Principles of Accounting - Adjustments, Financial Statements, and Closing Entries

Carter Sports Supplies

A trading business owned by Mr. Daniel Carter, for which year-end adjustments, financial statements, and closing entries are prepared as of 31 December 2026.

Unadjusted Trial Balance

The listing of ledger account balances prior to year-end adjustments at 31 December 2026, totaling $\text{USD } 259{,}800$ in both debits and credits.

Outstanding Expenses Adjustment

Year-end adjusting entries recording unpaid expenses: debiting Wages & Salaries for $\text{USD } 2{,}300$ and Utilities for $\text{USD } 400$, with a corresponding credit to Accrued Expenses totaling $\text{USD } 2{,}700$.

Depreciation Expense – Shop Fittings

An annual non-cash expense calculated as $15\%$ per annum on the original cost of $\text{USD } 40{,}000$, giving $\text{USD } 6{,}000$ ($40{,}000 \times 15\%$).

Accumulated Depreciation – Shop Fittings

A contra-asset account credited for $\text{USD } 6{,}000$ in the adjusting entries to record annual depreciation, which is deducted from Shop Fittings at Cost on the Statement of Financial Position.

Accrued Interest Payable Adjustment

An adjusting entry for interest incurred on the loan but not yet paid as of 31 December 2026, recorded by debiting Interest on Loan for $\text{USD } 600$ and crediting Accrued Interest Payable for $\text{USD } 600$.

Adjusting Journal Entries Total

The sum of all debit and credit adjustments made at 31 December 2026, which balances at $\text{USD } 9{,}300$.

Cost of Sales

The direct expense associated with goods sold, equal to a debit balance of $\text{USD } 88{,}400$, which is deducted from Sales Revenue to calculate Gross Profit and closed in step 2 of closing entries.

Gross Profit

The excess of Sales Revenue ($\text{USD } 165{,}000$) over Cost of Sales ($\text{USD } 88{,}400$), amounting to $\text{USD } 76{,}600$.

Total Expenses (Income Statement)

The aggregate of all adjusted operating and financial expenses on the Income Statement ($\text{USD } 27{,}600 + 15{,}600 + 2{,}900 + 4{,}800 + 6{,}100 + 6{,}000 + 2{,}400$), equaling $\text{USD } 65{,}400$.

Net Profit

The bottom-line earnings for the year ended 31 December 2026, calculated as Gross Profit ($\text{USD } 76{,}600$) minus Total Expenses ($\text{USD } 65{,}400$), equaling $\text{USD } 11{,}200$.

Current Assets (Carter Sports Supplies)

Short-term assets totaling $\text{USD } 68{,}700$, consisting of Inventory ($\text{USD } 15{,}200$), Receivables ($\text{USD } 19{,}400$), and Bank ($\text{USD } 34{,}100$).

Current Liabilities (Carter Sports Supplies)

Short-term obligations totaling $\text{USD } 20{,}100$, consisting of Payables ($\text{USD } 16{,}800$), Accrued Expenses ($\text{USD } 2{,}700$), and Accrued Interest Payable ($\text{USD } 600$).

Non-current Liabilities (Carter Sports Supplies)

Long-term debt obligations, represented by Loan Payable (Long-term) with a credit balance of $\text{USD } 30{,}000$.

Ending Owner's Equity