Professional Documents
Culture Documents
accounting
12
Prepared at end of an accounting period
Assign:
◦ Revenues to the period when earned
These were previously recorded as unearned revenue when
the cash was received
◦ Expenses to the period when incurred
These were previously recorded as pre-paid expense when
the cash was paid out.
Need to properly measure:
◦ Net Income
◦ Assets & Liabilities
“Accrued”
means amount
must be
recorded
Accrued Accrued
expenses revenues
Unearned
revenues
Prepaid rent
5/1 3,000
Bal 2,000
Supplies
5/2 500
Supplies
5/2 500
15 200
Bal 600
Furniture
5/3 18,000
27
Depreciation - process of allocating the cost
of a plant asset to expense over its expected
useful life
28
Accumulated depreciation accounts are called
contra asset accounts because they are deducted
from the related asset accounts on the balance
sheet.
29
Income Statement
Account
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Accumulated Depreciation,
Furniture 300
To record depreciation for Sep.
31
Reported on balance sheet
Cost minus accumulated depreciation
32
Smart Touch Learning
Balance Sheet
May 31, 20XX
Assets
Cash $XXXX
.
.
.
Furniture $ 18,000
Less: Accumulated Depreciation (300) 17,700
Total Assets $XXXX
Book Value
33
Income Statement
Account
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Accumulated Depreciation,
Building 200
To record depreciation for Sep.
Salary Expense
5/15 900 Expenses
36
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
A5
Salary Expense A5
5/15 900 Expenses
5/31 900
1,800
38
Adjustments – Accrued Expenses
On May 1, Smart Touch borrowed $20,000 from a bank signing
a one year note payable.
Cash
20,000
Notes Payable
20,000
39
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
A5
Interest Expense A5
5/31 100 Expenses
Bal. 100
41
Revenue earned before cash is received
Results in a receivable
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Expenses
Current Period Future Period
Prepaid Cash Paid Expense Recorded
43
Adjustments – Accrued Revenue
Services Revenue
7,000 Bal.
Revenues
44
Revenue earned before cash is received
Results in a receivable
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
46
Cash is collected before revenue is earned
◦ Results in a liability as the company owes a product or
service or they will have to give the money back
Also called deferred revenue
BEFORE
Expenses
Current Period Future Period
Prepaid Cash Paid Expense Recorded
48
Adjustments – Deferred Revenue
On May 21, Smart Touch received cash of $600 in advance for
e-learning services to be performed over the next 30 days.
Service Revenue
7,000
400 Revenues
49
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Service Revenue
7,000
400 Revenues
200
7,600
51
To properly measure net income on the income
statement
◦ Each adjusting entry affects a revenue or an expense
To update the balance sheet
◦ Each adjusting entry affects an asset or a liability
56
Prepare the financial statements from the adjusted
trial balance
Income • Reports revenue and expenses
statement • Determines net income
59
Smart Touch Learning
Income Statement
Month Ended May 31, 2010
Assets Liabilities
62
Any Company
Worksheet
December 31, 2010
Adjusted
Trial Balance
Account Title Dr. Cr.
Cash 5,400
Supplies 200
Equipment 17,000
Accum. depr. - Equip. 2,000 Balance sheet
Accounts payable 200
Interest payable 100
Note payable 9,000
Josie Smith, Capital 6,000
Josie Smith, W/D 1,000
Service revenue 12,000
Rent expense 4,000
Supplies expense 500 Income statement
Depreciation expense 1,000
Interest expense 200
Totals 28,300 28,300
Any Company
Income Statement
Year ended December 31, 2010
Revenue:
Service revenue $ 12,000
Expenses:
Rent expense $ 4,000
Depreciation expense 1,000
Supplies expense 500
Interest expense 200
Total expenses 5,700
Net income $ 6,300