Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

18
Chapter 3-1 CHAPTER CHAPTER 3 3 ADJUSTING THE ADJUSTING THE ACCOUNTS ACCOUNTS Accounting Principles, Eighth Edition

Transcript of Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Page 1: Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Chapter 3-1

CHAPTER CHAPTER 33

ADJUSTING THE ADJUSTING THE ACCOUNTSACCOUNTS

Accounting Principles, Eighth Edition

Page 2: Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Chapter 3-2

Depreciation (Statement Presentation)

Accumulated Depreciation is a contra asset account.

Appears just after the account it offsets (Equipment) on the balance sheet.

Adjusting Entries for “Prepaid Adjusting Entries for “Prepaid Expenses”Expenses”Adjusting Entries for “Prepaid Adjusting Entries for “Prepaid Expenses”Expenses”

LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.

Balance Sheet J an. 31

Assets

Equipment 24,000 Accumulated Depreciation (100) Net Equipment 23,900

Page 3: Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Chapter 3-3

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 for “Unearned Adjusting Entries for “Unearned Revenues”Revenues”Adjusting Entries for “Unearned Adjusting Entries for “Unearned Revenues”Revenues”

rentrent

airline ticketsairline tickets

school tuitionschool tuition

Cash ReceiptCash Receipt Revenue RecordedRevenue RecordedBEFORE

magazine subscriptionsmagazine subscriptions

customer depositscustomer deposits

Unearned revenues often occur in regard to:Unearned revenues often occur in regard to:

LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.

Page 4: Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Chapter 3-4

Unearned Revenues

Company makes an adjusting entry to record the revenue that has been earned and to show the liability that remains.

The adjusting entry for unearned revenues results in a decrease (a debit) to a liability account and an increase (a credit) to a revenue account.

LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.

Adjusting Entries for “Unearned Adjusting Entries for “Unearned Revenues”Revenues”Adjusting Entries for “Unearned Adjusting Entries for “Unearned Revenues”Revenues”

Page 5: Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Chapter 3-5 LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.

Adjusting entries for unearned revenues

Decrease (a debit) to a liability account and

Increase (a credit) to a revenue account.

Adjusting Entries for “Unearned Adjusting Entries for “Unearned Revenues”Revenues”Adjusting Entries for “Unearned Adjusting Entries for “Unearned Revenues”Revenues”

Illustration 3-10Illustration 3-10

Page 6: Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Chapter 3-6

Example:Example: On Jan. 1On Jan. 1stst, Phoenix Consulting received , Phoenix Consulting received $24,000 from Arcadia High School for 3 months $24,000 from Arcadia High School for 3 months rentrent in in advance. Show the journal entry to record the receipt advance. Show the journal entry to record the receipt on Jan. 1on Jan. 1stst. .

Unearned Rent Revenue

24,000

Cash 24,000

Jan. 1

Debit Credit

Cash

24,00024,000 24,00024,000

Debit Credit

Unearned Rent Revenue

Adjusting Entries for “Unearned Adjusting Entries for “Unearned Revenues”Revenues”Adjusting Entries for “Unearned Adjusting Entries for “Unearned Revenues”Revenues”

LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.

Page 7: Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Chapter 3-7

Example:Example: On Jan. 1On Jan. 1stst, Phoenix Consulting received , Phoenix Consulting received $24,000 from Arcadia High School for 3 months rent in $24,000 from Arcadia High School for 3 months rent in advance. Show the advance. Show the adjusting journal entryadjusting journal entry required on required on Jan. 31Jan. 31stst. .

Rent Revenue 8,000

Unearned Rent Revenue

8,000Jan. 31

Debit Credit

Rent Revenue

8,0008,000 24,00024,000

Debit Credit

Unearned Rent Revenue

8,0008,000

16,00016,000

Adjusting Entries for “Unearned Adjusting Entries for “Unearned Revenues”Revenues”Adjusting Entries for “Unearned Adjusting Entries for “Unearned Revenues”Revenues”

LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.

Page 8: Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Chapter 3-8

Made to record:

Revenues earned and

OR

Expenses incurred

in the current accounting period that have not been recognized through daily entries.

Adjusting Entries for AccrualsAdjusting Entries for AccrualsAdjusting Entries for AccrualsAdjusting Entries for Accruals

LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.

Page 9: Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Chapter 3-9

Revenues earned but not yet received in cash or Revenues earned but not yet received in cash or recorded.recorded.

Adjusting Entries for “Accrued Adjusting Entries for “Accrued Revenues”Revenues”Adjusting Entries for “Accrued Adjusting Entries for “Accrued Revenues”Revenues”

rentrent

interestinterest

services performedservices performed

BEFORE

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:

LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.

Page 10: Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Chapter 3-10

Accrued Revenues

An adjusting entry serves two purposes:

(1) It shows the receivable that exists, and

(2) It records the revenues earned.

Adjusting Entries for “Accrued Adjusting Entries for “Accrued Revenues”Revenues”Adjusting Entries for “Accrued Adjusting Entries for “Accrued Revenues”Revenues”

LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.

Page 11: Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Chapter 3-11

Adjusting entries for accrued revenues

Increases (debits) an asset account and

Increases (credits) a revenue account.

LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.

Adjusting Entries for “Accrued Adjusting Entries for “Accrued Revenues”Revenues”Adjusting Entries for “Accrued Adjusting Entries for “Accrued Revenues”Revenues”Illustration 3-13Illustration 3-13

Page 12: Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Chapter 3-12

Example:Example: On Jan. 1On Jan. 1stst, Phoenix Consulting invested , Phoenix Consulting invested $300,000 in securities that return 5% interest per year. $300,000 in securities that return 5% interest per year. Show the journal entry to record the investment on Jan. Show the journal entry to record the investment on Jan. 11stst. .

Cash 300,000

Investments 300,000

Jan. 1

LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.

Debit Credit

Investments

300,000300,000 300,000300,000

Debit Credit

Cash

Adjusting Entries for “Accrued Adjusting Entries for “Accrued Revenues”Revenues”Adjusting Entries for “Accrued Adjusting Entries for “Accrued Revenues”Revenues”

Page 13: Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Chapter 3-13

Example:Example: On Jan. 1On Jan. 1stst, Phoenix Consulting invested , Phoenix Consulting invested $300,000 in securities that return 5% interest per year. $300,000 in securities that return 5% interest per year. Show the Show the adjusting journal entryadjusting journal entry required on Jan. 31 required on Jan. 31stst. . ($300,000 x 5% / 12 months = $1,250)($300,000 x 5% / 12 months = $1,250)

Interest Revenue 1,250

Interest Receivable 1,250Jan. 31

Debit Credit

Interest Receivable

1,2501,250 1,2501,250

Debit Credit

Interest Revenue

Adjusting Entries for “Accrued Adjusting Entries for “Accrued Revenues”Revenues”Adjusting Entries for “Accrued Adjusting Entries for “Accrued Revenues”Revenues”

Look page 104Look page 104

Page 14: Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Chapter 3-14

Expenses incurred but not yet paid in cash or Expenses incurred but not yet paid in cash or recorded.recorded.

Adjusting Entries for “Accrued Adjusting Entries for “Accrued Expenses”Expenses”Adjusting Entries for “Accrued Adjusting Entries for “Accrued Expenses”Expenses”

rentrent

interestinterest

BEFORE

Accrued expenses often occur in regard to:Accrued expenses often occur in regard to:

Cash PaymentCash PaymentExpense RecordedExpense Recorded

taxestaxes

salariessalaries

Adjusting entry results in:Adjusting entry results in:

LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.

Page 15: Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Chapter 3-15

Accrued Expenses

An adjusting entry serves two purposes:

(1) It records the obligations, and

(2) It recognizes the expenses.

Adjusting Entries for “Accrued Adjusting Entries for “Accrued Expenses”Expenses”Adjusting Entries for “Accrued Adjusting Entries for “Accrued Expenses”Expenses”

LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.

Page 16: Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Chapter 3-16

Adjusting entries for accrued expenses

Increases (debits) an expense account and

Increases (credits) a liability account.

LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.

Adjusting Entries for “Accrued Adjusting Entries for “Accrued Expenses”Expenses”Adjusting Entries for “Accrued Adjusting Entries for “Accrued Expenses”Expenses”Illustration 3-16Illustration 3-16

Page 17: Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Chapter 3-17

Notes Payable 200,000

Cash 200,000

Jan. 2

Debit Credit

Cash

200,000200,000 200,000200,000

Debit Credit

Notes Payable

Example:Example: On Jan. 2On Jan. 2ndnd, Phoenix Consulting borrowed , Phoenix Consulting borrowed $200,000 at a rate of 9% per year. Interest is due on first $200,000 at a rate of 9% per year. Interest is due on first of each month. Show the journal entry to record the of each month. Show the journal entry to record the borrowing on Jan. 2borrowing on Jan. 2ndnd..

Adjusting Entries for “Accrued Adjusting Entries for “Accrued Expenses”Expenses”Adjusting Entries for “Accrued Adjusting Entries for “Accrued Expenses”Expenses”

LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.

Page 18: Chapter 3-1 CHAPTER 3 ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition.

Chapter 3-18

Example:Example: On Jan. 2On Jan. 2ndnd, Phoenix Consulting borrowed , Phoenix Consulting borrowed $200,000 at a rate of 9% per year. Interest is due on first $200,000 at a rate of 9% per year. Interest is due on first of each month. Show the of each month. Show the adjusting journal entryadjusting journal entry required required on Jan. 31on Jan. 31stst. . ($200,000 x 9% / 12 months = $1,500)($200,000 x 9% / 12 months = $1,500)

Interest Payable 1,500

Interest Expense 1,500Jan. 31

Debit Credit

Interest Expense

1,5001,500 1,5001,500

Debit Credit

Interest Payable

Adjusting Entries for “Accrued Adjusting Entries for “Accrued Expenses”Expenses”Adjusting Entries for “Accrued Adjusting Entries for “Accrued Expenses”Expenses”

Look page 105Look page 105