Dr.

Suh

Accounting Cycle
Business events or Source documents Analyze each T & E from
transactions: source documents
Internal or
External

1. Prepare and analyze the trial balance.

2. Prepare adjusting entries:
• Reporting period. 1. Record relevant
• Revenue and expense recognition transactions and
principles. events in a journal.
3. Prepare ADJUSTED trial balance.
2. Post journal
4. Prepare Financial Statements
information to ledger
5. CLOSING Process: Temporary Accounts
accounts
6. Prepare POST-Closing trial balance

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 Dr. Suh

Journalizing and Posting

Transactions
Assets = Liabilities + Equity
T- Account
(Left side) (Right side)
Debit Credit

Analyze transactions Apply double-entry

and source documents. accounting

GENERAL JOURNAL Page 123

ACCOUNT NAME: ACCOUNT No. Post.
Date Description Ref. Debit Credit
Date Description PR Debit Credit Balance

Post entry to ledger Record journal entry

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 Journalizing and Posting Transactions
Assets = Liabilities + Equity
T- Account
(Left side) (Right side)
Debit Credit

Step 1: Analyze Step 2: Apply double-

transactions and source entry accounting
documents.

GENERAL JOURNAL Page 123

ACCOUNT NAME: ACCOUNT No. Post.
Date Description Ref. Debit Credit
Date Description PR Debit Credit Balance

Step 4: Post entry to ledger Step 3: Record journal entry

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Posting Journal Entries

GENERAL JOURNAL Page 1
Date Account Titles and Explanation PR Debit Credit
2013
Dec. 1 Sales Trip Accrual (Sales Expense) 525 30,000
Wages Payable (Accrued Liability) 231 30,000
Additional compensation to sales representatives

Enter the ledger reference.

SALES TRIP ACCRUAL ACCOUNT No. 525

Date Explanation PR Debit Credit Balance

2013
Dec. 1 Trip to Bali G1 30,000 30,000

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 Ledger and Chart of Accounts
The ledger is a collection of all accounts for
an information system. A company’s size and
diversity of operations matter!

The chart of accounts is a list of all accounts and

includes an identifying number for each account.
101 Cash 319 Dividends
106 Accounts receivable 403 Consulting revenues
126 Supplies 406 Rental revenue
128 Prepaid insurance 522 Salaries expense
167 Equipment 537 Insurance expense
201 Accounts payable 540 Rent expense
236 Unearned revenue 552 Supplies expense
307 Common stock 590 Utilities expense
318 Retained earnings

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Trial Balance = Summary of all

account balances
FastFoward

December 31, 2011

Debits Credits
Cash $ 4,350
Accounts receivable -
Supplies 9,720
The trial balance lists
Prepaid Insurance 2,400 all account balances in
Equipment 26,000
Accounts payable $ 6,200 the general ledger. If
Unearned consulting revenue 3,000 the books are in
Common stock 30,000
Dividends 200 balance, the total
Consulting revenue 5,800 debits will equal the
Rental revenue 300
Salaries expense 1,400 total credits.
Rent expense 1,000
Utilities expense 230
Total $ 45,300 $ 45,300

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 Trial Balance  Financial
Statements
Point in Point in
Time Period of Time Time

Income Statement
Statement of Retained Earnings
Statement of Cash Flows
Beginning Ending
Balance Balance
Sheet Sheet

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Dr. Suh

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 Accounting Cycle
Business events or Source documents Analyze each T & E from
transactions: source documents
Internal or
External

1. Prepare and analyze the trial balance.

2. Prepare adjusting entries:
• Reporting period. 1. Record relevant
• Revenue and expense recognition transactions and
principles. events in a journal.
3. Prepare ADJUSTED trial balance.
2. Post journal
4. Prepare Financial Statements
information to ledger
5. CLOSING Process: Temporary Accounts
accounts
6. Prepare POST-Closing trial balance

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Framework for Adjusting Entries

Adjustments

Paid (or received) cash before Paid (or received) cash after
expense (or revenue) recognized expense (or revenue) recognized

Prepaid ForUnearned
example, Failure to
(Deferred) • (Deferred)
Buy a building. recognize
expenses* revenes
• Prepay an insurance premium in advance . expense
will
The expense understate
• When Paid =of buying a building is capitalized or
When Paid = deferred and recorded as an asset. expense,
Liabilities overstate
Assets • Prepaid expense is recorded as an asset.
net income,
When Used = The cost
•When of using a building is recognized as a
Earned overstate
Expenses =depreciation
Revenues expense over its useful life (e.g., 20 earned
years). capital, and
• Insurance premium used on a monthly basis is overstate
*including depreciationrecognized as an expense. assets.

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 Framework for Adjusting Entries
Adjustments Example Fiona, Inc.

Paid (or received) cash before Paid (or received) cash after
expense (or revenue) recognized expense (or revenue) recognized

Prepaid Unearned For example,

(Deferred) (Deferred) • Accept cash from customers before
expenses* revenues delivering goods or providing services.

When Paid = • Prepaid cash by customers triggers an

When Paid =
Failure to recognize Liabilities obligation or a liability.
Assets
revenue will
understate revenue, • When goods are delivered or services are
When Used
understate net = When Earned
Expenses = Revenues provided, that is the point of recognizing
income, understate
revenues. As such, there is no liability.
earned capital, and
overstate
*including liabilities.
depreciation

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Framework for Adjusting Entries

Adjustments Example Fiona, Inc.

Paid (or received) cash before Paid (or received) cash after
expense (or revenue) recognized expense (or revenue) recognized

For example,
• Utility expense, maintenance expense, Accrued Accrued
sales commission, salaries. expenses revenues
Failure to
recognize
• When incurred, costs should be Costs Sales earned
expenses will =
recognized as expenses. incurred = understate
Revenues
Expenses expense,
overstate
Recognize net
• Recognition of expense increases income, overstate
revenues =
Recognize
liability (if recognized) or decreases cash earned capital,
(if paid).
expenses = andSales
understate
Liability or revenues
liabilities or
 Cash &/or  Cash
overstate cash.

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 Framework for Adjusting Entries
Adjustments Example Fiona, Inc.

Paid (or received) cash before Paid (or received) cash after
expense (or revenue) recognized expense (or revenue) recognized

Accrued Accrued
Failure to For example,
recognize • Sales revenues resulting fromexpenses
selling goods revenues
revenues will or services.
understate
revenue, Costs Sales earned =
• If products are delivered or services are
understate net incurred = Revenues
provided, performance obligation is fulfilled.
income, Expenses
As such, revenues should be recognized.
understate Recognize
earned capital Recognize
• Recognition of sales revenue increases revenues =
and understate expenses = Sales
assets or non-cash assets (if sold on account) or
Liability or revenues
understate  Cash &/or  Cash
cash. increases cash (if paid).

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Links to Financial Statements

Summary of Adjustments and Financial Statement Links
Before Adjustment After Adjustment
Balance Sheet Income Statement
Type Account Account Adjusting Entry
Prepaid Asset Overstated Expense Dr. Expense
Expenses Equity Overstated Understated Cr. Asset
Deferred Liability Overstated Revenue Dr. Liability
Revenues Equity Understated Understated Cr. Revenue
Accrued Liability Understated Expense Dr. Expense
Expenses Equity Overstated Understated Cr. Liability
Accrued Asset Understated Revenue Dr. Asset
Revenues Equity Understated Understated Cr. Revenue
3-22

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 Dr. Suh

23

Adjusting Entries: When?

Business events or Source documents Analyze each T & E from
transactions: source documents
Internal or
External

1. Prepare and analyze the trial balance.

2. Prepare adjusting entries:
• Reporting period. 1. Record relevant
• Revenue and expense recognition transactions and
principles. events in a journal.
3. Prepare ADJUSTED trial balance.
2. Post journal
4. Prepare Financial Statements
information to ledger
5. CLOSING Process: Temporary Accounts
accounts
6. Prepare POST-Closing trial balance

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 The Accounting Cycle
 In the beginning of the accounting period:
 Start with beginning balance of balance sheet accounts.
 Income statement accounts must be zero.
 During the accounting period:
1. Journalize identified economic events or transactions
2. Post journal entries to the respective accounts in the general
ledger (e.g., T-accounts)
3. Prepare a trial balance (total debits = total credits)
4. Prepare adjusting entries
5. Prepare an adjusted trial balance (total debits = total credits)
6. Prepare financial statements
 Income statement  Statement of retained earnings  balance sheets 
statement of stockholders’ equity (includes changes in retained earnings)
& statement of cash flows
 At the end of the accounting period:
 Prepare and post closing entries

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Example 1:
Unadjusted Trial
Account Names Balance Adjustments Adjusted Trial Balance
Debit Credit Debit Credit Debit Credit
Cash $ 25,000 $ 25,000
Accounts Receivable 51,000 e. $ 9,000 60,000
Office Supplies 7,500 $ 4,500 b. 3,000
Equipment 26,000 26,000
Accum. Dep.—Eq. $ 19,000 3,000 c. $ 22,000
Accounts Payable 14,000 14,000
Salaries Payable 4,500 d. 4,500
Unearned Revenue 4,500 a. 700 3,800
Notes Payable 26,000 26,000
Common Stock 15,000 15,000
Retained Earnings 5,500 5,500
Dividends 28,000 28,000
Service Revenue 99,000 700 a. 108,700
9,000 e.
Insurance Expense 2,500 2,500
Salaries Expense 33,000 d. 4,500 37,500
Supplies Expense b. 4,500 4,500
Interest Expense 3,000 3,000
Rent Expense 7,000 7,000
Depreciation c. 3,000 3,000
Expense—Eq.
Total $ 183,000 $ 183,000 $ 21,700 $ 21,700 $ 199,500 $ 199,500

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 Account Names
Adjusted Trial Balance FLEMING INVESTMENT ADVISERS
Debit Credit Income Statement
Cash $ 25,000 Year Ended December 31, 2024
Accounts Receivable 60,000
Office Supplies 3,000 Revenues:
Equipment 26,000 Service Revenue $ 108,700
Accum. Dep.—Eq. $ 22,000 Expenses:
Accounts Payable 14,000 Insurance Expense $ 2,500
Salaries Payable 4,500 Salaries Expense 37,500
Unearned Revenue 3,800
Supplies Expense 4,500
Notes Payable 26,000
Interest Expense 3,000
Common Stock 15,000
Rent Expense 7,000
Retained Earnings 5,500
Depreciation Expense—Eq. 3,000
Dividends 28,000
Total Expenses 57,500
Service Revenue 108,700
Net Income $ 51,200
Insurance Expense 2,500
Salaries Expense 37,500
Supplies Expense 4,500
Interest Expense
Rent Expense
3,000
7,000
Closing entries!
Depreciation 3,000
Expense—Eq.
$ 199,500 $ 199,500
Example 1:
Total
- Assume no tax expense
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Adjusted Trial Balance

Account Names
Debit Credit
Cash $ 25,000
Accounts Receivable 60,000
Office Supplies 3,000
Equipment 26,000
Accum. Dep.—Eq. $ 22,000
FLEMING INVESTMENT ADVISERS
Accounts Payable 14,000 Statement of Retained Earnings
Salaries Payable 4,500 Year Ended December 31, 2024
Unearned Revenue 3,800 Retained Earnings, January 1, 2024 $ 5,500
Notes Payable 26,000
Common Stock 15,000
Net income for the year 51,200
Retained Earnings 5,500 56,700
Dividends 28,000 Dividends (28,000)
Service Revenue 108,700
Retained Earnings, December 31, 2024 $ 28,700
Insurance Expense 2,500
Salaries Expense 37,500
Supplies Expense 4,500
Interest Expense 3,000
Rent Expense 7,000
Depreciation 3,000
Expense—Eq.
Total $ 199,500 $ 199,500

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 FLEMING INVESTMENTS ADVISERS
Adjusted Trial Balance
FLEMING INVESTMENT ADVISERS
Balance Sheet
Account Names Statement
December 31,of Retained Earnings
2024
Debit Credit
Cash $ 25,000 Year Ended December 31, 2024
Accounts Receivable 60,000 AssetsRetained Earnings, January 1, 2024Liabilities $ 5,500
Office Supplies Current Assets:
3,000 Current Liabilities:
Net income for the year 51,200
Equipment 26,000Cash $ 25,000 Accounts Payable $ 14,000
Accum. Dep.—Eq. Accounts Receivable
$ 22,000 60,000 Salaries Payable 56,700
4,500
Office Supplies 3,000 Unearned Revenue 3,800
Accounts Payable 14,000
Total Current Assets
Dividends $ 88,000 Total Current Liabilities (28,000)
$ 22,300
Salaries Payable 4,500 Retained Earnings, Long-Term
DecemberLiabilities:
31, 2024 $ 28,700
Property, Plant, and
Unearned Revenue 3,800
Equipment:
Notes Payable 26,000
Equipment 26,000 Notes Payable 26,000
Common Stock 15,000
Less: Acc. Depr.—Eq. (22,000) Total Liabilities 48,300
Retained Earnings 28,700
Total Property, Plant,
Dividends 28,000 and Equipment 4,000
Service Revenue 108,700 Stockholders’ Equity
Common Stock 15,000
Insurance Expense 2,500 Retained Earnings 28,700
Salaries Expense 37,500 Total Stockholders’ Equity 43,700
Supplies Expense 4,500 Total Liabilities and
Interest Expense 3,000
Total Assets $ 92,000 Stockholders’ Equity $ 92,000
Rent Expense 7,000
Depreciation 3,000
Expense—Eq.
Total $ 199,500 $ 199,500

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Adjusted Trial Balance

Account Names
Debit FLEMING
Credit INVESTMENTS ADVISERS
Cash $ 25,000 Balance Sheet
Accounts Receivable 60,000 December 31, 2024
Office Supplies 3,000
Equipment Assets
26,000 Liabilities
Accum.Current Assets:
Dep.—Eq. $ 22,000 Current Liabilities:
Accounts Cash
Payable $ 25,000
14,000 Accounts Payable $ 14,000
Accounts Receivable
Salaries Payable 60,0004,500 Salaries Payable 4,500
Unearned Office
RevenueSupplies 3,0003,800 Unearned Revenue 3,800
Total Current Assets
Notes Payable 26,000$ 88,000 Total Current Liabilities $ 22,300
Common Property,
Stock Plant, and 15,000 Long-Term Liabilities:
Equipment:
Retained Earnings 28,700
Dividends
Equipment 28,000
26,000 Notes Payable 26,000
Less:
Service Revenue
Acc. Depr.—Eq. (22,000)
108,700
Total Liabilities 48,300
Total Property, Plant,
and Equipment 4,000
Insurance Expense 2,500
Stockholders’ Equity
Salaries Expense 37,500
Common Stock 15,000
Supplies Expense 4,500
Retained Earnings 28,700
Interest Expense 3,000
Total Stockholders’ Equity 43,700
Rent Expense 7,000
Total Liabilities and
Depreciation 3,000
Total Assets
Expense—Eq.
$ 92,000 Stockholders’ Equity $ 92,000
Total $ 199,500 $ 199,500

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 FLEMING INVESTMENTS ADVISERS
Adjusted Trial Balance
Account Names Balance Sheet
Debit Credit December 31, 2024
Cash $ 25,000
Accounts Receivable 60,000
Assets Liabilities
Office Supplies 3,000
Current Assets: Current Liabilities:
Equipment 26,000
Cash $ 25,000 Accounts Payable
Accum. Dep.—Eq. $ 22,000 Accounts Receivable 60,000 Salaries Payable
Accounts Payable 14,000 Office Supplies 3,000 Unearned Revenue
Salaries Payable 4,500 Total Current Assets $ 88,000 Total Current Liabilities
Unearned Revenue 3,800 Property, Plant, and Long-Term Liabilities:
Notes Payable 26,000 Equipment:
Common Stock 15,000 Equipment 26,000 Notes Payable
Retained Earnings 28,700 Less: Acc. Depr.—Eq. (22,000) Total Liabilities
Dividends 28,000 Total Property, Plant,
Service Revenue 108,700 and Equipment 4,000
Stockholders’ Equity
Insurance Expense 2,500 Common Stock
Salaries Expense 37,500 Retained Earnings
Supplies Expense 4,500 Total Stockholders’ Equity
Interest Expense 3,000 Total Liabilities and
Rent Expense 7,000 Total Assets $ 92,000 Stockholders’ Equity
Depreciation 3,000
Expense—Eq.
Total $ 199,500 $ 199,500

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Closing entries You can use retained earnings

instead of Income Summary!
 Close all income statement accounts
Date Accounts and Explanation Debit Credit
Dec. 31 Service Revenue 108,700
Adjusted Trial Balance
Account Names Income Summary 108,700
Debit Credit
To close revenue.
Cash $ 25,000
Accounts Receivable 60,000
Office Supplies 3,000 31 Income Summary 57,500
Equipment 26,000 Insurance Expense 2,500
Accum. Dep.—Eq. $ 22,000
Salaries Expense 37,500
Accounts Payable 14,000
Salaries Payable 4,500
Supplies Expense 4,500
Unearned Revenue 3,800 Interest Expense 3,000
Notes Payable 26,000 Rent Expense 7,000
Common Stock 15,000 Depreciation Expense—Equipment 3,000
Retained Earnings 5,500 To close expenses.
Dividends 28,000
Service Revenue 108,700
31 Income Summary 51,200
Insurance Expense 2,500 Retained Earnings 51,200
Salaries Expense 37,500 To close Income Summary.
Supplies Expense 4,500
Interest Expense 3,000
31 Retained Earnings 28,000
Rent Expense 7,000
Depreciation 3,000
Dividends 28,000
Expense—Eq. To close dividends.
Total $ 199,500 $ 199,500

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 Closing entries You can use retained earnings
instead of Income Summary!
 Close all income statement accounts
Date Accounts and Explanation Debit Credit
Dec. 31 Service Revenue 108,700
Adjusted Trial Balance
Account Names Income Summary 108,700
Debit Credit
To close revenue.
Cash $ 25,000
Accounts Receivable 60,000
Office Supplies 3,000 31 Income Summary 57,500
Equipment 26,000 Insurance Expense 2,500
Accum. Dep.—Eq. $ 22,000
Salaries Expense 37,500
Accounts Payable 14,000
Salaries Payable 4,500
Supplies Expense 4,500
Unearned Revenue 3,800 Interest Expense 3,000
Notes Payable 26,000 Rent Expense 7,000
Common Stock 15,000 Depreciation Expense—Equipment 3,000
Retained Earnings 5,500 To close expenses.
Dividends 28,000
Service Revenue 108,700
31 Income Summary 51,200
Insurance Expense 2,500 Retained Earnings 51,200
Salaries Expense 37,500 To close Income Summary.
Supplies Expense 4,500
Interest Expense 3,000
31 Retained Earnings 28,000
Rent Expense 7,000
Depreciation 3,000
Dividends 28,000
Expense—Eq. To close dividends.
Total $ 199,500 $ 199,500

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Closing entries You can use retained earnings

instead of Income Summary!
 Close all income statement accounts
Date Accounts and Explanation Debit Credit
Dec. 31 Service Revenue 108,700
Adjusted Trial Balance
Account Names Income Summary 108,700
Debit Credit
To close revenue.
Cash $ 25,000
Accounts Receivable 60,000
Office Supplies 3,000 31 Income Summary 57,500
Equipment 26,000 Insurance Expense 2,500
Accum. Dep.—Eq. $ 22,000
Salaries Expense 37,500
Accounts Payable 14,000
Salaries Payable 4,500
Supplies Expense 4,500
Unearned Revenue 3,800 Interest Expense 3,000
Notes Payable 26,000 Rent Expense 7,000
Common Stock 15,000 Depreciation Expense—Equipment 3,000
Retained Earnings 5,500 To close expenses.
Dividends 28,000
Service Revenue 108,700
31 Income Summary 51,200
Insurance Expense 2,500 Retained Earnings 51,200
Salaries Expense 37,500 To close Income Summary.
Supplies Expense 4,500
Interest Expense 3,000
31 Retained Earnings 28,000
Rent Expense 7,000
Depreciation 3,000
Dividends 28,000
Expense—Eq. To close dividends.
Total $ 199,500 $ 199,500

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 Closing entries You can use retained earnings
instead of Income Summary!
 Close all income statement accounts
Date Accounts and Explanation Debit Credit
Dec. 31 Service Revenue 108,700
Adjusted Trial Balance
Account Names Income Summary 108,700
Debit Credit
To close revenue.
Cash $ 25,000
Accounts Receivable 60,000
Office Supplies 3,000 31 Income Summary 57,500
Equipment 26,000 Insurance Expense 2,500
Accum. Dep.—Eq. $ 22,000
Salaries Expense 37,500
Accounts Payable 14,000
Salaries Payable 4,500
Supplies Expense 4,500
Unearned Revenue 3,800 Interest Expense 3,000
Notes Payable 26,000 Rent Expense 7,000
Common Stock 15,000 Depreciation Expense—Equipment 3,000
Retained Earnings 5,500 To close expenses.
Dividends 28,000
Service Revenue 108,700
31 Income Summary 51,200
Insurance Expense 2,500 Retained Earnings 51,200
Salaries Expense 37,500 To close Income Summary.
Supplies Expense 4,500
Interest Expense 3,000
31 Retained Earnings 28,000
Rent Expense 7,000
Depreciation 3,000
Dividends 28,000
Expense—Eq. To close dividends.
Total $ 199,500 $ 199,500

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Closing entries You can use retained earnings

instead of Income Summary!
 Close all income statement accounts
Date Accounts and Explanation Debit Credit
Dec. 31 Service Revenue 108,700
Account Names
Adjusted Trial Balance Income Summary 108,700
Debit Credit To close revenue.
Cash $ 25,000
Accounts Receivable 60,000
Office Supplies 3,000 31 Income Summary 57,500
Equipment 26,000 Insurance Expense 2,500
Accum. Dep.—Eq. $ 22,000 Salaries Expense 37,500
Accounts Payable 14,000 Supplies Expense 4,500
Salaries Payable 4,500
Unearned Revenue 3,800
Interest Expense 3,000
Notes Payable 26,000 Rent Expense 7,000
Common Stock 15,000 Depreciation Expense—Equipment 3,000
Retained Earnings 5,500 To close expenses.
Dividends 28,000
Service Revenue 108,700
31 Income Summary 51,200
Insurance Expense 2,500
Retained Earnings 51,200
Salaries Expense 37,500 To close Income Summary.
Supplies Expense 4,500
Interest Expense 3,000 31 Retained Earnings 28,000
Rent Expense 7,000
Dividends 28,000
Depreciation 3,000
Expense—Eq. To close dividends.
Total $ 199,500 $ 199,500

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