ch03_AppendixA_Student2

ch03_AppendixA_Student2 - The Accounting Information System...

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Unformatted text preview: The Accounting Information System System Chapter 3 & Appendix A Chapter 3 -1 Debits and Credits An Account shows thee ct of transactions on a give asse ffe n t, Account liability, e quity, re nue or e nseaccount. ve , xpe Double-entry accounting syste (two-side e ct). m d ffe Double-entry Re cording doneby de biting at le oneaccount and cre ast diting anothe r. DEBITS must equal CREDITS. must Chapter 3 -2 LO 2 Explain double-entry rules. Debits and Credits Debits Account An arrange e that shows thee ct of m nt ffe t ransactions on an account. De = “Le bit ft” C dit = “Right” re An Account can An be illustrated in a T-Account form. T-Account Account Name Debit / Dr. Credit / Cr. Chapter 3 -3 LO 2 Explain double-entry rules. Debits and Credits Debits If Debit entries are greater than Credit entries, the greater account will have a debit balance. Account Name Debit / Dr. Credit / Cr. Transaction #1 Transaction #3 $10,000 8,000 $3,000 Transaction #2 Balance $15,000 Chapter 3 -4 LO 2 Explain double-entry rules. Debits and Credits Debits If Credit entries are greater than Debit entries, the greater account will have a credit balance. Account Name Debit / Dr. Credit / Cr. Transaction #1 $10,000 $3,000 8,000 Transaction #2 Transaction #3 Balance $1,000 Chapter 3 -5 LO 2 Explain double-entry rules. Debits and Credits Summary Balance Sheet Asset = Liability + Equity Income Statement Income Revenu - Expens = e e Debit Credit Chapter 3 -6 LO 2 Explain double-entry rules. Basic Accounting Equation Re lationship am theasse liabilitie and stockholde e ong ts, s rs’ quity of Re a busine ss: I llustration 3-3 Thee quation m bein balanceafte e ry transaction. For e ry ust r ve ve Debit t he m bea Credit. Debit re ust Credit Chapter 3 -7 LO 2 Explain double-entry rules. Double-Entry System Exercise 1. I nve d $32,000 cash and e ste quipm nt value at $14,000 in the e d 1. busine ss. busine Assets = Liabilities + S tockholde rs’ Equity Equity Chapter 3 -8 LO 2 Explain double-entry rules. Double-Entry System Exercise 2. Paid officere of $600 for them nt onth. 2. Paid Assets = Liabilities + S tockholde rs’ Equity Equity Chapter 3 -9 LO 2 Explain double-entry rules. Double-Entry System Exercise 3. Re ive $3,200 advanceon a m ce anage e consulting e m nt ngage e m nt. 3. Re d Assets = Liabilities + S tockholde rs’ Equity Equity Chapter 3-10 LO 2 Explain double-entry rules. Double-Entry System Exercise 4. Re ive cash of $2,300 for se s com te for S r C ce rvice ple d hule o. 4. Re d Assets = Liabilities + S tockholde rs’ Equity Equity Chapter 3-11 LO 2 Explain double-entry rules. Double-Entry System Exercise 5. Purchase a com r for $6,100. d pute 5. Purchase Assets = Liabilities + S tockholde rs’ Equity Equity Chapter 3-12 LO 2 Explain double-entry rules. Double-Entry System Exercise 6. Paid off liabilitie of $7,000. s 6. Paid Assets = Liabilities + S tockholde rs’ Equity Equity Chapter 3-13 LO 2 Explain double-entry rules. Double-Entry System Exercise 7. De d a cash divide of $10,000. clare nd 7. De Assets = Liabilities + S tockholde rs’ Equity Equity Notethat theaccounting e quation e quality is m aintaine afte d r re cording e transaction. ach Chapter 3-14 LO 2 Explain double-entry rules. Corporation Ownership Structure Balance Sheet S tockholde Equity rs’ CmS om on tock (Investment by stockholders) stockholders) (Net income retained in business) income I llustration 3-4 Re taine Earnings d Re Ne incom or Ne loss (Revenues t e t Divide nds less expenses) less Income Statement Statement of Retained Earnings Chapter 3-15 LO 2 Explain double-entry rules. The Accounting Cycle I llustration 3-6 Transactions 9. Re rsing e s ve ntrie 1. Journalization 8. Post-closing trail balance 2. Posting 7. Closing e s ntrie Work She t e 3. Trial balance 6. Financial S m nts tate e 4. Adjustm nts e 5. Adjuste trial balance d Chapter 3-16 LO 3 Identify steps in the accounting cycle. 1. Journalizing General Journal – a chronological re of transactions. Journal cord Entries arere corde in thejournal. d Ge ral Journal ne Dat e J an. 3 Account Tit le Cash Common st ock 10 Building N ot e payable Ref . 100 300 130 220 150,000 150,000 Debit 100,000 100,000 Credit Chapter 3-17 LO 4 Record transactions in journals, post to LO ledger accounts, and prepare a trial balance. ledger 2. Posting Posting – t heproce of transfe ss rring am ounts fromthejournal to the Posting le r accounts. dge General Journal Dat e J an. 3 Account Tit le Cash Common st ock Ref . Debit 100,000 100,000 GJ1 Credit 100 General Ledger Cash Dat e Explanat ion Ref . Debit Acct . N o. 100 Credit Balance Jan. 3 Sale of stock GJ1 100,000 100,000 Chapter 3-18 LO 4 Record transactions in journals, post to LO ledger accounts, and prepare a trial balance. ledger 3. Trial Balance 3. Trial Balance – a list of e account and its balance use to prove ach ;d e quality of de and cre balance bit dit s. Acct . N o. 100 105 110 130 2 00 2 20 3 00 3 30 400 5 00 Account Cash Account s r eceivable I nvent or y Building Account s payable Not e payable Common st ock Ret ained ear nings Sales Cost of goods sold Debit $ 140,000 35,000 30,000 150,000 $ 60,000 150,000 100,000 75,000 30,000 $ 3 85,000 $ 3 85,000 Credit Chapter 3-19 LO 4 Record transactions in journals, post to LO ledger accounts, and prepare a trial balance. ledger 4. Adjusting Entries Revenues - recorded in the period in which they are earned. earned Expenses - recognized in the period in which they Expenses are incurred. are Adjusting entries - needed to ensure that the revenue recognition and matching principles are revenue matching followed. followed. Chapter 3-20 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Classes of Adjusting Entries I llustration 3-20 Pre paym nts e 1. Prepaid Expenses. Expe s nse paid in cash and re corde as asse d ts be the areuse or consum d. fore y d e Accruals 3. Accrued Revenues. Re nue ve s e d but not ye re ive in cash arne t ce d or re corde d. 2. Unearned Revenues. Re nue re ive in cash and ve s ce d re corde as liabilitie be the are d s fore y e d. arne 4. Accrued Expenses. Expe s incurre but not ye paid nse d t in cash or re corde d. Chapter 3-21 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries – “Prepaid Expenses” Paym nt of cash that is re e corde as an asse be d t cause se rviceor be fit ne Paym will bere ive in thefuture ce d . will C Paym nt ash e BEFORE Expe Re nse corde d Pre paym nts ofte occur in re e n gard to: insurance supplie s adve rtising re nt m ainte nanceon e quipm nt e fixe asse d ts Chapter 3-22 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries – “Prepaid Expenses” Adjusting Example: On Jan. 1st , Phoenix Corp. paid $12,000 for 12 months of On Phoe insurancecove . S ntry cord e insurance rage how thejournal e to re thepaym nt on Jan. 1st . Jan. 1 De bit C dit re De bit C dit re Chapter 3-23 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries – “Prepaid Expenses” Adjusting Example: On Jan. 1st , Phoenix Corp. paid $12,000 for 12 months of On Phoe insurancecove . S rage how theadjusting journal e re ntry quire at Jan. 31st . d adjusting Jan. 31 De bit C dit re De bit C dit re Chapter 3-24 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries – “Unearned Revenues” Re ipt of cash that is re ce corde as a liability be d causethere nuehas ve Re not be n e d. not e arne C Re ipt ash ce BEFORE Re nueRe ve corde d Une d re nue ofte occur in re arne ve s n gard to: re nt airlineticke ts school tuition m agazinesubscriptions custom r de e posits Chapter 3-25 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries – “Unearned Revenues” Example: On Nov. 1st , Phoe Corp. re ived $24,000 fromArcadia High nix ce On Phoe S chool for 3 m onths re in advance S nt . how thejournal e to re the ntry cord re ipt on Nov. 1st . ce re Nov. 1 De bit C dit re De bit C dit re Chapter 3-26 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries – “Unearned Revenues” Example: On Nov. 1st , Phoe Corp. re ived $24,000 fromArcadia High nix ce On Phoe S chool for 3 m onths re in advance S nt . how theadjusting journal e re ntry quire d adjusting on Nov. 30th. on Nov. 30 De bit C dit re De bit C dit re Chapter 3-27 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries – “Accrued Revenues” Revenues earned but not yet received in cash or Revenues recorded. recorded. Adjusting entry results in: Revenue Recorded BEFORE Cash Receipt Accrued revenues often occur in regard to: re nt inte st re se s pe rvice rform d e Chapter 3-28 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries – “Accrued Revenues” Example: On July 1st , Phoenix Corp. invested $300,000 in se curitie that s On Phoe re turn 5%inte st pe ye S re r ar. how thejournal e to re theinve e on ntry cord stm nt July 1st . July July 1 De bit C dit re De bit C dit re Chapter 3-29 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries – “Accrued Revenues” Example: On July 1st , Phoenix Corp. invested $300,000 in se curitie that s On Phoe re turn 5%inte st pe ye S re r ar. how theadjusting journal e re ntry quire on July d adjusting 31st . 31 July 31 I nte st Re ivable re ce De bit C dit re I nte st Re nue re ve De bit C dit re Chapter 3-30 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries – “Accrued Expenses” Expe s incurre but not ye paid in cash or re nse d t corde d. Adjusting e re ntry sults in: Expe Re nse corde d BEFORE Cash Payment, if any* Accrued expenses often occur in regard to: re nt inte st re taxe s Chapter 3-31 salarie s bad de bts* LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries – “Accrued Expenses” Example: On Feb. 2nd, Phoe Corp. borrowed $200,000 at a rateof 9%per nix On Phoe ye I nte st is dueon first of e m ar. re ach onth. S how thejournal e to re the ntry cord borrowing on Fe 2nd. b. borrowing Fe 2 b. Cash De bit C dit re Note Payable s De bit C dit re Chapter 3-32 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries – “Accrued Expenses” Example: On Feb. 2nd, Phoe Corp. borrowed $200,000 at a rateof 9%per nix On Phoe ye I nte st is dueon first of e m ar. re ach onth. S how theadjusting journal e ntry adjusting re quire b. re d on Fe 28th. Fe 28 b. I nte st Expe re nse De bit C dit re I nte st Payable re De bit C dit re Chapter 3-33 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Cash-Basis Accounting vs. Accrual Basis Cash-Basis Accounting Accounting Most companies use accrual-basis accounting: they recognize revenue when it is earned and expenses in the period incurred, without regard to the time of receipt or payment of cash Under cash basis, companies only recognize revenue when they receive cash, and they record expenses only when they disperse cash Chapter 3-34 Cash-Basis Accounting vs. Accrual Basis Cash-Basis Accounting Accounting Cash basis accounting ignores two principles: The Revenue Recognition Principle The Matching Principle Consequently, cash basis Financial statements are NOT in conformity with GAAP Chapter 3-35 Example Example Prepare the income statement and balance sheet for Quality contractor company under accrual and cash basis accounting. • • • • • Assum that Quality contractor signs an agre m nt to construct a e ee garagefor $22,000. I n January, Quality be construction, incurs costs of $18,000 on gins cre dit, And by thee of Jan. de rs a finishe garageto thebuye nd live d r. I n Fe bruary, Quality colle $22,000 cash fromthecustom r. cts e I n March, Quality pays the$18,000 duethecre ditors. Chapter 3-36 Conversion from Cash Basis to Accrual Basis Assum that Dr. DianeWindsor ke ps he accounting re on a cash e e r cord basis. I n theye 2007, shere ive $300,000 fromhe patie and paid ar ce d r nts $170,000 for ope rating e nse re xpe s, sulting in an e ss of cash xce re ipts ove disburse e of $130,000. ce r m nt At Jan. 1 and De 31, 2007, shehas thefollowing accounts as shown c. be low: 01/01/2007 Acct Receivable Unearned Service Revenue Accrued Liabilities Chapter 3-37 12/31/2007 $9,000 4,000 5,500 2,700 $12,000 0 2,000 1,800 Prepaid Expenses ...
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