Week 13 — Answer Key

Month-End Closing (Return to Syllabus)

Instructor Version — Detailed Answers for Accruals, Prepaids, Adjusting Entries, Reconciliations & Trial Balance Review

Concept 1

Core Concepts — Purpose of Month-End Close

The month-end close ensures cutoff, completeness, and accuracy. All revenues and expenses for the period are recorded, and the trial balance is prepared for financial statement reporting.

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Concept 2

Cash Basis vs. Accrual Basis — Answer Key

Cash basis: Records revenue when cash is received and expenses when cash is paid.

Accrual basis: Records revenue when earned and expenses when incurred, regardless of cash.

Students should recognize that month-end adjusting entries convert activity to accrual-basis results for GAAP-style reporting.

Concept 3

Accruals — Expense & Revenue Examples

A. Utilities Accrual

Utilities used in March but billed in April (1,200):

Utilities Expense ........................ Dr 1,200
    Accrued Liabilities (or Utilities Payable) ... Cr 1,200

B. Revenue Accrual

Services of 5,000 completed in March but not yet invoiced:

Accounts Receivable ..................... Dr 5,000
    Service Revenue ............................ Cr 5,000

Concept 4

Prepaid Expenses — Answer Key

Scenario: 12,000 insurance premium paid January 1 for 12 months.

Payment entry:

Prepaid Insurance ....................... Dr 12,000
    Cash ...................................... Cr 12,000

Monthly adjusting entry (1,000 per month):

Insurance Expense ........................ Dr 1,000
    Prepaid Insurance ........................... Cr 1,000

Students should be able to create a schedule showing beginning balance, monthly expense, and ending balance.

Concept 5

Adjusting Journal Entries (AJEs) — Model Answers

A. Accrued Wages

Wages Expense ........................... Dr 2,500
    Wages Payable .............................. Cr 2,500

B. Prepaid Rent Amortization

Rent Expense ............................ Dr 2,000
    Prepaid Rent ............................... Cr 2,000

C. Depreciation

Depreciation Expense .................... Dr   800
    Accumulated Depreciation — Machine ........ Cr   800

Concept 6

Reconciliation Concepts — Answer Key

Students must understand that reconciliations compare GL balances to external or subledger records.

Bank reconciliation: cash per books vs cash per bank.
AR subledger vs AR control account.
AP subledger vs AP control account.

Differences indicate timing items (e.g., outstanding checks) or possible errors (e.g., mis-posted transactions) and must be documented.

Concept 7

Trial Balance Review — Common Red Flags

Negative expense balances.
Debit balances in liability accounts or credit balances in assets.
Large balances in suspense or “ask my accountant” accounts.
Zero balances in key revenue or expense accounts that should have activity.

Students should flag these items and suggest follow-up, such as verifying postings or reviewing supporting schedules.

Discussion

Discussion Prompt — Model Answer

Organizations invest in month-end close to produce reliable, accrual-basis financials. Skipping accruals, prepaids, or reconciliations can distort profits, hide fraud or errors, and damage credibility with lenders, investors, and auditors.

Summary

Week 13 Summary — Instructor Version

By the end of Week 13, students should understand how accruals, prepaids, adjusting entries, reconciliations, and trial balance reviews fit into the month-end close. They should be able to assist with these tasks and recognize when something looks wrong.