Professional Documents
Culture Documents
We Have Learned . . .
Owners’ Equity
1
ACCT 201
We Have Learned . . .
Double-entry accounting
ACCT 201
Debits=Credits
ACCT 201
2
ACCT 201
We Have Learned . . .
ncrease
Debit = “Left”
side of an account ebits
- Nothing more,
ACCT 201
3
ACCT 201
We Have Learned . . .
4
We Have Learned . . .
Net Income
Income
Statement
Retained
Stmt of Earnings
Retained
Earnings
About the
basic financial Balance
statements and how Sheet
they interrelate.
We Have Learned . . .
The first five
steps in the
accounting
Prepare
cycle. Trial Balance
Post Transactions
Record Transactions
Analyze Transactions
Financial
Statements Prepare
Trial Balance
Post Transactions
Record Transactions
Analyze Transactions
Measurements
accounting period.
years, etc.
10
Time Period Principle
Discrete (separate) accounting
B periods.
E E
G N
I 96 97 98 99 00 01 02 03 04 05 D
N I
N Life of the Firm N
I G
N
G
Exh.
Annual
1 2
Semiannual
1 2 3 4
Quarter
1 2 3 4 5 6 7 8 9 10 11 12
Month
The proper point in time
to recognize revenues.
ACCT 201
Revenue Recognition . . .
rendered); and
15
The proper point in time
to recognize expenses.
ACCT 201
The Matching Principle
revenues.
17
ACCT 201
The Matching Principle
Another view . . .
ACCT 201
Matching
Principle
ACCT 201
Accrual Basis Accounting
22
The time period principle
Gives rise to the need for
The Revenue Recognition
Principle and the Matching
Principle
Resulting in . . .
The accrual basis of
accounting
Assumption
Periodicity
96 97 98 99 00 01 02 03 04 05
? ? ? ? ? ?
Recognized
Revenues
Matched
Expenses
27
Cash Basis Accounting . . .
BOP EOP
Revenue (Cash)
Expenses (Cash)
Modified Cash
ACCT 201
Basis Accounting
Modified Cash Basis
ACCT 201
Accounting
Adjusting Accounts
32
Exh.
Adjustments
Adjustments
Asset Expense
Unadjusted Credit Debit
Balance Adjustment Adjustment
Adjusting Prepaid Expenses
On December 1, 2001, Scott Company
paid $12,000 to cover rent for
December 2001 through May 2002.
Let’s look at the adjusting journal
entry needed on December 31, 2001.
Adjustments
= $12,000
42
Adjusting for Depreciation
Prepare the journal entry.
Accumulated depreciation is
a contra asset account.
Adjusting for Depreciation
Accumulated Depreciation
12/31 $12,000
Adjusting for Depreciation
Monroe, Inc.
Balance Sheet
At December 31, 2002
Assets The
Cash $ 18,000
. equipment
. account is
. shown on
Equipment $ 62,000
Less: accumulated deprec. (12,000) 50,000 the balance
. sheet like
. this.
.
Total Assets $ 249,800
Exh.
Adjustments
Liability Revenue
Debit Unadjusted Credit
Adjustment Balance Adjustment
Adjusting Unearned Revenue
On October 1, 2002, UAA sold 1,000
season tickets to its 20 home basketball
games for $100 each. UAA makes the
following entry:
Unearned Basketball
Revenue Basketball Revenue
12/31 $50,000 10/1 $100,000 12/31 $50,000
Exh.
Adjustments
Expense Liability
Debit Credit
Adjustment Adjustment
Adjusting for Accrued Expenses
Denton, Inc. pays its employees every Friday.
Year-end, 12/31/02, falls on a Wednesday. As of
12/31/02, the employees have earned salaries of
$47,250 for Monday through Wednesday of the
week ended 1/02/03.
Adjustments
Asset Revenue
Debit Credit
Adjustment Adjustment
Adjusting for Accrued Revenues
Smith & Jones, CPAs, had $31,200 of work completed but
not yet billed to clients. Let’s make the adjusting entry
necessary on December 31, 2002, the end of the
company’s fiscal year.
Overstated
Understated
FastForward Exh.
Trial Balance 3.19
Cash
Dr.
3,950
Cr. Dr. Cr.
FastForward’s
Dr. Cr.
Statements
Let’s use
ACCT 201
FastForward’s
adjusted trial
balance to prepare
the company’s
ACCT 201
financial
statements.
67
Exh.
3.20
Adjusted Step One:
Trial Balance
Dr. Cr. Prepare the Income
Cash $ 3,950
Accounts receivable 1,800 Statement.
Supplies 8,670
Prepaid insurance 2,300 FastForward
Equipment 26,000 Income Statement
Accum. depr. - Equip. $ 375
For the Month Ended December 31, 2001
Accounts payable 6,200
Salaries payable 210
Revenues:
Unearned revenue 2,750 Consulting revenue $ 7,850
Common Stock 30,000 Rental revenue 300
Retained Earnings 600 Operating expenses:
Consulting revenue 7,850
Depr. expense - Equip. $ 375
Rental revenue 300
Depr. expense 375
Salaries expense 1,610
Salaries expense 1,610 Insurance expense 100
Insurance expense 100 Rent expense 1,000
Rent expense 1,000 Supplies expense 1,050
Supplies expense 1,050 Utilities expense 230
Utilities expense 230
Total expenses 4,365
Totals $ 47,685 $ 47,685
Net income $ 3,785
Exh.
Step Two: 3.20
FastForward
Statement of Retained Earnings
For the Month Ended December 31, 2001