ch03 - CHAPTER 3 THE ACCOUNTING THE INFORMATION SYSTEM...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: CHAPTER 3 THE ACCOUNTING THE INFORMATION SYSTEM INFORMATION (Appendix 3B excluded) Intermediate Accounting I Prof. Volkan Muslu Chapter 3 -1 Basic Terminology Eve (Sourceor causeof changeon A, L, E) nt Eve (S Transaction (external events) Transaction (e Account (arrangement for accounting figures) Account (arrange Re Account (B/Saccounts) al (B/S Re Nom Account inal Le r (book of accounts) dge Le (book Journal (book of original entry) Journal (book Posting (transfer figuresfromjournal to Posting le r) dge le Trial Balance Adjusting Entrie s Financial S m nts tate e Closing Entrie s Chapter 3 -2 LO 1 Understand basic accounting terminology. 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 -3 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 -4 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 -5 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 -6 LO 2 Explain double-entry rules. Debits and Credits Summary Liabilit ies Norm al Balance Debit Asset s Debit / Dr. Credit / Cr. Norm al Balance Credit Equit y Debit / Dr. Chapter 3-24 Debit / Dr. Credit / Cr. Normal Balance Normal Credit / Cr. Normal Balance Normal Normal Balance Normal Chapter 3-23 Expense Debit / Dr. Credit / Cr. Chapter 3-25 Revenue Debit / Dr. Credit / Cr. Normal Balance Normal Normal Balance Normal Chapter 3-27 Chapter 3-26 Chapter 3 -7 LO 2 Explain double-entry rules. The Accounting Equation Re lationship am theasse liabilitie and stockholde e ong ts, s rs’ quity of Re a busine ss: Illustration 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 -8 LO 2 Explain double-entry rules. Double-Entry System Illustration 1. Owne inve $40,000 in e rs st xchangefor com on stock. m Asse ts = Liabilitie s + S tockholde rs’ Equity Equity + 40,000 + 40,000 Chapter 3 -9 LO 2 Explain double-entry rules. Double-Entry System Illustration 2. Disburse$600 cash for se tarial wage cre s. 2. Disburse Asse ts = Liabilitie s + S tockholde rs’ Equity Equity - 600 - 600 (expense) Chapter 3-10 LO 2 Explain double-entry rules. Double-Entry System Illustration 3. Purchaseofficee quipm nt price at $5,200, giving a 10 pe nt e d rce Purchase prom issory notein e xchange . prom Asse ts = Liabilitie s + S tockholde rs’ Equity Equity + 5,200 + 5,200 Chapter 3-11 LO 2 Explain double-entry rules. Double-Entry System Illustration 4. Re ive $4,000 cash for se s re re ce rvice nde d. 4. Re d Asse ts = Liabilitie s + S tockholde rs’ Equity Equity + 4,000 + 4,000 (revenue) Chapter 3-12 LO 2 Explain double-entry rules. Double-Entry System Illustration 5. Pay off a short-te liability of $7,000. rm 5. Pay Asse ts = Liabilitie s + S tockholde rs’ Equity Equity - 7,000 - 7,000 Chapter 3-13 LO 2 Explain double-entry rules. Double-Entry System Illustration 6. De d a cash divide of $5,000. clare nd 6. De Asse ts = Liabilitie s + S tockholde rs’ Equity Equity + 5,000 - 5,000 Chapter 3-14 LO 2 Explain double-entry rules. Double-Entry System Illustration 7. C rt a long-te liability of $80,000 into com on stock. rm m 7. onve Asse ts = Liabilitie s + S tockholde rs’ Equity Equity - 80,000 + 80,000 Chapter 3-15 LO 2 Explain double-entry rules. Double-Entry System Illustration 8. Pay cash of $16,000 for a de ry van. live 8. Pay Asse ts = Liabilitie s + S tockholde rs’ Equity Equity - 16,000 + 16,000 Notethat theaccounting e quation e quality is m aintaine afte d r re cording e transaction. ach Chapter 3-16 LO 2 Explain double-entry rules. Financial Statements and Ownership Structure Owne rship structuredictate thetype of accounts that arepart of the s s e quity se ction. Proprie torship or Proprie Partne rship Partne C orporation Capital Account Account Common Stock Paid-in Declared Drawing Additional Capital Dividends Retained Other Chapter 3-17 Earnings Equity LO 2 Explain double-entry rules. Financial Statements and 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 3-18 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 3-19 LO 3 Identify steps in the accounting cycle. Identify and Recording Transactions What to Record? FAS state “transactions and othe e nts and circum B s, r ve stance s t hat affe a busine e rprise ct ss nte .” Om som e nts be its e ve causeof tradition or m asure e proble s e m nt m (re vancevs. re le liability) Types of Events: Exte – be e a busine and its e rnal twe n ss nvironm nt. e I nte rnal – e nt occurring e ly within a busine ve ntire ss. Chapter 3-20 LO 3 Identify steps in the accounting cycle. Review “Transactions and Events” Exte rnal Inte rnal Not Re corde d Exte rnal Exte rnal Not Re corde d Exte rnal I nte rnal Not Re corde d I nte rnal 1. A supplie of a com r pany‘s raw m rial is paid an am ate ount owe on account. d 2. 3. 4. 5. 6. 7. A custom r pays its ope account. e n A ne chie e cutiveoffice is hire w f xe r d. Thebiwe kly payroll is paid. e Raw m rials aree re into production. ate nte d A ne adve w rtising age is hire ncy d. Theaccountant de rm s thefe ral incom taxe owe base te ine de e sd d on theincom e d. e arne Chapter 3-21 LO 3 Identify steps in the accounting cycle. 1. Journalizing 1. General Journal – a chronological re of transactions. Journal cord Entries arere corde in thejournal. d September 1: S tockholde inve d $15,000 cash in thecorporation in rs ste e xchangefor share of stock. s Illustration 3-7 Chapter 3-22 LO 4 Record transactions in journals, post to LO ledger accounts, and prepare a trial balance. ledger 2. Posting 2. Posting – t heproce of transfe ss rring am ounts fromthejournal to the Posting le r accounts. dge Illustration 3-7 Illustration 3-8 Chapter 3-23 LO 4 Record transactions in journals, post to LO ledger accounts, and prepare a trial balance. ledger 2. Posting 2. Posting – Transfe rring am ounts fromjournal to le r. dge Posting Illustration 3-8 Chapter 3-24 LO 4 LO 2. Posting Expanded Example Thepurposeof transaction analysis is (1) to ide ntify thetypeof account involve and d, (2) to de rm whe r a de or a cre is re te ine the bit dit quire d. Ke p in m that e ry journal e affe oneor m of thefollowing ite s: asse e ind ve ntry cts ore m ts, liabilitie stockholde e s, rs’ quity, re nue or e nse ve s, xpe . Chapter 3-25 LO 4 Record transactions in journals, post to LO ledger accounts, and prepare a trial balance. ledger 2. Posting 1. Octobe 1: S r tockholde inve $100,000 cash in an adve rs st rtising ve ntureto beknown as Pione r Adve e rtising Age I nc. ncy Oct. 1 C ash C m stock om on Cash De bit 100,000 C dit re 100,000 100,000 CmS om on tock De bit C dit re 100,000 Chapter 3-26 LO 4 Record transactions in journals, post to LO ledger accounts, and prepare a trial balance. ledger 2. Posting 2. Octobe 1: Pione r Adve r e rtising purchase officee s quipm nt costing $50,000 e by signing a 3-m onth, 12% $50,000 notepayable , . Oct. 1 Officee quipm nt e Note payable s OfficeEquipm nt e De bit 50,000 C dit re 50,000 50,000 Note Payable s De bit C dit re 50,000 Chapter 3-27 LO 4 Record transactions in journals, post to LO ledger accounts, and prepare a trial balance. ledger 2. Posting 3. Octobe 2: Pione r Adve r e rtising re ive a $12,000 cash advancefromKC a ce s , clie for adve nt, rtising se s that aree cte to becom te by rvice xpe d ple d De m r 31. ce be Oct. 2 C ash Une d se arne rvicere nue ve Cash De bit 100,000 12,000 C dit re 12,000 12,000 Une d S rviceRe nue arne e ve De bit C dit re 12,000 Chapter 3-28 LO 4 Record transactions in journals, post to LO ledger accounts, and prepare a trial balance. ledger 2. Posting 4. Octobe 3: Pione r Adve r e rtising pays $9,000 officere in cash, for nt, Octobe r. Oct. 3 Re e nse nt xpe C ash 9,000 9,000 Cash De bit 100,000 12,000 C dit re 9,000 Re Expe nt nse De bit 9,000 C dit re Chapter 3-29 LO 4 Record transactions in journals, post to LO ledger accounts, and prepare a trial balance. ledger 2. Posting 5. Octobe 4: Pione r Adve r e rtising pays $6,000 for a one ar insurancepolicy -ye t hat will e xpirene ye on S pte be 30. xt ar e mr Oct. 4 Pre paid insurance C ash Cash De bit 100,000 12,000 C dit re 9,000 6,000 6,000 6,000 Pre paid I nsurance De bit 6,000 C dit re Chapter 3-30 LO 4 Record transactions in journals, post to LO ledger accounts, and prepare a trial balance. ledger 2. Posting 6. Octobe 5: Pione r Adve r e rtising purchase for $25,000 on account, an s, e ate 3-m stim d onth supply of adve rtising m rials fromAe S ate ro upply. Oct. 5 Adve rtising supplie s Accounts payable Adve rtising S upplie s De bit 25,000 C dit re 25,000 25,000 Accounts Payable De bit C dit re 25,000 Chapter 3-31 LO 4 Record transactions in journals, post to LO ledger accounts, and prepare a trial balance. ledger 2. Posting 7. Octobe 9: Pione r Adve r e rtising signs a contract with a local ne wspape for r adve rtising inse (flye to bedistribute starting thelast S rts rs) d unday in Nove be Pione r will start work on theconte of theflye in m r. e nt rs Nove be Paym nt of $7,000 is duefollowing de ry of theS m r. e live unday pape containing theflye rs rs. Chapter 3-32 LO 4 Record transactions in journals, post to LO ledger accounts, and prepare a trial balance. ledger 2. Posting 8. Octobe 20: Pione r Adve r e rtising’s board of dire ctors de s and pays a clare $5,000 cash divide to stockholde nd rs. Oct. 20 Divide nds C ash 5,000 5,000 Cash De bit 100,000 12,000 C dit re 9,000 6,000 5,000 De bit Divide nds C dit re 5,000 Chapter 3-33 LO 4 Record transactions in journals, post to LO ledger accounts, and prepare a trial balance. ledger 2. Posting 9. Octobe 26: Em r ploye s arepaid e ry four we ks. Thetotal payroll is e ve e $2,000 pe day. Thepay pe e d on Friday, Octobe 26, with salarie r riod nde r s of $40,000 be paid. ing Oct. 26 S alarie e nse s xpe C ash Cash De bit 100,000 12,000 C dit re 9,000 6,000 5,000 40,000 S alarie Expe s nse De bit 40,000 C dit re 40,000 40,000 Chapter 3-34 LO 4 Record transactions in journals, post to LO ledger accounts, and prepare a trial balance. ledger 2. Posting 10. Octobe 31: Pione r Adve r e rtising re ive $28,000 in cash and bills Copa ce s C pany $72,000 for adve om rtising se s of $100,000 provide in rvice d Octobe r. Oct. 31 C ash Accounts re ivable ce S rvicere nue e ve Cash De bit 100,000 12,000 28,000 Chapter 3-35 28,000 72,000 100,000 S rviceRe nue e ve De bit C dit re 100,000 Accounts Re ivable ce C dit re 9,000 6,000 5,000 40,000 De bit 72,000 C dit re 80,000 3. Trial Balance Illustration 3-19 Trial Balance – A list of e ach account and its balance use to ;d provee quality of de and cre bit dit balance s. Chapter 3-36 LO 4 Record transactions in journals, post to LO ledger accounts, and prepare a trial balance. ledger 4. Adjusting Entries Why? S ee nts arenot journalize throughout thequarte be om ve d r, causethe y arecontinuous. (e ploye salarie m e s). are S ee nts re om ve quirepassageof tim (de ciation) e pre S ee nts haveno docum ntation (utilitie om ve e s) Revenues - re corde in thepe the aree d. d riod y arne re Expenses - re cognize in thepe the areincurre . d riod y d Expenses re Chapter 3-37 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Types of Adjusting Entries Illustration 3-20 De rrals (C first) fe ash 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 (C late ash r) 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 3-38 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for Deferrals Illustration 3-21 Deferrals are er ithe prepaid expenses or unearned revenues. Chapter 3-39 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “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 3-40 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Prepaid Expenses” Supplies. Pione r purchase adve e d rtising supplie costing s $25,000 on Octobe 5. Pre thejournal e to re thepurchaseof the r pare ntry cord supplie s. Oct. 5 Adve rtising supplie s C ash Adve rtising S upplie s De bit 25,000 C dit re De bit Cash C dit re 25,000 25,000 25,000 Chapter 3-41 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Prepaid Expenses” Supplies. An inve ntory count at thecloseof busine on Octobe 31 re als ss r ve t hat $10,000 of theadve rtising supplie arestill on hand. s Oct. 31 Adve rtising supplie e nse s xpe Adve rtising supplie s Adve rtising S upplie s De bit 25,000 10,000 Chapter 3-42 15,000 15,000 Adve rtising S upplie Expe s nse C dit re 15,000 De bit 15,000 C dit re LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Prepaid Expenses” Illustration 3-35 Statement Presentation: Adve rtising supplie s ide ntifie that portion s of theasse cost that t’s will providefuture e conom be fit. ic ne Chapter 3-43 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Prepaid Expenses” Illustration 3-34 Statement Presentation: Adve rtising e nse xpe ide ntifie that portion s of theasse cost that t’s e xpire in Octobe d r. Chapter 3-44 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Prepaid Expenses” Insurance. On Oct. 4th, Pione r paid $6,000 for a one ar fireinsurance e -ye policy, be ginning Octobe 1. S r how thee to re thepurchaseof the ntry cord insurance . Oct. 4 Pre paid insurance C ash Pre paid I nsurance De bit 6,000 C dit re De bit Cash C dit re 6,000 6,000 6,000 Chapter 3-45 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Prepaid Expenses” Insurance. An analysis of thepolicy re als that $500 ($6,000 / 12) of ve insurancee xpire e m s ach onth. Thus, Pione r m s thefollowing adjusting e ake e ntry. Oct. 31 I nsurancee nse xpe Pre paid insurance Pre paid I nsurance De bit 6,000 5,500 Chapter 3-46 500 500 I nsuranceExpe nse De bit C dit re 500 C dit re 500 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Prepaid Expenses” Illustration 3-35 Statement Presentation: Pre paid insurance ide ntifie that portion s of theasse cost that t’s will providefuture e conom be fit. ic ne Chapter 3-47 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Prepaid Expenses” Illustration 3-34 Statement Presentation: I nsurancee nse xpe ide ntifie that portion s of theasse cost that t’s e xpire in Octobe d r. Chapter 3-48 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Prepaid Expenses” Depreciation. Pione r Adve e rtising e ate de ciation on its office stim s pre e quipm nt to be$400 pe m e r onth. Accordingly, Pione r re e cognize de ciation s pre f or Octobe by thefollowing adjusting e r ntry. Oct. 31 De ciation e nse pre xpe Accum ulate de ciation d pre De ciation Expe pre nse De bit 400 C dit re 400 400 Accum ulate De ciation d pre De bit C dit re 400 Chapter 3-49 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Prepaid Expenses” Illustration 3-35 Statement Presentation: Accum ulate d De ciation—is a pre contra asse account. t Chapter 3-50 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Prepaid Expenses” Illustration 3-34 Statement Presentation: De ciation e nse pre xpe ide ntifie that portion s of theasse cost that t’s e xpire in Octobe d r. Chapter 3-51 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “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 3-52 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Unearned Revenues” Unearned Revenue. Pione r Adve e rtising re ive $12,000 on Octobe 2 ce d r f romKCfor adve rtising se s e cte to becom te by De m r 31. rvice xpe d ple d ce be S how thejournal e to re there ipt on Oct. 2nd. ntry cord ce Oct. 2 C ash Une d adve arne rtising re nue ve Cash De bit 12,000 C dit re 12,000 12,000 Une d Re Re nue arne nt ve De bit C dit re 12,000 Chapter 3-53 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Unearned Revenues” Unearned Revenues. Analysis re als that Pione r e d $4,000 of the ve e arne adve rtising se s in Octobe Thus, Pione r m s thefollowing adjusting rvice r. e ake e ntry. Oct. 31 Une d se arne rvicere nue ve S rvicere nue e ve S rviceRe nue e ve De bit C dit re 100,000 4,000 4,000 4,000 Une d S rviceRe nue arne e ve De bit 4,000 C dit re 12,000 8,000 Chapter 3-54 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Unearned Revenues” Adjusting Illustration 3-35 Statement Presentation Une d se arne rvicere nueide ve ntifie s t hat portion of theliability that has not be n e d. e arne Chapter 3-55 LO 5 LO Adjusting Entries for Accruals Illustration 3-27 Accruals are er ithe accrued revenues or accrued expenses. Chapter 3-56 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Accrued Revenues” Re nue e d but not ye re ive in cash or re ve s arne t ce d corde d. Adjusting e re ntry sults in: Re nueRe ve corde d BEFORE C Re ipt ash ce Accrue re nue ofte occur in re d ve s n gard to: re nt inte st re se s pe rvice rform d e Chapter 3-57 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Accrued Revenues” Accrued Revenues. I n Octobe Pione r e d $2,000 for adve r e arne rtising se s that it did not bill to clie rvice nts be Octobe 31. Thus, Pione r m s thefollowing adjusting e fore r e ake ntry. Oct. 31 Accounts re ivable ce S rvicere nue e ve Accounts Re ivable ce De bit 72,000 2,000 74,000 C dit re S rviceRe nue e ve De bit C dit re 100,000 4,000 2,000 106,000 2,000 2,000 Chapter 3-58 Adjusting Entries for “Unearned Revenues” Illustration 3-34 Statement Presentation Chapter 3-59 Illustration 3-35 LO 5 LO Adjusting Entries for “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 C Paym nt, if any* ash e Accrue e nse ofte occur in re d xpe s n gard to: re nt inte st re taxe s Chapter 3-60 salarie s bad de bts* LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Accrued Expenses” Accrued Interest. Pione r signe a thre -m e d e onth, 12% notepayablein the , am ount of $50,000 on Octobe 1. Thenotere r quire inte st at an annual rateof s re 12 pe nt. Thre factors de rm theam rce e te ine ount of theinte st accum re ulation: 1 2 3 Illustration 3-29 Chapter 3-61 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Accrued Expenses” Accrued Interest. Pione r signe a thre -m e d e onth, 12% notepayablein the , am ount of $50,000 on Octobe 1. Pre theadjusting e on Oct. 31 to r pare ntry re theaccrual of inte st. cord re Oct. 31 I nte st e nse re xpe I nte st payable re I nte st Expe re nse De bit 500 C dit re I nte st Payable re De bit C dit re 500 500 500 Chapter 3-62 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Accrued Expenses” Illustration 3-34 Statement Presentation Chapter 3-63 Illustration 3-35 LO 5 LO Adjusting Entries for “Accrued Expenses” Accrued Salaries. At Octobe 31, thesalarie for the days re se an r s se pre nt accrue e nseand a re d liability to Pione r. Thee ploye s re ivetotal d xpe late e m e ce salarie of $10,000 for a five s -day work we k, or $2,000 pe day. e r Chapter 3-64 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Accrued Expenses” Accrued Salaries. Em ploye s re ivetotal salarie of $10,000 for a five e ce s -day work we k, or $2,000 pe day. Pre theadjusting e on Oct. 31 to re e r pare ntry cord accrual for salarie s. Oct. 31 S alarie e nse s xpe S alarie payable s S alarie Expe s nse De bit 40,000 6,000 46,000 Chapter 3-65 6,000 6,000 S alarie Payable s De bit C dit re 6,000 C dit re LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Accrued Expenses” Illustration 3-34 Statement Presentation Chapter 3-66 Illustration 3-35 LO 5 LO Adjusting Entries for “Accrued Expenses” Accrued Salaries. On Nove be 23, Pione r will again pay total salarie of mr e s $40,000. Pre thee to re thepaym nt of salarie on Nove be 23. pare ntry cord e s mr Nov. 23 S alarie payable s S alarie e nse s xpe C ash S alarie Expe s nse De bit 34,000 C dit re 6,000 34,000 40,000 S alarie Payable s De bit 6,000 C dit re 6,000 Chapter 3-67 LO 5 LO Explain the reasons for preparing adjusting entries. Explain Adjusting Entries for “Accrued Expenses” Bad Debts. Assum Pione r re e e asonably e ate a bad de e nsefor the stim s bt xpe m onth of $1,600. I t m s theadjusting e for bad de as follows. ake ntry bts Illustration 3-32 Chapter 3-68 LO 5 LO Explain the reasons for preparing adjusting entries. Explain 5. Adjusted Trial Balance 5. Illustration 3-33 S hows thebalance of all accounts, afte adjusting r e s, at thee ntrie nd of theaccounting pe riod. Chapter 3-69 LO 5 LO 6. Preparing Financial Statements Financial S m nts arepre d dire fromtheAdjuste Trial tate e pare ctly d Balance . I ncom e S m nt tate e S m nt of tate e Re taine d Earnings BalanceS e he t Chapter 3-70 LO 6 Prepare financial statement from the adjusted trial balance. 6. Preparing Financial Statements Illustration 3-34 Chapter 3-71 LO 6 6. Preparing Financial Statements Illustration 3-35 Chapter 3-72 LO 6 7. Closing Entries To re ducethebalanceof theincom state e (revenue and e m nt expense) accounts to ze ro. expense accounts To transfe ne incom or ne loss to owne e rt e t r’s quity. To Balanceshe t (asset, liability, and equity) accounts arenot e liability and equity accounts close d. close Divide areclose dire to theRe nds d ctly taine Earnings account. d Chapter 3-73 LO 7 Prepare closing entries. 7. Closing 7. Entries Entries Illustration 3-37 Chapter 3-74 LO 7 Prepare closing entries. 8. Post-Closing Trial Balance Illustration 3-38 Chapter 3-75 LO 7 Prepare closing entries. Accounting Cycle Summarized 1. Ente thetransactions of thepe in appropriatejournals. r riod 2. Post fromthejournals to thele r (or le rs). dge dge 3. Takean unadjuste trial balance(trial balance d ). 4. Pre pareadjusting journal e s and post to thele r(s). ntrie dge 5. Takea trial balanceafte adjusting (adjuste trial balance r d ). 6. Pre parethefinancial state e fromthese m nts cond trial balance . 7. Pre pareclosing journal e s and post to thele r(s). ntrie dge 8. Takea trial balanceafte closing (post-closing trial balance r ). 9. Pre parere rsing e s (optional) and post to thele r(s). ve ntrie dge Chapter 3-76 LO 7 Prepare closing entries. Financial Statements of a Merchandising Company Illustration 3-39 Chapter 3-77 LO 7 Financial Statements of a Merchandising Company Illustration 3-40 Chapter 3-78 LO 7 Financial Statements of a Merchandising Company Illustration 3-41 Chapter 3-79 LO 7 Most com panie useaccrual-basis accounting s re cognizere nuewhe it is e d and ve n arne e nse in thepe incurre xpe s riod d, without re gard to thetim of re ipt or paym nt of cash. e ce e Unde thestrict cash basis, com r panie s re re nueonly whe the re ivecash, and cord ve n y ce re e nse only whe the dispe cash. cord xpe s ny rse C basis financial state e arenot in conform with GAAP. ash m nts ity Chapter 3-80 LO 8 Differentiate the cash basis of accounting from LO the accrual basis of accounting. the Illustration: Quality Contractor signs an agre m nt to construct a garagefor ee $22,000. I n January, Quality be construction, incurs costs of $18,000 on cre gins dit, and by thee of January de rs a finishe garageto thebuye In Fe nd live d r. bruary, Quality colle $22,000 cash fromthecustom r. I n March, Quality pays the$18,000 duethe cts e cre ditors. Illustration 3A-1 Chapter 3-81 S olution on note page s LO 8 Differentiate the cash basis of accounting from LO the accrual basis of accounting. the Illustration: Quality Contractor signs an agre m nt to construct a garagefor ee $22,000. I n January, Quality be construction, incurs costs of $18,000 on cre gins dit, and by thee of January de rs a finishe garageto thebuye In Fe nd live d r. bruary, Quality colle $22,000 cash fromthecustom r. I n March, Quality pays the$18,000 duethe cts e cre ditors. Illustration 3A-2 Chapter 3-82 S olution on note page s LO 8 Differentiate the cash basis of accounting from LO the accrual basis of accounting. the Conversion From Cash Basis To Accrual Basis Illustration: Dr. DianeWindsor, likem sm busine owne ke ps he any all ss rs, e r accounting re cords on a cash basis. In theye 2010, Dr. Windsor re ive $300,000 from ar ce d he patie and paid $170,000 for ope r nts rating e nse re xpe s, sulting in an e ss of cash xce re ipts ove disburse e of $130,000 ($300,000 - $170,000). At January 1 and ce r m nts De m r 31, 2010, shehas accounts re ivable une d se ce be ce , arne rvicere nue accrue ve , d liabilitie and pre s, paid e nse as shown in I llustration 3A-5. xpe s Illustration 3A-5 Chapter 3-83 LO 8 Differentiate the cash basis of accounting from LO the accrual basis of accounting. the Conversion From Cash Basis To Accrual Basis Illustration: C alculatese rvicere nueon an accrual basis. ve Illustration 3A-8 Illustration 3A-5 Chapter 3-84 S olution on note page s LO 8 Differentiate the cash basis of accounting from LO the accrual basis of accounting. the Conversion From Cash Basis To Accrual Basis Illustration: C alculateope rating e nse on an accrual basis. xpe s Illustration 3A-11 Illustration 3A-5 Chapter 3-85 S olution on note page s LO 8 Differentiate the cash basis of accounting from LO the accrual basis of accounting. the Conversion From Cash Basis To Accrual Basis Illustration 3A-12 Chapter 3-86 LO 8 Differentiate the cash basis of accounting from LO the accrual basis of accounting. the Theoretical Weaknesses of the Cash Basis Today’s e conom is conside y rably m lubricate by cre than by cash. ore d dit Theaccrual basis, not thecash basis, re cognize all aspe of thecre s cts dit phe e nom non. I nve stors, cre ditors, and othe de r cision m rs se k tim ly inform ake e e ation about an e rprise f uturecash flows. nte ’s Chapter 3-87 LO 8 Differentiate the cash basis of accounting from LO the accrual basis of accounting. the A com pany pre s a workshe t e r on pare e ithe colum pape or nar r within an e ctronic spre le adshe t. e A com pany use theworkshe t to adjust s e account balance and s to pre financial state e pare m nts. Chapter 3-88 LO 10 Prepare a 10-column worksheet. Adjusted Adjusted Trial Balance Balance Chapter 3-89 Illustration 3C-1 LO 10 Prepare a 10-column worksheet. Preparing Financial Statements from a Worksheet TheWorkshe t: e provide inform s ation ne de for pre ed paration of thefinancial state e m nts. S data into appropriatecolum which facilitate thepre orts ns, s paration of thestate e m nts. Chapter 3-90 LO 10 Prepare a 10-column worksheet. ...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online