ACC 1010 Module 2 Accounting Cycle Homework Example

Delaware River Music, Inc.: Completing the Accounting Cycle for June 2026

Student Name

Bachelor of Science in Business Administration, Thomas Edison State University

ACC-1010: Principles of Financial Accounting

Mentor Name

Month Day, Year

Delaware River Music, Inc.: Completing the Accounting Cycle for June 2026

In Module 1, Delaware River Music, Inc., a composite instrument store in Hamilton Township, New Jersey, reported June net income of $2,260 from its unadjusted records. This homework completes the accounting cycle for the same month. It summarizes the June journal entries, records the adjusting entries needed at June 30, prepares an adjusted trial balance, closes the temporary accounts to retained earnings and proves the books with a post-closing trial balance. The adjustments reduce June's net income to $1,625, and the reasons for each one are explained below.

Step 1: Journal Entries and Posting

The June transactions from Module 1 were entered in the general journal, then carried to each ledger account. A summary appears below; individual cash receipts for lessons and rentals were recorded daily but are combined here.

Step 2: Adjusting Entries at June 30

Adjusting entries bring revenues and expenses into the period in which they belong when the transaction itself did not trigger an entry (Williams et al., 2023). Three adjustments are needed.

First, depreciation. The $18,000 of display racks and studio fixtures are expected to last ten years with no residual value, so straight-line depreciation is $1,800 a year, or $150 for June. Second, accrued interest. The $25,000 bank note carries 6% annual interest payable each quarter; June's interest of $125 ($25,000 times 6% times 1/12) has been incurred but not paid. Third, accrued wages. The store's last payroll covered work through June 28, and employees earned $360 on June 29 and 30 that will be paid in July.

Step 3: Adjusted Trial Balance

Adjusted net income is total revenues of $11,500 less total expenses of $9,875, or $1,625. The adjustments reduced net income by $635 and added $485 of liabilities and $150 of accumulated depreciation to the balance sheet. A balanced trial balance shows that debits equal credits, but it does not prove the books are correct; an entry posted to the wrong account, or omitted entirely, would still balance.

Step 4: Closing Entries

Revenues, expenses and dividends are temporary accounts that measure one period's activity, so they are closed to retained earnings at the end of the period, leaving them at zero to begin July.

Step 5: Post-Closing Trial Balance

Why the Adjustments Matter

The adjustments are small in dollars but large in meaning. Without them, June would carry none of the cost of the fixtures that made the month's lessons and rentals possible, none of the interest on the money borrowed to open the store and none of the wages earned in the month's last two days. Each of those costs would instead fall on July, overstating June's results and understating July's. Over a full year, consistent adjustments let the owners compare months fairly and let the bank judge whether the store's operations can carry its debt.

Adjustments are also where judgment enters the books. The ten-year life of the fixtures is an estimate, and a shorter life would raise expenses. Surveys of financial executives have found that many would make real business decisions, such as delaying discretionary spending, to meet an earnings target, and that some estimates are chosen with reported earnings in mind (Graham et al., 2005). For a small private store the pressures are different, but the lesson holds: estimates should be set once, documented and applied consistently, so that the statements reflect the business rather than the result someone hoped to report. The conceptual framework names faithful representation (Financial Accounting Standards Board, 2010), information that is complete, neutral and free from error, as a fundamental qualitative characteristic of useful financial information, and consistent adjustments serve that goal.

References

Financial Accounting Standards Board. (2010). Conceptual framework for financial reporting (Statement of Financial Accounting Concepts No. 8).

Graham, J. R., Harvey, C. R., & Rajgopal, S. (2005). The economic implications of corporate financial reporting. Journal of Accounting and Economics, 40(1-3), 3-73. https://doi.org/10.1016/j.jacceco.2005.01.002

Williams, J. R., Bettner, M. S., & Smith, K. R. (2023). Financial & managerial accounting: The basis for business decisions (20th ed.). McGraw-Hill Education.