2.25 - Todays Topic PLEASE TURN OFF CELL PHONES Financial...

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Unformatted text preview: Todays Topic PLEASE TURN OFF CELL PHONES Financial Accounting Information System This class will: Review accounting for equity & cash dividends, Define & describe GAAP concepts of deferral accounting & allocation of revenue and cost as applied to: Balance Sheet: Unearned Revenue, Prepaid Expenses (Accumulated Depreciation, Supplies, Prepaid Insurance) Income Statement: Depreciation, Supplies and Insurance Expense Statement of Cash Flow effect First Accounting Cycle - 2004 Focus on Events 2 & 12 and on Events 3 & 13. Event 1 Acquired $1,000 cash by issuing common stock. Event 2 Received $72,000 cash in advance on January 1 from Westberry for services to be performed from March 1, 2004 through February 28, 2005. Event 3 Signed contacts to provide $58,000 of marketing services in 2005. Event 4 Paid $12,000 cash to purchase computer equipment on January 1. Event 5 Paid a $50,000 cash dividend to stockholders. Event 6 Recognize the revenue earned in 2004 from the services provided to Westberry. Event 7 Recognized the expense of using the computer equipment during 2004. The equipment has an expected life of four years and a $2,000 salvage value. Adjusting Entries MMI experienced the following transactions during 2004: Event 1: MMI acquired $1,000 cash by issuing common stock. 1. Increase assets (cash). 2. Increase stockholders equity (common stock). Asset Source Transaction = Liab. + Cash + Computer Equip. - Accum. Depr. = Unearned Revenue + Common Stock + Retained Earnings Revenue- Expenses = Net Income 1,000 + n/a - n/a = n/a + 1,000 + n/a n/a- n/a = n/a 1,000 FA Assets Stockholders' Equity Cash Flow By now, you should be pretty familiar with this type of transaction. = + Debit Credit Debit Credit +-- + Equity Cash Common Stock Assets Liabilities Fig 115 Cash Dividends Recognition When owed (detail later) Valuation (Measurement) Amount owed Presentation Temporary account (closed to Retained Earnings) Reported only in Statement of Changes in Stockholders Equity Event 5: MMI paid a $50,000 cash dividend to the stockholders. 1. Decrease assets (cash). 2. Decrease stockholders equity (dividends). Asset Use Transaction = Liab. + Cash + Computer Equip. - Accum. Depr. = Unearned Revenue + Common Stock + Retained Earnings Revenue- Expenses = Net Income (50,000) + n/a - n/a = n/a + n/a + (50,000) n/a- n/a = n/a (50,000) FA Cash Flow Assets Stockholders' Equity = + Debit Credit Debit Credit +- +- Assets Liabilities Equity Cash Dividends By now, you should be pretty familiar with this type of transaction. Fig 116 Deferral Accounting A deferral involves recognizing a revenue or expense at some time after cash has been collected or paid. Event 3 No entry, no cash flow A systemic process for matching Revenue to the period when earned Expense to the revenue Fig 117 Allocation Fig 118 Deferred Revenue:...
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This note was uploaded on 03/31/2008 for the course ACIS 2115 taught by Professor Jayardley during the Spring '07 term at Virginia Tech.

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2.25 - Todays Topic PLEASE TURN OFF CELL PHONES Financial...

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