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Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Accounting Records and Systems
© The McGraw-Hill Companies, Inc., 1999
4Part One: Financial Accounting
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
New balance 5,450
(decrease)
750
7,200
4,800
3,000
15,750
The Account Slide 4-1
(increase)
Beginning balance -0-
5,000
4,000
200
12,000
21,200
Cash
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
3. Post journal entries to ledger
4. Identify, journalize, and post adjusting entries
5. Journalize and post closing entries
6. Prepare financial statements
2. Journalize original entries
1. Analyze transactions
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Transaction Analysis Slide 4-4
On August 1, Snelson invested $5,000 in the business as owner.
On August 1, Snelson invested $5,000 in the business as owner.
Cash Paid-in Capital
5,000 5,000
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Transaction Analysis Slide 4-5
On August 1, the firm paid $750 rent for the month of August.
On August 1, the firm paid $750 rent for the month of August.
Cash Prepaid Expenses
5,000 750 750
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Transaction Analysis Slide 4-6
The firm borrowed $4,000 from a bank on a 9 percent note payable, with interest payable quarterly and the principal due in full at the end of two years.
The firm borrowed $4,000 from a bank on a 9 percent note payable, with interest payable quarterly and the principal due in full at the end of two years.
4,000
Cash Notes Payable
5,000 750 4,000
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Transaction Analysis Slide 4-7
Equipment costing $7,200 was purchased for cash. The expected life of the equipment was 10 years.
Equipment costing $7,200 was purchased for cash. The expected life of the equipment was 10 years.
4,000
Cash Equipment, at Cost
5,000 750 7,2007,200
Refer to pages 94 through 96 for the remaining entries for the month of August.
Refer to pages 94 through 96 for the remaining entries for the month of August.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Balance 5,450
Balancing an Account Slide 4-8
Balance -0- 750
5,000 7,200
4,000 4,800
200 3,000
12,000 To Balance 5,450 21,200 21,200
Cash
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
The Trial Balance Slide 4-9
CAMPUS PIZZERIA, INC.Trial Balance
As of August 31
Cash……………………………………………………. $ 5,450Accounts receivable……………………………………. -0-Inventory……………………………………………….. 550Prepaid expenses……………………………………….. 750Equipment, at cost……………………………………… 7,200Accounts payable………………………………………. $ 2,200Notes payable………………………………………….. 4,000Paid-in capital………………………………………….. 5,000Sales revenue…………………………………………... 12,200Cost of sales……………………………………………. 6,000Wage expense………………………………………….. 3,000Utilities expense……………………………………….. 450 Totals……………………………………………….. $23,400 $23,400
Balance Debit Credit
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© The McGraw-Hill Companies, Inc., 1999
Adjusting Entries Slide 4-10
Fuel oil was purchased for $1,000. Fuel oil was purchased for $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 the end of the accounting period, $600 of the fuel had been consumed.
By the end of the accounting period, $600 of the fuel had been consumed.
Fuel Oil Inventory Fuel Expense
1,000 600600
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Adjusting Entries Slide 4-12
Paid an insurance premium on company car, $1,200.
Paid an insurance premium on company car, $1,200.
Prepaid Insurance Cash
1,200 1,200
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Prepaid Insurance Insurance Expense
1,200
Adjusting Entries Slide 4-13
At year-end, $800 of this is an expense. At year-end, $800 of this is an expense.
800
800
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Adjusting Entries Slide 4-14
Employees earned $150 of wages during the period. These wages have not been paid.
Employees earned $150 of wages during the period. These wages have not been paid.
Wages Expense Accrued Wages 150
150
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Adjusting Entries Slide 4-15
Annual depreciation on equipment totaled $2,000.
Annual depreciation on equipment totaled $2,000.
Depreciation Accumulated Expense Depreciation
2,000
2,000
Additional adjusting entries are explained on pages 99 through 101 of the textbook.
Additional adjusting entries are explained on pages 99 through 101 of the textbook.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
12,200200
Closing Entries Slide 4-16
Closing the Sales Revenues accountClosing the Sales Revenues account
Sales Income Revenues Summary
12,400 12,400
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
6,000 12,400 6,000 6,000
Closing Entries Slide 4-17
Closing the Cost of Sales accountClosing the Cost of Sales account
Cost of Income Sales Summary
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Closing Entries Slide 4-18
Closing the Income Summary accountClosing the Income Summary account
(17) 382
Income Summary(B) 6,000(C) 3,000(D) 450(E) 750(F) 60(G) 30
10,290
(A) 12,400
Credit Income Tax
Expense (H) 1,728
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 $ 2,200Accounts receivable 200 Notes payable 4,000Inventory 550 Accrued expenses 30Prepaid expenses 0 Income tax liability 382 Total current assets 6,200 Total liabilities 6,612Equipment, at cost 7,200 Paid-in capital 5,000 Less: Accum. Depr. 60 Retained earnings 1,728Equipment, net 7,140 Total owners’ equity 6,728Total assets $13,340 Total liab. and own. eq. $13,340
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Sales revenues $12,400Cost of sales 6,000Gross margin 6,400Operating expenses:
Wages $3,000Rent 750Utilities 450Depreciation 60Interest 30 4,290
Income before income taxes 2,110Income tax expense 382Net income $ 1,728
Financial Statements Slide 4-20
CAMPUS PIZZERIA, INC.Income Statement
For the Month of August
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Chapter 4
The End