Accounting

4
Records and
Systems
Part One: Financial Accounting

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 The Account Slide 4-1

Cash
(increase)
Beginning balance -0-
(decrease)
5,000
4,000
200
750
12,000 7,200
21,200
4,800
3,000
15,750
New balance 5,450

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Debits and Credits Slide 4-2

Assets Liabilities Owners’ Equity

Debit Credit Debit Credit Debit Credit
+ - + - + -

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 The Accounting Process Slide 4-3

1. Analyze transactions

2. Journalize original entries

3. Post journal entries to ledger

4. Identify, journalize, and post

adjusting entries

5. Journalize and post closing

entries

6. Prepare financial statements

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Transaction Analysis Slide 4-4

On
OnAugust
August1,1,Snelson
Snelsoninvested
invested$5,000
$5,000in
inthe
the
business
businessas
asowner.
owner.

Cash Paid-in Capital

5,000 5,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Transaction Analysis Slide 4-5

On
OnAugust
August1,1,the
thefirm
firmpaid
paid$750
$750rent
rentfor
forthe
the
month
monthof
ofAugust.
August.

Cash Prepaid Expenses

5,000 750 750

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Transaction Analysis Slide 4-6

The
Thefirm
firmborrowed
borrowed$4,000
$4,000fromfromaabank
bankon
onaa99percent
percent
note
notepayable,
payable,with
withinterest
interestpayable
payablequarterly
quarterlyand
andthe
the
principal
principaldue
duein
infull
fullatatthe
theend
endof
oftwo
twoyears.
years.

Cash Notes Payable

5,000 750 4,000
4,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Transaction Analysis Slide 4-7

Equipment
Equipmentcosting
costing$7,200
$7,200was
waspurchased
purchasedfor
forcash.
cash. The
The
expected
expectedlife
lifeof
ofthe
theequipment
equipmentwas
was1010years.
years.

Cash Equipment, at Cost

5,000 750 7,200
4,000 7,200

Refer
Referto
topages
pages94
94through
through96
96for
forthe
the
remaining
remainingentries
entriesfor
forthe
themonth
monthof
ofAugust.
August.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Balancing an Account Slide 4-8

Cash
Balance -0- 750
5,000 7,200
4,000 4,800
200 3,000
12,000 To Balance 5,450
21,200 21,200

Balance 5,450

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 The Trial Balance Slide 4-9

CAMPUS PIZZERIA, INC.

Trial Balance
As of August 31 Balance
Debit Credit
Cash……………………………………………………. $ 5,450
Accounts receivable……………………………………. -0-
Inventory……………………………………………….. 550
Prepaid expenses……………………………………….. 750
Equipment, at cost……………………………………… 7,200
Accounts payable………………………………………. $ 2,200
Notes payable………………………………………….. 4,000
Paid-in capital………………………………………….. 5,000
Sales revenue…………………………………………... 12,200
Cost of sales……………………………………………. 6,000
Wage expense………………………………………….. 3,000
Utilities expense……………………………………….. 450
Totals……………………………………………….. $23,400 $23,400
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
 Adjusting Entries Slide 4-10

Fuel
Fueloil
oilwas
waspurchased
purchasedfor
for$1,000.
$1,000.

Fuel Oil Inventory Accounts Payable

1,000 1,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Adjusting Entries Slide 4-11

By
Bythe
theend
endofofthe
theaccounting
accountingperiod,
period,
$600
$600of
ofthe
thefuel
fuelhad
hadbeen
beenconsumed.
consumed.

Fuel Oil Inventory Fuel Expense

1,000 600 600

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Adjusting Entries Slide 4-12

Paid
Paidananinsurance
insurancepremium
premiumon
on
company
companycar,
car,$1,200.
$1,200.

Prepaid Insurance Cash

1,200 1,200

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Adjusting Entries Slide 4-13

At
Atyear-end,
year-end,$800
$800of
ofthis
thisisisan
anexpense.
expense.

Prepaid Insurance Insurance Expense

800 800
1,200

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Adjusting Entries Slide 4-14

Employees
Employeesearned
earned$150
$150of
ofwages
wagesduring
duringthe
the
period.
period. These
Thesewages
wageshave
havenot
notbeen
beenpaid.
paid.

Wages Expense Accrued Wages

150 150

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Adjusting Entries Slide 4-15

Annual
Annualdepreciation
depreciationon
on
equipment
equipmenttotaled
totaled$2,000.
$2,000.

Depreciation Accumulated
Expense Depreciation

2,000 2,000

Additional
Additionaladjusting
adjustingentries
entriesare
areexplained
explainedon
on
pages
pages9999through
through101
101ofofthe
thetextbook.
textbook.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Closing Entries Slide 4-16

Closing
Closingthe
theSales
SalesRevenues
Revenuesaccount
account

Sales Income
Revenues Summary

12,400 12,200 12,400

200

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Closing Entries Slide 4-17

Closing
Closingthe
theCost
Costof
ofSales
Salesaccount
account

Cost of Income
Sales Summary

6,000 6,000 6,000 12,400

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Closing Entries Slide 4-18

Closing
Closingthe
theIncome
IncomeSummary
Summaryaccount
account

Income Summary
(B) 6,000 (A) 12,400
(C) 3,000
(D) 450
(E) 750
(F) 60
(G) 30
10,290 Credit
(17) 382 Income Tax
(H) 1,528 Liability

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Financial Statements Slide 4-19

CAMPUS PIZZERIA, INC.

Balance Sheet
As of August 31

Assets Liabilities and Owners’ Equity

Cash $ 5,450 Accounts payable $ 2,200
Accounts receivable 200 Notes payable 4,000
Inventory 550 Accrued expenses 30
Prepaid expenses 0 Income tax liability 382
Total current assets 6,200 Total liabilities 6,612
Equipment, at cost 7,200 Paid-in capital 5,000
Less: Accum. Depr. 60 Retained earnings 1,728
Equipment, net 7,140 Total owners’ equity 6,728
Total assets $13,340 Total liab. and own. eq. $13,340

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Financial Statements Slide 4-20

CAMPUS PIZZERIA, INC.

Income Statement
For the Month of August
Sales revenues $12,400
Cost of sales 6,000
Gross margin 6,400
Operating expenses:
Wages $3,000
Rent 750
Utilities 450
Depreciation 60
Interest 30 4,290
Income before income taxes 2,110
Income tax expense 382
Net income $ 1,728

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Chapter 4

The End

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999