Post on 21-May-2018
Chapter 3-1
Impact of Adjusted EntriesImpact of Adjusted Entriesby Group 1by Group 1
Fernando Casco-Downing, Katie Fernando Casco-Downing, Katie Fleming, Michael Kubik, Emily Fleming, Michael Kubik, Emily
Stone, Fei Wang Stone, Fei Wang
Chapter 3-2
IntroductionIntroduction Accounting Equation (A= L + SE)Accounting Equation (A= L + SE) Accounting CycleAccounting Cycle Accounting ConceptsAccounting Concepts
RevenueRevenue ExpenseExpense Revenue RecognitionRevenue Recognition Matching PrincipleMatching Principle
Types of Adjusted EntriesTypes of Adjusted Entries Examples of Adjusted EntriesExamples of Adjusted Entries Impact without entriesImpact without entries
Chapter 3-3
The Accounting EquationThe Accounting Equation
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 3-4
The Accounting CycleThe Accounting Cycle
Transactions
1. Journalization
6. Financial Statements
7. Closing entries
8. Post-closing trail balance
9. Reversing entries
3. Trial balance
2. Posting
5. Adjusted trial balance
4. AdjustmentsWork Sheet
Illustration 3-6
Chapter 3-5
Adjusting EntriesAdjusting 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.
Chapter 3-6
Types of Adjusting EntriesTypes of Adjusting Entries
1. Prepaid Expenses. Expenses paid in cash and recorded as assets before they are used or consumed.
Prepayments3. 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.
AccrualsIllustration 3-
20
Chapter 3-7
Expedient Recording MethodExpedient Recording Method
ExpedientExpedient Records an Records an expense expense upon payment of cash upon payment of cash
before goods or services are consumedbefore goods or services are consumed
Records Records revenue revenue upon receipt of cash upon receipt of cash before goods or services are providedbefore goods or services are provided
Chapter 3-8
Debit CreditService Revenue
45,00045,000Debit Credit
Cash
45,00045,00045,00045,000
Expedient General Entries Expedient General 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.
Service revenue 45,000
Cash 45,000
Dec. 1
45,00045,000
Chapter 3-9
Debit CreditService Revenue
33,75033,750 33,75033,750Debit CreditUnearned Service
Revenue
45,00045,000
11,25011,250
Adjusting Entries for “Unearned Adjusting Entries for “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.
Unearned service revenue 33,750
Service revenue 33,750
Dec. 31
33,75033,750
(=45,000-45,000/4)
Chapter 3-10
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.
Unearned service revenue (L)
33,750
Service revenue (SE) 33,750
Dec. 31 (=45,000-45,000/4)
Impact Without Adjusted EntriesImpact Without Adjusted Entries
Total Assets
Total Liab.
Stk. Equity
Net Income
Retained Earning
None
Understate 33750
Overstate 33750
Overstate 33750
Overstate 33750
Chapter 3-11
Standard Recording MethodStandard Recording Method
StandardStandard
Asset Asset upon payment of cashupon payment of cashLiability Liability upon receipt of cash upon receipt of cash
before goods or services are before goods or services are providedprovided
Chapter 3-12
Debit CreditUnearned Service
Revenue
45,00045,000Debit Credit
Cash
45,00045,00045,00045,000
Standard General Entries Standard General Entries
Q1 : On December 1, 2011, Johnson received a $45,000 payment for services to be rendered equally over a four-month period.
Unearned service revenue 45,000
Cash 45,000
Dec. 1
45,00045,000
Chapter 3-13
Debit CreditService Revenue
45,00045,000Debit CreditUnearned Service
Revenue
11,25011,250 11,25011,250
Adjusting Entries for “Unearned Adjusting Entries for “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 11,250
Unearned service revenue
11,250
Dec. 31
33,75033,75011,25011,250
Chapter 3-14
Expedient Vs. GeneralExpedient Vs. GeneralExpedientExpedient
GeneralGeneral
Debit CreditService Revenue
33,75033,750 33,75033,750Debit CreditUnearned Service
Revenue
45,00045,00011,25011,250
33,75033,750
Debit CreditService Revenue
45,00045,000Debit CreditUnearned Service
Revenue
11,25011,250 11,25011,250
33,75033,75011,25011,250
Chapter 3-15
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.
Cash 16,000
Prepaid Advertising 16,000
Dec. 31
Debit CreditPrepaid Advertising
16,00016,000 16,00016,000Debit Credit
Cash
Adjusting Entries for “Prepaid Adjusting Entries for “Prepaid Expenses”Expenses”
16,00016,000
Chapter 3-16
Salaries payable 8,400Salaries expense 8,400Dec. 31
Debit CreditSalaries Expense
8,4008,400 8,4008,400Debit CreditSalaries Payable
Adjusting Entries for “Accrued Adjusting Entries for “Accrued Expenses”Expenses”
Q3. Employee salaries for the month of December 2011 totaling $8,400 will be paid on January 5, 2012.
8,4008,400
Chapter 3-17
Salaries payable(L) 8,400Salaries expense(SE) 8,400Dec. 31
Adjusting Entries for “Accrued Adjusting Entries for “Accrued Expenses”Expenses”
Q3. Employee salaries for the month of December 2011 totaling $8,400 will be paid on January 5, 2012.
Total Assets
Total Liab.
Stk. Equity
Net Income
Retained Earning
NoneUnderstate
8400Overstate
8400Overstate
8400Overstate
8400
Chapter 3-18
Interest payable 900Interest expense 900Dec. 31
Debit CreditInterest Expense
900900 900900Debit CreditInterest Payable
Adjusting Entries for “Accrued Adjusting Entries for “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)
Chapter 3-19
Interest payable(L) 900Interest expense(SE) 900Dec. 31
Adjusting Entries for “Accrued Adjusting Entries for “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)
Total Assets
Total Liab.
Stk. Equity
Net Income
Retained Earning
NoneUnderstate
900Overstate
900Overstate
900Overstate
900
Chapter 3-20
Allowance for Doubtful Accounts 8,000Bad Debt Expense 8,000Dec. 31
Debit CreditBad Debt Expense
8,0008,000 8,0008,000Debit Credit
Allowance for Doubtful Accounts
Adjusting Entries for “Accrued Adjusting Entries for “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 3-21
Impact Without Adjusted EntriesImpact Without Adjusted Entries
Total Assets
Total Liab.
Stk. Equity
Net Income
Retained Earning
Overstated 8000 None
Overstated8000
Overstated8000
Overstated8000
Q5. On December 31, 2011, it was determined that $8,000 of the recorded Accounts receivable would prove to be uncollectible.
Allowance for Doubtful Account (A)
8,000Bad Debt Expense (SE) 8,000Dec. 31
Chapter 3-22
Impact Without Adjusted Entries Impact Without Adjusted Entries
Total Assets
Total Liab.
Stk. Equity
Net Income
Retained Earning
Q1 NoneUnderstate
33750Overstate
33750Overstate
33750Overstate
33750
Q2 None None None None None
Q3 NoneUnderstate
8400Overstate
8400Overstate
8400Overstate
8400
Q4 NoneUnderstate
900Overstate
900Overstate
900Overstate
900
Q5Overstated
8000 NoneOverstated
8000Overstated
8000Overstated
8000
TotalOverstate
8000Understate
43050Overstate
51050Overstate
51050Overstate
51050
Chapter 3-23
ConclusionConclusion Accounting ConceptsAccounting Concepts
Revenue and ExpenseRevenue and Expense Revenue Recognition and Matching PrincipleRevenue Recognition and Matching Principle
Standard Vs. Standard Vs. ExpedientExpedient Recording Method Recording Method Types of Adjusted EntriesTypes of Adjusted Entries
Prepayments : Prepaid Expense and Unearned Prepayments : Prepaid Expense and Unearned RevenueRevenue
Accruals: Accrued Rev. and Accrued Exp.Accruals: Accrued Rev. and Accrued Exp. Impact without adjusted entries Impact without adjusted entries
Overstated A, L, SE, NI, REOverstated A, L, SE, NI, RE UnderstatedUnderstated A, L, SE, NI, REA, L, SE, NI, RE