working from in our final project.

[00:09:20.62] So you'll notice that I've indicated exactly what we're achieving with each of these four required entries. First, we're closing revenues, then we're closing expenses, then we're closing the balance in the income summary account into capital, and then we're closing those draws into capital. So as we look to close revenues, our goal here, of course, in closing revenues and expenses are going to be to reset those temporary account balances back to zero so that in the month of June, they start accumulating only June revenues and expenses.

[00:09:54.30] Well, we know that revenues have a credit balance. So if we're going to reset our revenue account balances back to zero, we're going to have to take that service revenue account and we're going to have to debit it by its $7,500 balance to reset it to zero. Then we're going to transfer that $7,500 in revenue into income summary with $7,500 credit to income summary.

[00:10:22.86] Then we're going to close expenses, and we know that all of our expense accounts have a debit balance. If we're going to reset those debit balances in the expense accounts to zero, then each expense account is going to require a credit. So once again, I've got to itemize my expense accounts over here and then credit it by its current balance to reset it to zero.

[00:10:49.65] And then I'm going to take the total of my expenses here and debit income summary for the total of the expenses, because my debits and credits have to be equal. So this income summary account is another temporary account that's only used during this process. And the purpose of this income summary account is almost like a little mini-income statement. It takes our revenues and expenses and then it gives us a balance. If our revenues are more than expenses, which they are in this scenario, then our balance is a net income balance. It means we earned money.

[00:11:23.80] So what we have to do now is close those earnings from income summary into capital. So we know that capital increases with a debit—or sorry, credit, we know that equity increases with a credit.

[00:11:38.64] So that credit balance and income summary is going to have to close with a debit, and then we're going to take that balance, that difference between revenues and expenses—again, this is going to be incomplete, because I didn't add in all my expenses, but I'm going to take that difference between my revenue credit to income summary and my expense debit to income summary, I'm going to take that difference, credit it to owner's capital to show the increase in the value of the business as a result of profitable operations, and then debit income summary to close that income summary account.

[00:12:12.65] And my last step would be to close the owner draws into equity. So we know that the draw account has a debit balance. We'll have to credit to close it, and draws decrease equity, so equity at that point would take a debit to show the decrease—or to close—sorry, to close that draw account to decrease it to reset that to zero as well.

[00:12:36.48] So those are the four required components for this second milestone submission in week 5. And similar to the Module Three submission, you're going to receive specific feedback on your results in this workbook.

[00:12:53.43] So when you resubmit this workbook one final time in Module Seven, that's going to give you the opportunity to go back and make any remaining corrections to this workbook from steps—from the very first steps recording the journal entries through the closing entries so that you can, A, have accurate results to prepare your summary report in Module Seven on those results, but also so that you have that opportunity to earn 100% for that workbook submission in Module Seven.