Summary Intro to Accounting

7/29/2019 Summary Intro to Accounting

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Summary Introduction

to Accounting

Class: B and F


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BASIC ACCOUNTINGEQUATIONSTUDY OBJECTIVE 6

Assets Liabilities Owners Equity= +

Cash

Petty cash

Short term investment

Account receivable

Notes receivable

Other receivable

Inventories

SuppliesPrepaid insurance

Prepaid rent

Land

Office building

Less: Accumulated Depreciation office building

Office equipment

Less: Accumulated Depreciation office equipment

Assets

Notes payable

Account payable

Tax payable

Salaries payable

Other payable

Liabilities Owner's EquityOwner, Capital


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Accounting EquationSTUDY OBJECTIVE 6

Assets Liabilities Owners Equity= +

+ +1

+ +2

+ -3

+ -4


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INCREASES AND DECREASES INOWNERS EQUITY

INCREASES DECREASES

Owners

EquityRevenues

Withdrawals

by Owner

Expenses

Investmentsby Owner

Revenues-Expenses=Net Income (Income Statement Items)


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BASIC FORM OF ACCOUNT

The simplest form an account consists of

1 the title of the account

2 a left or debit side

3 a right or credit side The alignment of these parts resembles the

letter T = T account

Left or debit side

Title of Account

Right or credit side

Debit balance Credit balance


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Cash

Debits Credits

15,000

Example: 1. The owner makes an initialinvestment of$15,000 to startthe business. Cash is debitedas the owners Capital is

credited.

DEBITING AN ACCOUNT


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DEBITING / CREDITING AN ACCOUNT

Cash

Debits Credits

15,000 7,000

8,000

Example: Cash is debited for$15,000 andcredited for$7,000, leaving a debitbalance of$8,000.


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DOUBLE-ENTRY SYSTEM

equal debits and credits made accountsfor each transaction

total debits always equal the totalcredits

accounting equation always stays in

balance

Assets Liabilities Equity


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EXPANDED BASIC EQUATION AND

DEBIT/CREDIT RULES AND EFFECTS

LiabilitiesAssets Owners Equity

= + -

+=

+ -

Assets

Dr. Cr.

+ -

Liabilities

Dr. Cr.

- +

Dr. Cr.

Owners

Drawing

+ -

Dr. Cr.

Revenues

- +

Dr. Cr.

Expenses

+ -

Dr. Cr.

Owners

Capital

- +


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SUMMARY DEBIT-CREDIT

Debits Credits

Assets/aset Increase DecreaseLiabilities/Kewajiban Decrease Increase

Equity/Modal Decrease IncreaseRevenues/Pendapatan Decrease Increase

Expenses/Beban Increase Decrease


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GENERAL JOURNAL J1

Date Account Titles and Explanation Ref. Debit Credit

2005

July 1 Cash 20,000

K. Browne, Capital 20,000

(Invested cash in the

business)

If an entry involves only two accounts, one debit andone credit, it is considered a simple entry.

Journal Entries---- Example

When three or more accounts are required in one journal entry, theentry is referred to as a compound entry.

2

1

3

GENERAL JOURNAL J1

Date Account Titles and Explanation Ref. Debit Credit2005

July 1 Delivery Equipment 14,000

Cash 8,000

Accounts Payable 6,000

(Purchased truck for cash

with balance on account)


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POSTING A JOURNAL ENTRY

In the ledger, enter in the appropriate columns of the account(s)debited the date,journal page, and debit amount shown in the journal.

GENERAL JOURNAL J1

Date Account Titles and Explanation Ref. Debit Credit

2005Sept. 1 Cash 10 15,000

R. Neal, Capital 25 15,000(invested cash in business)

R. NEAL, CAPITAL NO. 25Date Explanation Ref. Debit Credit Balance

2005Sept. 1 J1 15,000 15,000

GENERAL LEDGERCASH NO. 10

Date Explanation Ref. Debit Credit Balance

2005Sept. 1 J1 15,000 15,000


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THE TRIAL BALANCE

STUDY OBJECTIVE 7 The primary purpose of a trial balance is

to prove debits = credits after posting.

If debits and credits do not agree,

the trial balance can be used to uncovererrors in journalizing and posting.

The Steps in preparing the Trial Balanceare:

1. List the account titles and balances

2. Total the debit and credit columns

3. Prove the equality of the two columns


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PIONEER ADVERTISING AGENCY

Trial Balance

October 31, 2005

Debit Credit

Cash $ 15,200Advertising Supplies 2,500Prepaid Insurance 600

Office Equipment 5,000Notes Payable $ 5,000Accounts Payable 2,500Unearned Fees 1,200C. R. Byrd, Capital 10,000C. R. Byrd, Drawing 500Fees Earned 10,000Salaries Expense 4,000Rent Expense 900

$ 28,700 $ 28,700

The totaldebits mustequal the totalcredits.

A TRIAL BALANCE


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TIME-PERIOD ASSUMPTION Thetime period (or periodicity) assumption

assumes the economic life of a business can be divided into artificial

time periods, generally month, a quarter, or a year (referred to as afiscal year)

ACCRUAL BASIS OF ACCOUNTING Cash basis accounting

revenue is recorded when cash is received

expenses are recorded when cash is paid

Using accrual basis, we have 2 assumption:

Revenue recognition

Revenue must be recognized in the accounting period in which it

is earned, not just when money is exchanged.

In a service business, revenue is earned at the time the service is

performed. Matching principles

Revenuesearned

thismonth

are offsetagainst....

Expensesincurred

inearning

the

revenue


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Adjusting entries are classified as

Prepayments (prepaid expensesand unearnedrevenues)

Prepaid Expenses

Expenses paid in cash - recorded as assets before used or consumed Unearned Revenues

Cash received - recorded as liabilities before the revenue is earned

Accruals (accruedrevenuesand accruedexpenses)

Accrued RevenuesRevenues earned but not yet received in cash or recorded

Accrued Expenses

Expenses incurred but not yet paid in cash or recorded

ADJUSTING ENTRIES


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ADJUSTING ENTRIES FOR PREPAYMENTSAdjusting Entries

Asset

UnadjustedBalance

CreditAdjusting

Entry (-)

Expense

DebitAdjusting

Entry (+)

Prepaid Expenses

Liability

Unadjusted

Balance

Debit

Adjusting

Entry (-)

Revenue

Credit

Adjusting

Entry (+)

Unearned Revenues


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Advertising Supplies Expense

Oct. 31 1,500

Advertising Supplies

Oct. 5 2,500 Oct. 31 1,500

31 1,000

Date Account Titles and Explanation Debit CreditOct. 31 Advertising Supplies Expense 1,500

Advertising Supplies 1,500(To record supplies used)

JOURNAL ENTRY

POSTING

ADJUSTMENT October 31, an inventory count reveals that $1,000of $2,500 of supplies are still on hand.

EXAMPLE: ADJUSTING ENTRIESFOR PREPAYMENTS SUPPLIES


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Adjusting Entries

Asset

Debit

Adjusting

Entry (+)

Accrued Revenues

Revenue

Credit

Adjusting

Entry (+)

Accrued Expenses

Expense

Debit

Adjusting

Entry (+)

Liability

Credit

Adjusting

Entry (+)

ADJUSTING ENTRIES FOR ACCRUALS


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EXAMPLE: ADJUSTING ENTRIES FORACCRUALS ACCRUED INTEREST

Interest PayableOct. 31 50

Interest Expense

Oct. 31 50

Date Account Titles and Explanation Debit CreditOct. 31 Interest Expense 50

Interest Payable 50(To accrue interest on notes payable)

JOURNAL ENTRY

POSTING

ADJUSTMENT October 31, the portion of the interest to be accruedon a 3-month note payable is calculated to be $50.


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ADJUSTED TRIAL BALANCE

Adjusted Trial Balanceprepared after all adjusting entries have been

journalized and posted

purpose is to prove equality of the total debit

and credit balances in the ledger after

adjustments have been made

Financial statements

prepared directly from the adjusted trial balance


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PIONEER ADVERTISING AGENCYAdjusted Trial Balance

October 31, 2005Before After

Adjustment Adjustment

Debit Credit Debit Credit

Cash $ 15,200 $ 15,200

Accounts Receivable 200Advertising Supplies 2,500 1,000Prepaid Insurance 600 550Office Equipment 5,000 5,000Accumulated Depreciation - Office Equipment $ 40Notes Payable $ 5,000 5,000Accounts Payable 2,500 2,500Interest Payable 50Unearned Revenue 1,200 800Salaries Payable 1,200C. R. Byrd, Capital 10,000 10,000

C. R. Byrd, Drawing 500 500Service Revenue 10,000 10,600Salaries Expense 4,000 5,200Advertising Supplies Expense 1,500Rent Expense 900 900Insurance Expense 50Interest Expense 50Depreciation Expense 40

$ 28,700 $ 28,700 $ 30,190 $ 30,190

TRIAL BALANCE AND ADJUSTEDTRIAL BALANCE COMPARED


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PREPARING FINANCIAL STATEMENTS

Financial statements are prepared directly from theadjusted trial balance

Income statement use the revenue and expense accounts

Owners Equity Statement use the owners capital and drawing accounts and the netincome

(or net loss) from the Income Statement

Balance sheet use asset and liability accounts and ending owners capital

balance reported in Owners Equity Statement


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PREPARATION OF THE INCOME STATEMENT ANDTHE OWNERS EQUITY STATEMENT FROM THEADJUSTED TRIAL BALANCE

PIONEER ADVERTISING AGENCYIncome Statement

For the Month Ended October 31, 2005

Revenues

Fees earned $ 10,600

ExpensesSalaries expense $ 5,200

Advertising supplies expense 1,500

Rent expense 900

Insurance expense 50

Interest expense 50

Depreciation expense 40

Total expenses 7,740

Net income $ 2,860

The income statement is prepared from the revenue and expense accounts.


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PREPARATION OF THE INCOME STATEMENT AND THE OWNERS

EQUITY STATEMENT FROM THE ADJUSTED TRIAL BALANCE

PIONEER ADVERTISING AGENCYOwners Equity Statement


C.R. Byrd, Capital, October 1 $ -0-Add: Investments $ 10,000

Net income 2,860 12,860

12,860Less: Drawings 500

C.R . Byrd, Capital, October 31 $ 12,360

The owners equity statement is prepared from the owners capital anddrawing accounts and the net income (ornet loss) shown in the incomestatement.


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PREPARATION OF THE BALANCE SHEETFROM THE ADJUSTED TRIAL BALANCEPIONEER ADVERTISING AGENCY

Balance SheetOctober 31, 2005

Assets Liabilities and Owners Equity

Cash $ 15,200 LiabilitiesAccounts receivable 200 Notes payable $ 5,000Advertising supplies 1,000 Accounts payable 2,500Prepaid insurance 550 Interest payable 50Office equipment $ 5,000 Unearned fees 800Less: Accumulated Salaries payable 1,200

depreciation 40 4,960 Total liabilities 9,550

Owners equityC.R. Byrd, Capital 12,360

Total liabilities and ownersTotal assets $ 21,910 equity $ 21,910

The balance sheet is then prepared from the asset and liability accounts

and the ending owners capital balanceas reported in the owners equitystatement.


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SUMMARY OF BASIC RELATIONSHIPS FORPREPAYMENTS

1 Prepaid Assets and a Prepaid expenses Assets overstated DrExpensesExpenses Expenses initially recorded in Expenses understated CrAssets

asset accounts have

been used.

b Prepaid expenses Assets understated DrAssetsinitially recorded in Expenses overstated CrExpensesexpense accounts

have not been used.

2 Unearned Liabilities and a Unearned revenues Liabilities overstated DrLiabilitiesRevenues Revenues initially recorded in Revenues understated CrRevenues

liability accountshave been earned.

b Unearned revenues Liabilities understated DrRevenuesinitially recorded in Revenues overstated CrLiabilities

revenue accounts

have not been earned.

Type of Account Reason for Account Balances Adjusting

Adjustment Relationship Adjustment before Adjustment Entry


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FORM AND PROCEDUREFOR A WORK SHEET


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PREPARING A WORK SHEET1 PREPARING A TRIAL BALANCE


Work Sheet

For the Month Ended October 31, 200 5Adjusted

Trial Balance Adjustments Trial Balance

Account Titles Dr. Cr. Dr. Cr. Dr. Cr.

Cash

Advertising SuppliesPrepaid Insurance

Office Equipment quipmentNotes Payable

Accounts Payable

Unearned RevenueC.R. Byrd, Capital

C.R. Byrd, Drawing

Service Revenue

Salaries Expense

Rent Expense

Totals

.

0015,2000002,50000006000005,000

5,0002,5001,200

000010,0000000500

10,000

0004,00000009000028,700 28,700


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ADJUSTING ENTRIES JOURNALIZED

GENERAL JOURNALDate Account Titles and Explanation Ref. Debit Credit2005 aOct. 31

b31

c31

d31

e31

f31

g31

Advertising Supplies Expense 1,500

Advertising Supplies 1,500

Insurance Expense 50

Prepaid Insurance 50

Depreciation Expense 40Accumulated Expense 40

Unearned Fees 400

Fees Earned 400

Accounts Receivable 200

Fees Earned 200Interest Expense 50

Interest Payable 50

Salaries Expense 1,200

Salaries Payable 1,200


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PREPARING A WORK SHEET2 ENTER THE ADJUSTMENTS


Work Sheet

For the Month Ended October 31, 2005Adjusted



Cash 15,200Advertising Supplies 2,500Prepaid Insurance 600Office Equipment 5,000Notes Payable 5,000Accounts Payable 2,500Unearned Revenue 1,200C.R. Byrd, Capital 10,000C.R. Byrd, Drawing 500Service Revenue 10,000

Salaries Expense 4,000Rent Expense 900

Totals 28,700 28,700

Advertising Supplies Expense

Insurance Expense

Accum. DeprOff Equip

Depreciation Expense

Accounts ReceivableInterest Expense

Interest Payable

Salaries PayableTotals 3,440 3,440

a 1,500b 50

d 400

d 400

e 200g 1,200

a 1,500b 50

c 40c 40e 200f 50

f 50g 1,200


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PREPARING A WORK SHEET3 ENTER ADJUSTED BALANCES


Work Sheet


Adjusted



Cash 15,200 15,2001,000

5505,000

500

5,200900

1,50050

4050

200

5,0002,500

80010,000

10,600

40

501,200

Advertising Supplies 2,500 a1,500Prepaid Insurance 600 b 50Office Equipment 5,000Notes Payable 5,000Accounts Payable 2,500Unearned Revenue 1,200 d 400C.R. Byrd, Capital 10,000C.R. Byrd, Drawing 500Service Revenue 10,000 d 400

e 200Salaries Expense 4,000 g1,200Rent Expense 900

Totals 28,700 28,700

Advertising Supplies Expense a1,500Insurance Expense b 50Accum. DeprOff Equip c 40Depreciation Expense c 40Interest Expense f 50Accounts Receivable e 200

Interest Payable f 50Salaries Payable g1,200

Totals 3,440 3,440 30,190 30,190


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PREPARING A WORK SHEET4 EXTEND ADJUSTED BALANCES


Work Sheet

For the Month Ended October 31, 200 5

Adjusted Income

Trial Balance Statement Balance Sheet


Cash 15,200Advertising Supplies 1,000

Prepaid Insurance 550Office Equipment 5,000Notes Payable 5,000Accounts Payable 2,500

Unearned Revenue 800

C.R. Byrd, Capital 10,000

C.R. Byrd, Drawing 500

Service Revenue 10,600Salaries Expense 5,200

Rent Expense 900

Advertising Supplies Expense 1,500Insurance Expense 50

Accum. Depr. Office Equip. 40

Depreciation Expense 40

Interest Expense 50Accounts Receivable 200

Interest Payable 50Salaries Payable 1,200

Totals 30,190 30,190 7,740 10,600

Net Income 2,860

Totals 10,600 10,600

10,600.05,200.0 0000000

900.000000001,500.000000000

50.0000000

405 50


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PREPARING A WORK SHEET4 EXTEND ADJUSTED

BALANCESPIONEER ADVERTISING AGENCYWork Sheet


Adjusted Income

Trial Balance Statement Balance Sheet


Cash 15,200Advertising Supplies 1,000

Prepaid Insurance 550Office Equipment 5,000

Notes Payable 5,000Accounts Payable 2,500Unearned Revenue 800

C.R. Byrd, Capital 10,000C.R. Byrd, Drawing 500Service Revenue 10,600 10,600Salaries Expense 5,200 5,200RentExpense 900 900

Advertising Supplies Expense 1,500 1,500Insurance Expense 50 50

Accum. Depr. Office Equip. 40Depreciation Expense 40 40Interest Expense 50 50Accounts Receivable 200Interest Payable 50

Salaries Payable 1,200

Totals 30,190 30,190 7,740 10,600 22,450 19,590

Net Income 2,860 2,860

Totals 10,600 10,600 22,450 22,450

15,200

1,0005 5505,000

5,0002,500

80010,000

5500

40

20050

1,200


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PREPARATION OF FINANCIAL STATEMENTSINCOMESTATEMENT

PIONEER ADVERTISING AGENCYIncome Statement


RevenuesService revenue

ExpensesSalaries expenseAdvertising supplies expenseRent expenseInsurance expenseInterest expenseDepreciation expense

Total expensesNet income

The income statement isprepared from the incomestatement columns of the

work sheet.

$10,600

$5,200

1,500

900

50

50

40

7,740$ 2,860


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PREPARATION OF FINANCIAL STATEMENTSOWNERS EQUITY STATEMENT

PIONEER ADVERTISING AGENCYOwners Equity Statement


C.R. Byrd, Capital, October 1Add: Investments

Net income

Less: Drawings

C.R. Byrd, Capital, October 31

The owners equity

statement is prepared fromthe balance sheet columns

of the work sheet.

$ -0-

$10,000

2,860 12,860

12,860500

$12,360


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PREPARATION OF FINANCIAL STATEMENTSBALANCE SHEET

The balance sheet is prepared from thebalance sheet columns of the work sheet.


Balance Sheet

October 31, 2005

Assets Liabilities and Owners Equity

Cash LiabilitiesAccounts receivable Notes payable

Advertising supplies Accounts payable

Prepaid insurance Interest payable

Office equipment Unearned revenue

Less: Accumulated Salaries payable

depreciation Total liabilities

Owners equityC.R. Byrd, Capital

Total liabilities and owners

Total assets equity

$ 15,200

200

1,000

550

$5,000

40 4,960

$21,910

$ 5,000

2,500

50

800

1,200

9,550

12,360

$21,910


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MERCHANDISING COMPANYAmerchandising companybuys and sells goods to earn a

profit.1)Wholesalers sell to retailers2)Retailers sell to consumers

Primary source of revenue is Sales

Expenses for a merchandiserare divided into twocategories:

1. Cost of goods soldThe total cost of merchandise sold during the period

2. Operating expensesExpenses incurred in the process of earning sales revenue(Examples: sales salaries and insurance expense)

Gross profitis equal to Sales Revenue less Cost ofGoods Sold

MEASURING NET INCOME FOR

MERCHANDISING COMPANY


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INCOMEMEASUREMENTPROCESS FOR AMERCHANDISINGCOMPANY

PERPETUAL VS.PERIODIC


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Page 220 General Journal Perpetual vs PeriodicDate Transaction

4 Purchase of merchandise on credit Merchandise Inventory 3,800 Purchase 3,800

Account Payable 3,800 Account Payable 3,800

6 Freight cost on purchases Merchandise Inventory 150 Freight-in 150

Cash 150 Cash 150

8 Purchase returns and allowances Account Payable 300 Account Payable 300

Merchandise Inventory 300 Purchase return and

allowances

300

14 Payment on account with a discount Account Payable 3,500 Account Payable 3,500

Cash 3,430 Cash 3,430

Merchandise Inventory 70 Purchase discount 70

4 Sale of merchandise on credit Account Receivable 3,800 Account Receivable 3,800

Sales Revenue 3,800 Sales Revenue 3,800

Cost of goods sold 2,400

Merchandise Inventory 2,400

8 Return of Merchandise sold Sales Return and allowances 300 Sales Return and allowances 300

Account Receivable 300 Account Receivable 300

Merchandise Inventory 140

Cost of goods sold 14014 Cash 3,430 Cash 3,430

Sales discount 70 Sales discount 70

Account Receivable 3,500 Account Receivable 3,500

Cash received on account with a

discount

No entry for cost of goods sold

No entry

Perpetual Inventory System Periodic Inventory System

General Journal as Buyer

General Journal as Seller


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Determining Cost of Goods Sold

Periodic

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Summary Intro to Accounting

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