Первый слайд презентации
Adjusting Entries Horngren’s Accounting Lecture Six Lisa, Li 1
Слайд 2: Review
2 Review Define and apply Revenue recognition and matching principle Record transactions into journals and post journal entries to the Ledger Accounts Prepare a trial balance Discover errors in recording transactions and correct them. Accounting
Слайд 3: Homework: recording business transactions
1. April 1, Abdul(owner) starts business as a trader by paying $10,000 into bank account. 2. April 2, Abdul buys a motor vehicle for the business, and pay$2,000. 3. April 3,Abdul buy goods which he will re-sell in the normal course of trade for $3,000. 4. April 4, Abdul sells a quantity of the goods for $800,and pay the money into the bank. 5. April 7, a customer returns some goods and receives a refund of $40. 6. April 8, Abdul return some goods costing $100 to a supplier and receives a refund. 3 Accounting 7. April 10, Abdul buys another motor vehicle for the business and pay $4,000. 8. April 11, Tania lends the business $5,000,Abdul put the money into the bank account. 9. April 12, Abdul pays rent on a warehouse by cheque, $1,000. 10. April 14, Abdul subsets part of the warehouse and receives a cheque for $300 for the rent.this is paid into the bank. 11. April 15, Abdul pays wages by cheque,$1,200. Identifying 11 transactions and Classifying different accounts Recording the transaction into journals Posting into the Ledger accounts
Слайд 4: Homework: recording business transactions
4 Homework: recording business transactions Accounting 4
Слайд 5: Solutions: recording business transactions
5 Solutions: recording business transactions Accounting
Слайд 6: Solutions: recording business transactions
6 Solutions: recording business transactions Accounting
A B C D The posting of purchase of office supplies on account for $1,500 will be shown as: Cash Office Supplies Accounts Payable Office Supplies Accounts Receivable Office Supplies Accounts Payable 1,500 1,500 1,500 1,500 1,500 1,500 1,500 Office Supplies 1,500 Multiple Choices 2mins
The detailed record of all increases and decreases that have occurred in an individual asset, liability, or equity during a specific period is called a(n): balance sheet. journal. account. trial balance. Multiple Choices 2mins
Kevin Copies recorded a cash collection on account by debiting Cash and crediting Accounts Payable. How will this error affect the trial balance? Assets will be understated Liabilities will be overstated Profits will be overstated Equity will be understated Multiple Choices 2mins
Слайд 10: Learning Objectives – Chapter 3
10 Learning Objectives – Chapter 3 Cash Basis vs Accrual Basis Accounting Apply the time period concept, revenue recognition, and matching principles Explain the purpose of and journalize and post adjusting entries Prepare an adjusted trial balance Identify the impact of adjusting entries on the financial statements use a worksheet to prepare the adjusted trial balance Accounting
11 Learning Objective 1 Differentiate between cash basis accounting and accrual basis accounting
Слайд 12: What is the Difference between Cash Basis Accounting & Accrual Basis Accounting?
CASH BASIS Revenue is recorded when Cash is received Expenses are recorded when Cash is paid Not allowed under GAAP ACCRUAL BASIS Revenue is recorded when it is earned Expenses are recorded when incurred Generally used by larger businesses An Accrual Basis approach recognizes that the recognition of revenues and expenses should not be affected by the timing of cash collections and disbursements. Rather revenues and expenses should be recognized when the underlying economic activities actually take place.
13 Learning Objective 2 Define and apply the time period concept, revenue recognition, and matching principles
Слайд 14: Review ： The Time Period Concept
Assumes that a business’s activities can be sliced into small segments and that financial statements can be prepared for specific time periods, such as a month, quarter, or year. Any twelve month period is referred to as a fiscal year. 14 Accounting
Слайд 15: Review ： Revenue Recognition Principle
15 Revenue should be recorded when it is EARNED. A good has been delivered or a service has been performed. The earnings process is complete. (warehouse?) The amount of revenues must represent the actually selling price. If a $200 item is discounted to $100, then the revenue is $100. Accounting
Слайд 16: Review ： The Matching Principle
All expenses are recorded when they are incurred during the period Expenses are matched against the revenues for that period. Eg. Cash sales of $1,000, and suppose these good sold by the company cost $700. Accounting 16
17 Learning Objective 3 Explain the purpose of and journalize and post adjusting entries
Слайд 18: Part of the Accounting Process
© 2k015 Pearson Education, Limited. 4- 18 Analyze & j ournalize transactions Post journal entries to ledger accounts Prepare unadjusted trial balance Journalize and post adjusting entries Start with beginning account balances Prepare the worksheet (optional)
Слайд 19: The initial trial balance that comes from the General Ledger is referred to as an Unadjusted Trial Balance. Because of the Time Period Concept, Revenue Recognition Principle, and Matching Principle some adjustments are needed
3- 19 The initial trial balance that comes from the General Ledger is referred to as an Unadjusted Trial Balance. Because of the Time Period Concept, Revenue Recognition Principle, and Matching Principle some adjustments are needed.
Слайд 20: For example, the Office Supplies account shows $500 at the end of December. If a count of the actual supplies on hand shows that some supplies have been used, we will need to adjust the account
3- 20 Accounting For example, the Office Supplies account shows $500 at the end of December. If a count of the actual supplies on hand shows that some supplies have been used, we will need to adjust the account.
Слайд 21: Adjusting Journal Entries
Each Adjusting Journal Entry will adjust a balance sheet account and an income statement account. P162-163
Слайд 22: Adjusting Entry
An adjusting entry is the entry made at the end of accounting period that is used to record revenues to the period in which they are earned and expenses to the period in which they occur. Adjusting entry also update the asset and liability accounts. Adjusting Entry Prepaid (Deferred) expenses * Unearned (Deferred) revenues Accrued expense Accrued revenues * including depreciation Paid (or received) cash before expense (or revenue) recognized Paid (or received) cash after expense (or revenue) recognized Adjustments Accounting 22
Слайд 24: Prepaid Rent Example
In Transaction #10 (see Chapter 2), on December 1, Smart Touch Learning prepaid 3 months rent of $3,000 ($1,000 x 3 months). Paying rent in advance gives us the right to use the property for 3 months (in this case). By the end of December, 1/3 of that right has been used. 3- 24 © 2k015 Pearson Education, Limited.
Слайд 25: Prepaid Rent Example
To adjust the Prepaid Rent account, we need to reduce it by 1/3, and we need to show the rent expense related to the December revenues. 3- 25 © 2k015 Pearson Education, Limited.
Слайд 26: Prepaid Insurance
On 12/1/2019, FastForward paid $2,400 for insurance for 2-years (24-months, December 2019 through November 2021). FastForward recorded the expenditure as Prepaid Insurance on 12/31/2019. What adjustment is required? Accounting 26
Слайд 27: Prepaid Insurance
On 12/1/2019, FastForward paid $2,400 for insurance for 2-years (24-months, December 2019 through November 2021). FastForward recorded the expenditure as Prepaid Insurance on 12/31/2019. What adjustment is required? 637 128 Accounting 27
Слайд 28: Depreciation (plant Assets)
plant assets are long-lived, tangible assets used in the operation of a business. As a business uses these assets, their value and usefulness decline. Plant Assets need to depreciates, such as buildings equipment, furniture, and automobiles. The contra asset account used is Accumulated Depreciation—(asset’s name) Land has an infinite life; Under Generally Accepted Accounting Principles, we never depreciate Land. (p163) Plant assets, with the exception of land, are depreciated over their useful lives. Accounting 28
Слайд 29: Depreciation (plant Assets)
Depreciation is usually defined as the periodic, systematic allocation of the cost of a long-lived tangible asset to expense over its estimated useful life. The accounts used are: Depreciation Expense(E)-I/S Accumulated Depreciation (-A, contra-asset account )-B/S 3- 29 © 2k015 Pearson Education, Limited. Accumulated Depreciation is a contra-asset. - Has a credit balance - Appears in the Asset section of the Balance Sheet
Слайд 30: Depreciation (plant Assets)
Straight-Line Depreciation Expense = Asset Cost - Residual Value Useful Life Depreciation (plant Assets) Depreciation is the process of allocating the cost of a plant asset over its useful life in a systematic and rational manner. Straight-line Method: a depreciation method that allocates an equal amount of depreciation each year. Accounting 30 Residual Value ( salvage value) is the amount we expect to receive for the asset when we dispose of it at the end of its useful life.
Слайд 31: Depreciation Example
Assume that, on December 2, Smart Touch Learning received a contribution of furniture with a market value of $18,000 from Sheena Bright. At the end of December, Smart Touch Learning will need to record depreciation for the use of the furniture, assuming it has a 5 year useful life. 3- 31 © 2k015 Pearson Education, Limited.
Слайд 32: Depreciation Example
Using the straight-line method of computing depreciation, Smart Touch Learning will need to record $300 of depreciation for December. 3- 32 © 2k015 Pearson Education, Limited.
Слайд 33: Depreciation Example
Recording the entry requires the use of two accounts: Depreciation Expense and Accumulated Depreciation. 3- 33 © 2k015 Pearson Education, Limited.
Слайд 34: Prepaids: common Prepaid Expenses
Prepaid Insurance Prepaid rent Depreciation (plant Assets) Office supplies used
NetSolutions estimates the depreciation on its office equipment to be $50 for the month of December. 16 17 18 19 Accumulated Depreciation — Office Equipment 50 00 Dec. 31 50 19 Depreciation Expense Dec. 31 50 Accumulated Depreciation — Office Equipment 19 53 53 Depreciation Expense 50 00 Dec. 31 Accounting 35
NetSolutions ’ balance sheet would show the office equipment at cost, less the accumulated depreciation. Office equipment $1,800 Less accumulated depreciation 50 $1,750 Book value Accounting 36
Fitness First has a new client who prepays $600 for a package of six training sessions. Fitness First had provided four training sessions as of year end. Which of the following amounts should Fitness First report on its income statement? Service Revenue of $400 Service Revenue of $600 Unearned service revenue of $400 Unearned service revenue of $600 Multiple Choices 2mins
Слайд 38: Try it Question
Journalizing and posting the adjusting entries of Smart Touch Learning. a. Prepaid rent expired, $1000 b. Supplies used, $400 c. Depreciation on furniture, $300 d. on July 1, purchased a building with $180,000. At the end of December, record depreciation for the use of the building, assuming it has a 60 years useful life, and no residual value at the end of its life… Accounting 38
Слайд 39: Answers
a. Prepaid rent expired, $1,000 Answers Date Accounts and Explanation Debit Credit b. Dec. 31 Rent Expense 1,000 Prepaid Rent 1,000 To record rent expense. Rent Expense a. Prepaid rent 1,000 Prepaid Rent Bal. 1,200 Rent exp 1,000 a. 3- 39
Слайд 40: Answers
b. Supplies used, $400 Answers Date Accounts and Explanation Debit Credit Dec. 31 Supplies Expense 400 Office Supplies 400 To record office supplies used. Office Supplies Bal. 4,000 Supplies exp 400 b. Supplies Expense b. Office supplies 400 3- 40
Слайд 41: Answers
c. Depreciation on furniture, $300 Answers Date Accounts and Explanation Debit Credit c. Dec. 31 Depreciation Expense—Furniture 300 Accumulated Depreciation—Furniture 300 To record depreciation on furniture. Depreciation Expense—Furniture c. Accumulated depreciation 300 Accumulated Depreciation—Furniture 14,000 Bal. depreciation Exp 300 c. 3- 41
Слайд 42: Answers
d. On July 1, purchased a building with $180,000. At the end of this year, record depreciation for the use of the building, assuming it has a 60 years useful life, and no residual value at the end of its life… Answers Date Accounts and Explanation Debit Credit c. Dec. 31 Depreciation Expense—building 1500 Accumulated Depreciation—building 1500 To record depreciation on building. Depreciation Expense—Furniture c. 1500 Depreciation Expense—Furniture 0 Bal. 1,500 c. Straight-Line Depreciation = ( Cost - Residual Value ) ÷Useful Life = ( $180,000 - $0 ) ÷ 60 Years = 3,000 this year depreciation exp = 3,000 ÷ 6/12 = 1,500
Слайд 43: Prepaid Expenses(A) or Expense ?
Other prepaid expenses, such as Prepaid Rent, are accounted for exactly as Insurance and Supplies. We should note that some prepaid expenses are both paid for and fully used up within a single period. For example, a company may pay monthly rent on the first day of each month. This payment creates a prepaid expense on the first day of the month that fully expires by the end of the month. In these special cases, we can record the cash paid with a debit to the expense account instead of an asset account. Accounting 43
Слайд 44: Unearned Revenue Example
On December 21, a law firm engages Smart Touch Learning to provide e-learning services for the next 30 days, paying $600 in advance. 3- 44 © 2k015 Pearson Education, Limited.
Слайд 45: Unearned Revenue Example
Smart Touch Learning is obligated to perform the services. During the last 10 days of the month, 1/3 of the services are performed. 3- 45 © 2k015 Pearson Education, Limited.
Слайд 46: Unearned Revenues
On December 26, 2009, FastForward agrees to provide consulting services to a client for a fixed fee of $3,000 for 60 days. On this date, the client pays the entire consulting fee in advance. FastForward makes the following entry: Accounting 46
Слайд 47: Unearned Revenues
On December 26, 2009, FastForward agrees to provide consulting services to a client for a fixed fee of $3,000 for 60 days. On this date, the client pays the entire consulting fee in advance. FastForward makes the following entry: Accounting 47
On December 31, earns some of the 5-days of consulting fees. Each day that passes results in consulting fees of $50 ($3,000 ÷ 60). Unearned Revenues Accounting 48
Unearned revenue is essentially a(n): net income. net loss. liability. asset. Multiple Choices 2mins
Which of the following are the two basic categories of adjusting entries? Net income and net loss Expenses and revenues Prepaids and accruals Cash and noncash Multiple Choices 2mins