ch03-AFM101w2012

Whencashispaidthepayableisreduced

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Unformatted text preview: ense incurred 3-21 If cash is paid after the company receives goods or services, a liability PAYABLE is recorded. When cash is paid the PAYABLE is reduced. Cash paid after expense is incurred: Expense Incurred Cash Paid Expense (+E) xxx Accounts Payable (+L) xxx Cash will be paid. Accounts Payable (­L) xxx Cash (­A) xxx Financial Accounting LO 3 3-22 The Matching Process Typical assets and their related expense accounts include. . . CASH PAID FOR as used over time becomes EXPENSE Supplies inventory Supplies expense Prepaid insurance Insurance expense Buildings and equipment Depreciation expense Financial Accounting LO 3 A = L + SE ASSETS LIABILITIES Debit Credit for for Increase Decrease Debit Credit for for Decrease Increase 3-23 SHARE SHARE CAPITAL CAPITAL Debit Credit for for Decrease Increase Financial Accounting RETAINED RETAINED EARNINGS EARNINGS Next, let’s see how Revenues and Expenses affect Retained Earnings. Retained OTHER OTHER COMPONENTS COMPONENTS Debit Credit Debit Credit for for for for Decrease Increase Decrease Increase LO 4 3-24 Expanded Transaction Analysis Model Dividends decrease Dividends Retained Earnings. Retained RETAINED RETAINED EARNINGS EARNINGS Debit Credit for for Decrease Increase Profit increases Profit Retained Earnings. Retained REVENUES Debit Credit for for Decrease Increase Financial Accounting EXPENSES Debit Credit for for Increase Decrease LO 4 3-25 Analyzing Some of Nestlé’s Transactions (a) Nestlé's sold milk products and beverages to customers for $3,520 in cash. The cost of these sales was $1,960. (a) C (+A) ash Sales Revenue (+R, +SE) C of Goods Sold (+E, -SE) ost Inventories (-A) Assets Cash Inventories = Liabilities + +3,520 -1,960 Debit 3,520 C redit 3,520 1,960 1,960 S hareholders' Equity S ales Revenue (+R, +S E) Cost of Goods S (+E, -S old E) +3,520 -1,960 Equality checks: 1.Debits $5,480 equal Credits $5,480, 2.The accounting equation is in balance. Financial Accounting LO 4 3-26 Analyzing Some of Nestlé’s Transactions (b) Nestlé sold coffee products to retail outlets for $3,020; $2,020 was received in cash and the rest was due from the outlets. The cost of products sold was $1,400. Debit C redit (b) C (+A) ash 2,020 Trade Receivables (+A) 1,000 Sales Revenue (+R, +SE) 3,020 C of Goods Sold (+E, -SE) ost 1,400 Inventories (-A) 1,400 Assets Cash Trade Receivables Inventories = Liabilities + +2,020 +1,000 -1,400 S hareholders' Equity S ales Revenue (+R, +S E) Cost of Goods S (+E, -S old E) +3,020 -1,400 Equality checks: 1.Debits $4,420 equal Credits $4,420, 2.The accounting equation is in balance. Financial Accounting LO 4 3-27 Analyzing Some of Nestlé’s Transactions...
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This note was uploaded on 04/02/2012 for the course AFM 101 taught by Professor Kennedy during the Winter '08 term at Waterloo.

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