Professional Documents
Culture Documents
Revenue
Revenuereported
reportedwhen
whenearned
earned
Expense
Expensereported
reportedwhen
whenincurred
incurred
Properly
Properlymatches
matchesrevenues
revenuesand
and
expenses
expensesin
indetermining
determiningnet
net
income
income
Requires
Requiresadjusting
adjustingentries
entriesat
at
end
endof
ofperiod
period
The
The matching
matching concept
concept supports
supports
reporting
reporting revenues
revenues and
and related
related
expenses
expenses inin the
the same
same period.
period.
2005
1 Dec. 31 Supplies Expense 55 1 240 00
2 Supplies 14 1 240 00
3
4
Note:
Note: You
You probably
probably have
have the
the idea
idea of
of
how
how posting
posting flows,
flows, so
so the
the rest
rest of
of
the
the slides
slides will
will omit
omit the
the arrows.
arrows.
Effect
Effect of
of Omitting
Omitting Adjustment
Adjustment
Deferred Revenue
(Unearned
Revenue)
NetSolutions
Trial Balance
December 31, 2005
Cash 2 065 00
Accounts Receivable 2 220 00
Supplies 2 000 00
Prepaid Insurance
Three months’ rent, $360,
Three months’ rent, 2$360, was
400 00was
Land received
received on
on December
December 1.
1.
20 000 As
As
00 of
of
Office Equipment 1 800 00
Accounts Payable December
December 31,
31, only
only $120
$120 hashas 900 00
Unearned Rent been
been earned.
earned. 360 00
Chris Clark, Capital 25 000 00
Chris Clark, Drawing 4 000 00
Fees Earned 16 340 00
Wages Expense 4 275 00
Rent Expense 1 600 00
Utilities Expense 985 00
Supplies Expense 800 00
Miscellaneous Expense 455 00
42 600 00 42 600 00
7
31 Unearned Rent 23 120 00
8
Rent Revenue 42 120 00
9
10
16
17 31 Depreciation Expense 53 50 00
18 Accumulated Depreciation—
19 Office Equipment 19 50 00
Accumulated Depreciation—
Office Equipment
19 Depreciation Expense 53
Dec. 31 50 Dec. 31 50
NetSolutions’
NetSolutions’ balance
balance sheet
sheet
would
would show
show the
the office
office
equipment
equipment at
at cost,
cost, less
less the
the
accumulated
accumulated depreciation.
depreciation.
Book
value
Effect
Effect of
of Omitting
Omitting Adjustment
Adjustment
Summary
Summary of
of Basic
Basic Adjustments
Adjustments
NetSolutions’ Adjusted
Trial Balance for
December 31, 2005
NetSolutions 41
Adjusted Trial Balance
December 31, 2005
Cash 2 065 00
Accounts Receivable 2 720 00
Supplies 760 00
Prepaid Insurance 2 300 00
Land 20 000 00
Office Equipment 1 800 00
Accumulated Depreciation 50 00
Accounts Payable 900 00
Wages Payable 250 00
Unearned Rent 240 00
Chris Clark, Capital 25 000 00
Chris Clark, Drawing 4 000 00
Fees Earned 16 840 00
Rent Revenue 120 00
Wages Expense 4 525 00
Rent Expense 1 600 00
Utilities Expense 985 00
Continued
NetSolutions 42
Trial Balance
December 31, 2005 (Continued)
Supplies Expense 2 040 00
Insurance Expense 100 00
Miscellaneous Expense 455 00
43 400 00 43 400 00
Vertical
Analysis and
Interpretation
J. Holmes, Attorney-at-Law
Income Statements
For the Years Ended December 31, 2005 and 2006
2006 2005
Amount Percent Amount Percent
Fees earned $187,500 $150,000
Operating expenses:
Wages expense $60,000 $45,000
Rent expense 15,000 12,000
Utilities expense 12,500 9,000
Supplies expense 2,700 3,000
Miscellaneous exp. 2,300 1,800
Total operating
expenses $92,500 $70,800
Net income $95,000 $79,200
2006 2005
Amount Percent Amount Percent
Fees earned $187,500 100.0% $150,000
100.0%
Operating expenses:
Wages expense $60,000 $45,000
Rent expense 15,000 12,000
Utilities expense 12,500 9,000
Supplies expense 2,700 3,000
Miscellaneous exp. 2,300 1,800
Total operating
expenses $92,500 $70,800
Net income $95,000 $79,200
2006 2005
Amount Percent Amount Percent
Fees earned $187,500 100.0% $150,000
100.0%
$60,000
$60,000
Operating expenses: 32.0%
$187,500
$15,000
$187,500
$15,000
Wages expense $60,00038.0% $45,000
$187,500
$187,500
Rent expense 15,000 12,000
Utilities expense 12,500 9,000
Supplies expense 2,700 3,000
Miscellaneous exp. 2,300 1,800
Total operating
expenses $92,500 $70,800
Net income $95,000 $79,200
2006 2005
Amount Percent Amount Percent
Fees earned $187,500 100.0% $150,000
100.0%
Operating expenses: 32.0%
Wages expense $60,000 8.0% $45,000
30.0% 6.7%
Rent expense 15,000 1.4% 12,000
8.0% 1.2%
Utilities expense 12,500 9,000
6.0% 49.3%
Supplies expense 2,700 50.7% 3,000
2.0%
Miscellaneous exp. 2,300 1,800
The
The End
End