Chapter 4
The Accounting Cycle: Journals and Ledgers
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used synonymously with “beginning balance” and “closing balance” is synonymous with “ending
balance.” These opening balances are already recorded in the ledger accounts.
The income statement is only prepared for the period (the month or year) and always starts the new
period with no balances in the accounts.This idea will be expanded on and explained in a later chapter.
MP Consulting had the following transactions for the month of January 2016. The transactions
have been entered in the journal in Figure 4.12.
Jan 2 Completed work for a client and the client paid $1,500 cash.
Jan 3 Paid $800 cash for January’s rent.
Jan 4 Prepaid $1,200 cash for a one-year insurance policy.
Jan 5 Mark invested $5,000 cash into the business.
Jan 7 Paid $2,300 cash for equipment.
Jan 10 Completed work for a client who will pay $1,800 next month.
Jan 16 Paid $500 toward the principal of the bank loan.
Jan 19 Received $1,100 cash from a client for work to be completed next month.
Jan 20 Received a telephone bill telephone for $250.This will be paid next month.
Jan 30 Mark withdrew $2,000 cash for personal use.
