MAT 200 Module 5 Completing the Accounting Cycle Example

Course	MAT 200 Principles of Accounting I
Module	Module 5
Paper type	Financial statements and closing paper
Length	About 1,000 words, 6 pages
Format	APA 7 student paper
School	Aspen University
Program	Business Administration
Updated	October 2026

Free sample paper for MAT 200 Module 5

Three Statements and a Clean Slate: Completing the Accounting Cycle for a Bike Shop's First Two Months

Student Name

Business Administration Program, Aspen University

MAT 200: Principles of Accounting I

Instructor Name

Month Day, Year

What this page is doingThe title names the statements and the closing process the paper completes. APA 7 student title page.

Three Statements and a Clean Slate: Completing the Accounting Cycle for a Bike Shop's First Two Months

Prairie Spoke Cycles' loan agreement requires financial statements each quarter, and the bank has asked for statements covering the shop's first two months, April and May, before its June review. The adjusting entries in Module 4 produced an adjusted trial balance. This paper turns that trial balance into three financial statements, checks the loan requirement and shows how the shop will close its books at the end of its fiscal year. The statements are prepared in a fixed order, because each one feeds the next: the income statement produces the period's result, the statement of owner's equity uses it and the balance sheet reports the ending equity.

The Income Statement

Prairie Spoke Cycles, Income Statement, Two Months Ended May 31

	Amount
Sales and service revenue	29,500
Rental revenue	1,800
Total revenue	31,300
Cost of merchandise sold	16,800
Wages expense	8,200
Rent expense	4,000
Depreciation expense	2,000
Utilities expense	650
Interest expense	400
Total expenses	32,050
Net loss	(750)

The Statement of Owner's Equity

Sam Whitaker's capital began at the $85,000 initial investment, with no additional contributions during the two months. The net loss of $750 and withdrawals of $2,000 reduce it to $82,250 at May 31. The ending balance carries to the balance sheet, which links the two statements.

The Classified Balance Sheet

The note payable is split into the part due within twelve months, about $13,400 of principal, and the rest. Without that split, the shop would understate its current liabilities and overstate its liquidity.

Assets		Liabilities and equity
Cash	69,750	Accounts payable	15,000
Accounts receivable	900	Wages payable	900
Inventory	40,200	Unearned rental revenue	1,800
Prepaid rent	2,000	Current portion of note payable	13,400
Total current assets	112,850	Total current liabilities	31,100
Equipment, net of $2,000 depreciation	46,000	Note payable, long-term	45,500
		Total liabilities	76,600
		Sam Whitaker, Capital	82,250
Total assets	158,850	Total liabilities and equity	158,850

What this page is doingCurrent assets cover current liabilities 3.6 times. The bank requires 1.5.

Why Earnings Get So Much Attention

Graham et al. (2005) surveyed and interviewed more than four hundred financial executives about how they report earnings. Earnings were the measure executives cared about most, more than cash flows. A majority said they would give up a project with positive value, or delay valuable spending, to avoid missing an earnings target. The study shows the pressure that reported profit creates. Sam faces a small version of it: a loss in the first statements to the bank is uncomfortable, and it might be tempting to skip an adjustment. The statements here report the loss as it is.

Reading the Statements Together

Hribar and Collins (2002) showed that researchers who backed accruals out of year-to-year balance sheet changes, instead of taking them from the cash flow statement, made sizable mistakes, especially when firms had mergers or other unusual events. Their point extends beyond research: the statements are designed to be read together, and a figure taken from one statement without the others can mislead. For Prairie Spoke, the loss on the income statement and the strong cash position on the balance sheet are both true; neither alone describes the shop.

How Lenders Use Small Firms' Statements

Cassar et al. (2015) studied small business lending and examined how lenders rely on financial statements alongside alternative sources of information, such as business credit reports and the owner's personal credit history. They found that the value of accrual-based financial statements in reducing lenders' uncertainty depended on what other information lenders had. For a new shop with little credit history, Prairie Spoke's statements are one of the bank's few direct windows into the business.

What the Statements Say Together

Read alone, the income statement looks discouraging: the shop lost money in its first two months. Read with the balance sheet, the picture improves. The shop holds $69,750 in cash, owes its supplier $15,000 and has inventory ready for the busy season. Its losses came largely from start-up costs and the timing of rent and depreciation against slow spring sales. The shop does not yet prepare a statement of cash flows, which would show that operating activities used cash while most of the cash outflow went to equipment and inventory. Lena plans to add one with the next quarter's statements, since Hribar and Collins's work shows how much the cash flow statement adds to an understanding of accruals.

A Note to the Bank

Small businesses often send statements to lenders without comment. Sam will include a half-page note explaining the start-up loss, the reasons for expecting stronger summer results and the current ratio of 3.6. Cassar, Ittner and Cavalluzzo's findings suggest that lenders combine statements with other information; a clear explanation from the owner is one more source that can reduce their uncertainty about a young business.

Closing the Books

At the end of its fiscal year, the shop will close its temporary accounts so that the next year starts from zero. Using the May balances as an illustration: revenue accounts of $31,300 are debited and Income Summary credited; expense accounts of $32,050 are credited and Income Summary debited; the resulting $750 debit balance in Income Summary is closed to Sam Whitaker, Capital; and the $2,000 drawing account is closed to capital. After closing, only permanent accounts, assets, liabilities and capital, remain, and capital equals $82,250. A post-closing trial balance then confirms that the books still balance before the new year begins. Closing matters because revenue and expense accounts measure performance for a period; if they were not reset, next year's income statement would include this year's sales and costs. Between year-ends, the shop prepares monthly and quarterly statements without closing, simply reporting the accounts' balances for the period.

Conclusion

The statements show a small loss, solid cash and a current ratio well above the bank's minimum. Graham, Harvey and Rajgopal explain the pressure to present earnings favorably, Hribar and Collins show why the statements must be read together and Cassar, Ittner and Cavalluzzo show why a young firm's statements matter to its lender.

References

Cassar, G., Ittner, C. D., & Cavalluzzo, K. S. (2015). Alternative information sources and information asymmetry reduction: Evidence from small business debt. Journal of Accounting and Economics, 59(2-3), 242-263. https://doi.org/10.1016/j.jacceco.2014.08.003

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

Hribar, P., & Collins, D. W. (2002). Errors in estimating accruals: Implications for empirical research. Journal of Accounting Research, 40(1), 105-134. https://doi.org/10.1111/1475-679X.00041

What the MAT 200 Module 5 instructions ask for

MAT 200 Module 5 typically asks students to complete the accounting cycle by preparing financial statements and closing entries from an adjusted trial balance. The Module 5 instructions in your classroom set the details; the shop and figures are invented. Prepare all three statements, classifying the balance sheet into current and long-term items. Show how the statements connect. Prepare closing entries and explain their purpose. Use the statements to answer a user's question, such as whether a loan requirement is met, and interpret the statements together. Cite sources in APA 7 form.

Inside the MAT 200 Module 5 example

The adjusted trial balance from Module 4 shows revenue of $31,300 and expenses of $32,050. Graham, Harvey and Rajgopal's Journal of Accounting and Economics survey of more than four hundred executives found that most would forgo profitable spending sooner than miss a profit benchmark. Hribar and Collins's Journal of Accounting Research article showed that estimating accruals from balance sheet changes, rather than from the cash flow statement, introduces errors, especially around unusual events. Cassar, Ittner and Cavalluzzo's Journal of Accounting and Economics article studied how lenders use small businesses' financial statements alongside credit reports and other sources. The income statement shows a net loss of $750. The statement of owner's equity shows capital falling from $85,000 to $82,250. The classified balance sheet shows total assets of $158,850 and current assets of $112,850 against current liabilities of $31,100, a current ratio well above the loan's 1.5 minimum.

MAT 200 Module 5 rubric: what earns full marks

Financial statement papers score well when the statements are correctly prepared and classified, they connect to one another and the writer uses them to answer a real question. This example prepares all three statements from the adjusted trial balance, shows how net loss flows into equity and equity into the balance sheet, checks the loan covenant and illustrates closing. Graham, Harvey and Rajgopal, Hribar and Collins and Cassar, Ittner and Cavalluzzo explain why the statements matter and how they should be read. Classifying the note payable into current and long-term parts shows attention to detail. Interpreting the loss alongside the cash position, rather than reporting either alone, shows the writer understands what the statements are for.

MAT 200 Module 5 help from the desk

Statement papers often put items in the wrong statement, such as drawings on the income statement. Drawings reduce equity directly. Another weakness is an unclassified balance sheet; separate current from long-term items so users can judge liquidity. Show how net income connects the income statement to owner's equity, and owner's equity to the balance sheet. Explain why temporary accounts are closed and permanent ones are not. Use the statements to answer a question. Finally, check that the balance sheet balances. Add a short interpretation, since users need to know what the numbers mean as well as what they are.

Write yours, or have the desk draft it

This paper is an original model document written by our desk, not a submitted student paper and not an official Aspen University document. Read it for the moves, then write your own to the instructions in your classroom. If you want one built to your exact prompt and rubric, the first custom sample is free and arrives in 24 to 48 hours.

More MAT 200 and Business Administration sample papers

MAT 200 Module 5 questions, answered

What does MAT 200 Module 5 usually ask for?

Aspen's MAT 200 typically asks students to complete the accounting cycle in this module by preparing financial statements and closing entries. Read your classroom prompt.

Which statement comes first?

The income statement, because its net income or loss is needed for the statement of owner's equity, whose ending balance goes on the balance sheet.

Why are closing entries needed?

To reset revenue, expense and drawing accounts to zero for the next period and transfer their net effect to owner's capital.

Where can I find a free MAT 200 Module 5 sample paper?

The example above builds a bike shop's first three statements and shows how its books will be closed at year-end.

Do managers focus heavily on earnings?

Graham, Harvey and Rajgopal found that executives regard earnings as the most important number and that many would sacrifice value to meet earnings targets.