Date post: | 17-Dec-2015 |
Category: |
Documents |
Upload: | rudolf-boone |
View: | 225 times |
Download: | 1 times |
Chapter 3-1
Chapter 3-23
AssetsAssets
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 3-27
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
ExpenseExpense
Chapter 3-24
LiabilitiesLiabilities
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 3-25
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
EquityEquity
Chapter 3-26
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
RevenueRevenue
Normal Balance Credit
Normal Balance Credit
Normal Balance Debit
Normal Balance Debit
Debits and Credits Debits and Credits SummarySummary
Debits and Credits Debits and Credits SummarySummary
LO 2 Explain double-entry rules.LO 2 Explain double-entry rules.
Chapter 3-2
Basic Accounting EquationBasic Accounting EquationBasic Accounting EquationBasic Accounting Equation
LO 2 Explain double-entry rules.LO 2 Explain double-entry rules.
Relationship among the assets, liabilities and Relationship among the assets, liabilities and stockholders’ equity of a business: stockholders’ equity of a business:
The equation must be in balance after every The equation must be in balance after every transaction. For every transaction. For every DebitDebit there must be a there must be a CreditCredit..
Illustration 3-3
Chapter 3-3
Corporation Ownership StructureCorporation Ownership StructureCorporation Ownership StructureCorporation Ownership Structure
LO 2 Explain double-entry rules.LO 2 Explain double-entry rules.
Stockholders’ EquityStockholders’ Equity
Balance Sheet
Statement of Retained Earnings
Net income or Net loss (Revenues less expenses)(Revenues less expenses)
Income StatementIncome Statement
Net income or Net loss (Revenues less expenses)(Revenues less expenses)
Income StatementIncome StatementDividendsDividends
Retained Earnings Retained Earnings (Net income retained in (Net income retained in
business)business)
Retained Earnings Retained Earnings (Net income retained in (Net income retained in
business)business)
Common Stock Common Stock (Investment by (Investment by stockholders)stockholders)
Common Stock Common Stock (Investment by (Investment by stockholders)stockholders)
Illustration 3-4
Chapter 3-4
The Accounting CycleThe Accounting CycleThe Accounting CycleThe Accounting Cycle
LO 3 Identify steps in the accounting LO 3 Identify steps in the accounting cycle.cycle.
TransactionsTransactions
1. Journalization1. Journalization
6. Financial Statements6. Financial Statements
7. Closing entries7. Closing entries
8. Post-closing trail balance
8. Post-closing trail balance
9. Reversing entries9. Reversing entries
3. Trial balance3. Trial balance
2. Posting2. Posting
5. Adjusted trial balance5. Adjusted trial balance
4. Adjustments4. AdjustmentsWork SheetWork Sheet
Illustration 3-6
Chapter 3-5
Transactions and EventsTransactions and EventsTransactions and EventsTransactions and Events
What to Record?What to Record?
FASB states, “transactions and other events and circumstances that affect a business enterprise.”
LO 3 Identify steps in the accounting LO 3 Identify steps in the accounting cycle.cycle.
Types of Events:Types of Events:
External – between a business and its environment.
Internal – event occurring entirely within a business.
Chapter 3-6
1. A supplier of a company‘s raw material is paid an amount owed on account.
External
Not Recorded
2. A customer pays its open account. External
3. A new chief executive officer is hired. Not Recorded
4. The biweekly payroll is paid.
5. Raw materials are entered into production. Internal
External
6. A new advertising agency is hired. Not Recorded
7. The accountant determines the federal income taxes owed based on the income earned.
Internal
Review “Transactions and Events”Review “Transactions and Events”Review “Transactions and Events”Review “Transactions and Events”
LO 3 Identify steps in the accounting LO 3 Identify steps in the accounting cycle.cycle.
External Internal
Chapter 3-7
General JournalGeneral Journal – a chronological record of transactions. Journal Entries are recorded in the journal.
Account Title Ref. Debit Credit
J an. 3 Cash 100 100,000
Common stock 300 100,000
10 Building 130 150,000
Note payable 220 150,000
Date
1. Journalizing1. Journalizing1. Journalizing1. Journalizing
LO 4 LO 4 Record transactions in journals, post Record transactions in journals, post to ledger accounts, and prepare a trial to ledger accounts, and prepare a trial balance.balance.
General Journal
Chapter 3-8
Posting Posting – the process of transferring amounts from the journal to the ledger accounts.
Cash Acct. No. 100
Date Explanation Ref. Debit Credit Balance
General Ledger
Account Title Ref. Debit Credit
J an. 3 Cash 100,000
Common stock 100,000
Date
General Journal
Jan. 3 Sale of stock GJ1 100,000 100,000
100
GJ1
2. Posting2. Posting2. Posting2. Posting
LO 4 LO 4 Record transactions in journals, post Record transactions in journals, post to ledger accounts, and prepare a trial to ledger accounts, and prepare a trial balance.balance.
Chapter 3-9
Trial BalanceTrial Balance – a list of each account and its balance; used to prove equality of debit and credit balances.
Acct. No. Account Debit Credit
100 Cash 140,000$ 105 Accounts receivable 35,000 110 I nventory 30,000 130 Building 150,000 200 Accounts payable 60,000$ 220 Note payable 150,000 300 Common stock 100,000 330 Retained earnings400 Sales 75,000 500 Cost of goods sold 30,000
385,000$ 385,000$
3. Trial Balance3. Trial Balance3. Trial Balance3. Trial Balance
LO 4 LO 4 Record transactions in journals, post Record transactions in journals, post to ledger accounts, and prepare a trial to ledger accounts, and prepare a trial balance.balance.
Chapter 3-10
4. Adjusting Entries4. Adjusting Entries4. Adjusting Entries4. Adjusting Entries
RevenuesRevenues - recorded in the period in which - recorded in the period in which they are earnedthey are earned.
Expenses Expenses - recognized in the period in which - recognized in the period in which they are incurredthey are incurred.
Adjusting entriesAdjusting entries - needed to ensure that - needed to ensure that the the revenue recognitionrevenue recognition and and matching matching principlesprinciples are followed. are followed.
LO 5 LO 5 Explain the reasons for preparing adjusting Explain the reasons for preparing adjusting entries.entries.
Chapter 3-11
Classes of Adjusting EntriesClasses of Adjusting EntriesClasses of Adjusting EntriesClasses of Adjusting Entries
1. Prepaid Expenses. Expenses paid in cash and recorded as assets before they are used or consumed.
Prepayments
3. Accrued Revenues. Revenues earned but not yet received in cash or recorded.
4. Accrued Expenses. Expenses incurred but not yet paid in cash or recorded.
2. Unearned Revenues. Revenues received in cash and recorded as liabilities before they are earned.
Accruals
LO 5 LO 5 Explain the reasons for preparing adjusting Explain the reasons for preparing adjusting entries.entries.
Illustration 3-20
Chapter 3-12
Payment of cash that is recorded as an asset because Payment of cash that is recorded as an asset because service or benefit will be received in the future.service or benefit will be received in the future.
Adjusting Entries – “Prepaid Adjusting Entries – “Prepaid Expenses”Expenses”
Adjusting Entries – “Prepaid Adjusting Entries – “Prepaid Expenses”Expenses”
insuranceinsurance
suppliessupplies
advertisingadvertising
Cash PaymentCash Payment Expense RecordedExpense RecordedBEFORE
LO 5 LO 5 Explain the reasons for preparing adjusting Explain the reasons for preparing adjusting entries.entries.
rentrent
maintenance on maintenance on equipmentequipment
fixed assetsfixed assets
Prepayments often occur in regard to:Prepayments often occur in regard to:
Chapter 3-13
Example:Example: On Jan. 1On Jan. 1stst, Phoenix Corp. paid $12,000 for , Phoenix Corp. paid $12,000 for 12 months of insurance coverage. Show the journal 12 months of insurance coverage. Show the journal entry to record the payment on Jan. 1entry to record the payment on Jan. 1stst. .
Adjusting Entries – “Prepaid Adjusting Entries – “Prepaid Expenses”Expenses”
Adjusting Entries – “Prepaid Adjusting Entries – “Prepaid Expenses”Expenses”
Cash 12,000
Prepaid insurance 12,000
Jan. 1
LO 5 LO 5 Explain the reasons for preparing adjusting Explain the reasons for preparing adjusting entries.entries.
Debit Credit
Prepaid Insurance
12,00012,000 12,00012,000
Debit Credit
Cash
Chapter 3-14
Example:Example: On Jan. 1On Jan. 1stst, Phoenix Corp. paid $12,000 for , Phoenix Corp. paid $12,000 for 12 months of insurance coverage. Show the 12 months of insurance coverage. Show the adjusting adjusting journal entryjournal entry required at Jan. 31 required at Jan. 31stst. .
Adjusting Entries – “Prepaid Adjusting Entries – “Prepaid Expenses”Expenses”
Adjusting Entries – “Prepaid Adjusting Entries – “Prepaid Expenses”Expenses”
Prepaid insurance 1,000
Insurance expense 1,000Jan. 31
LO 5 LO 5 Explain the reasons for preparing adjusting Explain the reasons for preparing adjusting entries.entries.
Debit Credit
Prepaid Insurance
12,00012,000 1,0001,000
Debit Credit
Insurance expense
1,0001,000
11,00011,000
Chapter 3-15
Receipt of cash that is recorded as a liability Receipt of cash that is recorded as a liability because the revenue has not been earned.because the revenue has not been earned.
Adjusting Entries – “Unearned Adjusting Entries – “Unearned Revenues”Revenues”
Adjusting Entries – “Unearned Adjusting Entries – “Unearned Revenues”Revenues”
rentrent
airline ticketsairline tickets
school tuitionschool tuition
Cash ReceiptCash Receipt Revenue RecordedRevenue RecordedBEFORE
LO 5 LO 5 Explain the reasons for preparing adjusting Explain the reasons for preparing adjusting entries.entries.
magazine subscriptionsmagazine subscriptions
customer depositscustomer deposits
Unearned revenues often occur in regard to:Unearned revenues often occur in regard to:
Chapter 3-16
Example:Example: On Nov. 1On Nov. 1stst, Phoenix Corp. received $24,000 , Phoenix Corp. received $24,000 from Arcadia High School for 3 months rent in advance. from Arcadia High School for 3 months rent in advance. Show the journal entry to record the receipt on Nov. 1Show the journal entry to record the receipt on Nov. 1stst. .
Unearned rent revenue
24,000
Cash 24,000
Nov. 1
LO 5 LO 5 Explain the reasons for preparing adjusting Explain the reasons for preparing adjusting entries.entries.
Debit Credit
Cash
24,00024,000 24,00024,000
Debit Credit
Unearned Rent Revenue
Adjusting Entries – “Unearned Adjusting Entries – “Unearned Revenues”Revenues”
Adjusting Entries – “Unearned Adjusting Entries – “Unearned Revenues”Revenues”
Chapter 3-17
Example:Example: On Nov. 1On Nov. 1stst, Phoenix Corp. received $24,000 , Phoenix Corp. received $24,000 from Arcadia High School for 3 months rent in advance. from Arcadia High School for 3 months rent in advance. Show the Show the adjusting journal entryadjusting journal entry required on Nov. 30 required on Nov. 30thth. .
Rent revenue 8,000
Unearned rent revenue 8,000Nov. 30
LO 5 LO 5 Explain the reasons for preparing adjusting Explain the reasons for preparing adjusting entries.entries.
Debit Credit
Rent Revenue
8,0008,000 24,00024,000
Debit Credit
Unearned Rent Revenue
Adjusting Entries – “Unearned Adjusting Entries – “Unearned Revenues”Revenues”
Adjusting Entries – “Unearned Adjusting Entries – “Unearned Revenues”Revenues”
8,0008,000
16,00016,000
Chapter 3-18
Revenues earned but not yet received in cash or Revenues earned but not yet received in cash or recorded.recorded.
Adjusting Entries – “Accrued Adjusting Entries – “Accrued Revenues”Revenues”
Adjusting Entries – “Accrued Adjusting Entries – “Accrued Revenues”Revenues”
rentrent
interestinterest
services performedservices performed
BEFORE
LO 5 LO 5 Explain the reasons for preparing adjusting Explain the reasons for preparing adjusting entries.entries.
Accrued revenues often occur in regard to:Accrued revenues often occur in regard to:
Cash ReceiptCash ReceiptRevenue RecordedRevenue Recorded
Adjusting entry results in:Adjusting entry results in:
Chapter 3-19
Example:Example: On July 1On July 1stst, Phoenix Corp. invested $300,000 , Phoenix Corp. invested $300,000 in securities that return 5% interest per year. Show the in securities that return 5% interest per year. Show the journal entry to record the investment on July 1journal entry to record the investment on July 1stst. .
Cash 300,000
Investments 300,000
July 1
LO 5 LO 5 Explain the reasons for preparing adjusting Explain the reasons for preparing adjusting entries.entries.
Debit Credit
Investments
300,000300,000 300,000300,000
Debit Credit
Cash
Adjusting Entries – “Accrued Adjusting Entries – “Accrued Revenues”Revenues”
Adjusting Entries – “Accrued Adjusting Entries – “Accrued Revenues”Revenues”
Chapter 3-20
Example:Example: On July 1On July 1stst, Phoenix Corp. invested $300,000 , Phoenix Corp. invested $300,000 in securities that return 5% interest per year. Show the in securities that return 5% interest per year. Show the adjusting journal entryadjusting journal entry required on July 31 required on July 31stst. .
Interest revenue 1,250
Interest receivable 1,250July 31
LO 5 LO 5 Explain the reasons for preparing adjusting Explain the reasons for preparing adjusting entries.entries.
Debit Credit
Interest Receivable
1,2501,250 1,2501,250
Debit Credit
Interest Revenue
Adjusting Entries – “Accrued Adjusting Entries – “Accrued Revenues”Revenues”
Adjusting Entries – “Accrued Adjusting Entries – “Accrued Revenues”Revenues”
Chapter 3-21
Expenses incurred but not yet paid in cash or Expenses incurred but not yet paid in cash or recorded.recorded.
Adjusting Entries – “Accrued Adjusting Entries – “Accrued Expenses”Expenses”
Adjusting Entries – “Accrued Adjusting Entries – “Accrued Expenses”Expenses”
rentrent
interestinterest
taxestaxes
BEFORE
LO 5 LO 5 Explain the reasons for preparing adjusting Explain the reasons for preparing adjusting entries.entries.
Accrued expenses often occur in regard to:Accrued expenses often occur in regard to:
Cash Payment, if any*
Cash Payment, if any*
Expense RecordedExpense Recorded
salariessalaries
bad debts*bad debts*
Adjusting entry results in:Adjusting entry results in:
Chapter 3-22
Notes payable 200,000
Cash 200,000
Feb. 2
LO 5 LO 5 Explain the reasons for preparing adjusting Explain the reasons for preparing adjusting entries.entries.
Debit Credit
Cash
200,000200,000 200,000200,000
Debit Credit
Notes Payable
Adjusting Entries – “Accrued Adjusting Entries – “Accrued Expenses”Expenses”
Adjusting Entries – “Accrued Adjusting Entries – “Accrued Expenses”Expenses”
Example:Example: On Feb. 2On Feb. 2ndnd, Phoenix Corp. borrowed $200,000 , Phoenix Corp. borrowed $200,000 at a rate of 9% per year. Interest is due on first of each at a rate of 9% per year. Interest is due on first of each month. Show the journal entry to record the borrowing on month. Show the journal entry to record the borrowing on Feb. 2Feb. 2ndnd..
Chapter 3-23
Example:Example: On Feb. 2On Feb. 2ndnd, Phoenix Corp. borrowed $200,000 , Phoenix Corp. borrowed $200,000 at a rate of 9% per year. Interest is due on first of each at a rate of 9% per year. Interest is due on first of each month. Show the month. Show the adjusting journal entryadjusting journal entry required on Feb. required on Feb. 2828thth..
Interest payable 1,500
Interest expense 1,500Feb. 28
LO 5 LO 5 Explain the reasons for preparing adjusting Explain the reasons for preparing adjusting entries.entries.
Debit Credit
Interest Expense
1,5001,500 1,5001,500
Debit Credit
Interest Payable
Adjusting Entries – “Accrued Adjusting Entries – “Accrued Expenses”Expenses”
Adjusting Entries – “Accrued Adjusting Entries – “Accrued Expenses”Expenses”
Chapter 3-24
Shows the balance of all accounts, after adjusting entries, at the end of the accounting period.
5. Adjusted Trial Balance5. Adjusted Trial Balance5. Adjusted Trial Balance5. Adjusted Trial Balance
LO 5 LO 5 Explain the reasons for preparing adjusting Explain the reasons for preparing adjusting entries.entries.
Chapter 3-25
6. Preparing Financial Statements6. Preparing Financial Statements6. Preparing Financial Statements6. Preparing Financial Statements
LO 6 Prepare financial statement from the adjusted trial LO 6 Prepare financial statement from the adjusted trial balance.balance.
Financial Statements are prepared directly from the Adjusted Trial Balance.
Financial Statements are prepared directly from the Adjusted Trial Balance.
Balance Sheet
Income Statemen
t
Statement of Cash
Flows
Statement of
Retained Earnings
Chapter 3-26
Adjusted Trial Balance Debit Credit
Cash 140,000$ Accounts receivable 35,000 Building 190,000 Note payable 150,000$ Common stock 100,000 Retained earnings 38,000 Dividends declared 10,000 Sales 185,000 I nterest income 17,000 Cost of goods sold 47,000 Salary expense 25,000 Depreciation expense 43,000
490,000$ 490,000$
Balance Sheet
Assets
Cash 140,000$ Accounts receivable 35,000 Building 190,000
Total assets 365,000$
Liabilities
Note payable 150,000 Stockholders' equity
Common stock 100,000 Retained earnings 115,000
Total liab. & equity 365,000$
6. Preparing Financial Statements6. Preparing Financial Statements6. Preparing Financial Statements6. Preparing Financial Statements
Balance Sheet
LO 6 Prepare financial statement from the adjusted trial LO 6 Prepare financial statement from the adjusted trial balance.balance.
Assume the following Adjusted Trial Balance
Chapter 3-27
Adjusted Trial Balance Debit Credit
Cash 140,000$ Accounts receivable 35,000 Building 190,000 Note payable 150,000$ Common stock 100,000 Retained earnings 38,000 Dividends declared 10,000 Sales 185,000 I nterest income 17,000 Cost of goods sold 47,000 Salary expense 25,000 Depreciation expense 43,000
490,000$ 490,000$
I ncome Statement
Revenues:
Sales 185,000$ I nterest income 17,000
Total revenue 202,000 Expenses:
Cost of goods sold 47,000 Salary expense 25,000 Depreciation expense 43,000
Total expenses 115,000 Net income 87,000$
6. Preparing Financial Statements6. Preparing Financial Statements6. Preparing Financial Statements6. Preparing Financial Statements
LO 6 Prepare financial statement from the adjusted trial LO 6 Prepare financial statement from the adjusted trial balance.balance.
Income Statement
Assume the following Adjusted Trial Balance
Chapter 3-28
Adjusted Trial Balance Debit Credit
Cash 140,000$ Accounts receivable 35,000 Building 190,000 Note payable 150,000$ Common stock 100,000 Retained earnings 38,000 Dividends declared 10,000 Sales 185,000 I nterest income 17,000 Cost of goods sold 47,000 Salary expense 25,000 Depreciation expense 43,000
490,000$ 490,000$
Statement of Retained Earnings
Beginning balance 38,000$ + Net income 87,000 - Dividends (10,000) Ending balance 115,000
6. Preparing Financial Statements6. Preparing Financial Statements6. Preparing Financial Statements6. Preparing Financial Statements
LO 6 Prepare financial statement from the adjusted trial LO 6 Prepare financial statement from the adjusted trial balance.balance.
Statement of Retained Earnings
Assume the following Adjusted Trial Balance
Chapter 3-29
7. Closing Entries7. Closing Entries7. Closing Entries7. Closing Entries
LO 7 Prepare closing LO 7 Prepare closing entries.entries.
To reduce the balance of the income To reduce the balance of the income statement (statement (revenuerevenue and and expenseexpense) accounts ) accounts to zero. to zero.
To transfer net income or net loss to owner’s To transfer net income or net loss to owner’s equity.equity.
Balance sheet (Balance sheet (assetasset, , liabilityliability, and , and equityequity) ) accounts are not closed.accounts are not closed.
Dividends are closed directly to the Retained Dividends are closed directly to the Retained Earnings account.Earnings account.
Chapter 3-30
7. Closing Entries7. Closing Entries7. Closing Entries7. Closing Entries
LO 7 Prepare closing LO 7 Prepare closing entries.entries.
ExampleExample: Assume the following Adjusted Trial : Assume the following Adjusted Trial BalanceBalanceAcct. No. Account Debit Credit
100 Cash 140,000$ 105 Accounts receivable 35,000 130 Building 190,000 220 Note payable 150,000$ 300 Common stock 100,000 330 Retained earnings 38,000 380 Dividends declared 10,000 400 Sales 185,000 430 I nterest income 17,000 500 Cost of goods sold 47,000 520 Salary expense 25,000 550 Depreciation expense 43,000
490,000$ 490,000$
Chapter 3-31
Example:Example: Prepare the Prepare the Closing journal entryClosing journal entry from the from the adjusted trial balance on the previous slide.adjusted trial balance on the previous slide.
7. Closing Entries7. Closing Entries7. Closing Entries7. Closing Entries
LO 7 Prepare closing LO 7 Prepare closing entries.entries.
Sales 185,000
Income summary 202,000Interest income 17,000
Income summary 115,000Cost of goods sold 47,000Salary expense 25,000Depreciation expense 43,000
Income summary 87,000Retained earnings 87,000
Retained earnings 10,000Dividends declared 10,000
Chapter 3-32
8. Post-Closing Trial Balance8. Post-Closing Trial Balance8. Post-Closing Trial Balance8. Post-Closing Trial Balance
LO 7 Prepare closing LO 7 Prepare closing entries.entries.
Example Example continued:continued:
Acct. No. Account Debit Credit
100 Cash 140,000$ 105 Accounts receivable 35,000 130 Building 190,000 220 Note payable 150,000$ 300 Common stock 100,000 330 Retained earnings 115,000 380 Dividends declared - 400 Sales - 430 I nterest income - 500 Cost of goods sold - 520 Salary expense - 550 Depreciation expense -
365,000$ 365,000$
Chapter 3-33
9. Reversing Entries9. Reversing Entries9. Reversing Entries9. Reversing Entries
LO 7 Prepare closing LO 7 Prepare closing entries.entries.
Reversing entries is an Reversing entries is an optional stepoptional step that a company may perform at the that a company may perform at the beginning of the next accounting beginning of the next accounting period.period.
Chapter 3-34
Copyright © 2007 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.
CopyrightCopyrightCopyrightCopyright