The Accounting Equation The Accounting Equation
The Accounting Equation The Accounting Equation
The Accounting Equation The Accounting Equation
The Accounting
Accounting Equation
Equation
Relationship among the assets, liabilities and
stockholders’ equity of a business:
Illustration 3-3
Chapter
3-1
The
The Accounting
Accounting Cycle
Cycle
Illustration 3-6
Transactions
Transactions
9.
9. Reversing
Reversing entries
entries 1.
1. Journalization
Journalization
8.
8. Post-closing
Post-closing trail
trail balance
balance 2.
2. Posting
Posting
7.
7. Closing
Closing entries
entries 3.
3. Trial
Trial balance
balance
Work
Work
6.
6. Financial
Financial Statements
Statements Sheet
Sheet
4.
4. Adjustments
Adjustments
5.
5. Adjusted
Adjusted trial
trial balance
balance
Chapter
3-2
Adjusting
Adjusting Entries
Entries
Chapter
3-3
Types
Types of
of Adjusting
Adjusting Entries
Entries
Illustration 3-20
Prepayments Accruals
1. Prepaid Expenses. 3. Accrued Revenues.
Expenses paid in cash and Revenues earned but not
recorded as assets before yet received in cash or
they are used or consumed. recorded.
Chapter
3-4
Expedient Recording Method
Expedient
Records an expense upon payment of cash
before goods or services are consumed
Chapter
3-5
Expedient
Expedient General
General Entries
Entries
Q1 : On December 1, 2011, Johnson received a $45,000 payment for
services to be rendered equally over a four-month period. Service revenue
was credited.
Chapter
3-6
Adjusting
Adjusting Entries
Entries for
for “Unearned
“Unearned Revenues”
Revenues”
Q1 : On December 1, 2011, Johnson received a $45,000 payment for
services to be rendered equally over a four-month period. Service revenue
was credited.
11,250
33,750
Chapter
3-7
Impact Without Adjusted Entries
Chapter
3-8
Standard Recording Method
Standard
Chapter
3-9
Standard
Standard General
General Entries
Entries
Q1 : On December 1, 2011, Johnson received a $45,000 payment for
services to be rendered equally over a four-month period.
Chapter
3-10
Adjusting
Adjusting Entries
Entries for
for “Unearned
“Unearned Revenues”
Revenues”
Q1 : On December 1, 2011, Johnson received a $45,000 payment for
services to be rendered equally over a four-month period.
11,250
33,750
Chapter
3-11
Expedient Vs. General
Expedient
Service Revenue Unearned Service Revenue
Debit Credit Debit Credit
33,750 45,000 33,750
11,250
33,750
General
Service Revenue Unearned Service Revenue
Debit Credit Debit Credit
11,250 11,250 45,000
11,250
33,750
Chapter
3-12
Adjusting
Adjusting Entries
Entries for
for “Prepaid
“Prepaid Expenses”
Expenses”
Q2. On December 31, 2011, the company paid a local radio station
$16,000 for 40 radio ads that were to be aired, 20 per month, throughout
January and February of 2012. Prepaid advertising was debited.
16,000
Chapter
3-13
Adjusting
Adjusting Entries
Entries for
for “Accrued
“Accrued Expenses”
Expenses”
Q3. Employee salaries for the month of December 2011 totaling
$8,400 will be paid on January 5, 2012.
8,400
Chapter
3-14
Adjusting
Adjusting Entries
Entries for
for “Accrued
“Accrued Expenses”
Expenses”
Q3. Employee salaries for the month of December 2011 totaling
$8,400 will be paid on January 5, 2012.
Chapter
3-15
Adjusting
Adjusting Entries
Entries for
for “Accrued
“Accrued Expenses”
Expenses”
Q4. On September 31, 2011, Johnson Corp. borrowed $60,000 from a local
bank. A note was signed with principal and 6% interest to be paid on
September 1, 2012.
(Interest = 60,000 * 6% /12 *3)
Dec. 31 Interest expense 900
Interest payable 900
Chapter
3-16
Adjusting
Adjusting Entries
Entries for
for “Accrued
“Accrued Expenses”
Expenses”
Q4. On September 31, 2011, Johnson Corp. borrowed $60,000 from a local
bank. A note was signed with principal and 6% interest to be paid on
September 1, 2012.
(Interest = 60,000 * 6% /12 *3)
Dec. 31 Interest expense(SE) 900
Interest payable(L) 900
Chapter
3-17
Adjusting
Adjusting Entries
Entries for
for “Accrued
“Accrued Expenses”
Expenses”
Q5. On December 31, 2011, it was determined that $8,000 of the recorded
Accounts receivable would prove to be uncollectible.
Chapter
3-18
Impact Without Adjusted Entries
Q5. On December 31, 2011, it was determined that $8,000 of the recorded
Accounts receivable would prove to be uncollectible.
Chapter
3-19
Impact Without Adjusted Entries
Chapter
3-20
Conclusion
Accounting Concepts
Revenue and Expense
Revenue Recognition and Matching Principle
Standard Vs. Expedient Recording Method
Types of Adjusted Entries
Prepayments : Prepaid Expense and Unearned
Revenue
Accruals: Accrued Rev. and Accrued Exp.
Impact without adjusted entries
Overstated A, L, SE, NI, RE
Understated A, L, SE, NI, RE
Chapter
3-21
Questions
Chapter
3-22
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