The accounting cycle is the process by which accountants prepare financial statements for an entity over a period of time. It involves analyzing transactions, journalizing them, posting to ledger accounts, preparing an adjusted trial balance, and issuing financial statements. Key steps include journalizing, posting transactions to individual accounts in the general ledger, preparing an initial trial balance to check for errors, and issuing adjusting and closing entries before the final financial statements.
This document provides instructions on journalizing business transactions. It explains that journalizing involves recording transactions in a general journal using debit and credit columns. The correct process includes labeling the journal, recording the date of each transaction, recording debits and credits along with account names and amounts, and providing explanations for each entry. Several examples are provided of journal entries for transactions such as initial capital investment, purchases, cash receipts, and payments made by the business.
The document discusses key accounting concepts including the accounting equation, assets, liabilities, owner's equity, revenues, expenses, and transactions. It also summarizes how companies use this accounting information to prepare four core financial statements: the income statement, statement of financial position, statement of cash flows, and owner's equity statement. Each financial statement serves a distinct purpose in analyzing a company's financial performance and position over a given period of time.
Here are the journal entries for the transactions:
A. Debbie ordered shelving worth $750.
Debit: Shelving $750
Credit: Accounts Payable $750
B. Debbie's selling price on a gallon of milk is increased to $3.25.
No journal entry needed.
C. A customer buys a gallon of milk paying cash.
Debit: Cash $3.25
Credit: Sales $3.25
D. The shelving is delivered with an invoice for $750.
Debit: Accounts Payable $750
Credit: Cash $750
The accounting events that will be recorded are transactions A, C, and D since they involve
The document provides an overview of completing the accounting cycle for a service business. It discusses using a worksheet to facilitate preparing financial statements and closing entries. The steps to prepare a worksheet are explained, including entering the trial balance, adjustments, adjusted trial balance amounts, and financial statement columns. Sample worksheet and financial statements are presented.
The document discusses the accounting equation and how it is affected by business transactions.
The accounting equation states that total assets are equal to total liabilities plus owner's equity. It must always balance as transactions occur. Several examples are provided of how common business transactions like purchases, sales, expenses, and cash payments impact the accounting equation by increasing or decreasing different accounts. The procedure for preparing accounting equations based on transaction details is also outlined.
This document provides an introduction to accounting basics. It defines accounting as the language of business that delivers financial information to various users. Accounting involves recording and interpreting business transactions expressed in monetary terms. The main purposes of accounting are to provide information about a business entity's results of operations, financial position, cash flows, and other useful information to both internal and external users for decision making. The key elements in accounting are assets, liabilities, capital/equity, income, and expenses, which are related through the accounting equation. Financial statements including the income statement, balance sheet, statement of cash flows, and notes to financial statements present the financial information in an organized manner and are interrelated.
This document discusses key accounting concepts and principles, including:
- Accrual accounting, where transactions are recognized in the period they occur rather than when payment is made.
- Matching principle, where expenses match related revenues in the same period.
- Cost principle, where assets are recorded at their purchase price.
- Use of estimates and judgment in accounting given some items cannot be precisely measured.
- Prudence or conservatism, where higher estimates are used for expenses and lower estimates for revenues.
- Substance over form, where the economic reality of transactions matters more than legal form.
This document provides instructions on journalizing business transactions. It explains that journalizing involves recording transactions in a general journal using debit and credit columns. The correct process includes labeling the journal, recording the date of each transaction, recording debits and credits along with account names and amounts, and providing explanations for each entry. Several examples are provided of journal entries for transactions such as initial capital investment, purchases, cash receipts, and payments made by the business.
The document discusses key accounting concepts including the accounting equation, assets, liabilities, owner's equity, revenues, expenses, and transactions. It also summarizes how companies use this accounting information to prepare four core financial statements: the income statement, statement of financial position, statement of cash flows, and owner's equity statement. Each financial statement serves a distinct purpose in analyzing a company's financial performance and position over a given period of time.
Here are the journal entries for the transactions:
A. Debbie ordered shelving worth $750.
Debit: Shelving $750
Credit: Accounts Payable $750
B. Debbie's selling price on a gallon of milk is increased to $3.25.
No journal entry needed.
C. A customer buys a gallon of milk paying cash.
Debit: Cash $3.25
Credit: Sales $3.25
D. The shelving is delivered with an invoice for $750.
Debit: Accounts Payable $750
Credit: Cash $750
The accounting events that will be recorded are transactions A, C, and D since they involve
The document provides an overview of completing the accounting cycle for a service business. It discusses using a worksheet to facilitate preparing financial statements and closing entries. The steps to prepare a worksheet are explained, including entering the trial balance, adjustments, adjusted trial balance amounts, and financial statement columns. Sample worksheet and financial statements are presented.
The document discusses the accounting equation and how it is affected by business transactions.
The accounting equation states that total assets are equal to total liabilities plus owner's equity. It must always balance as transactions occur. Several examples are provided of how common business transactions like purchases, sales, expenses, and cash payments impact the accounting equation by increasing or decreasing different accounts. The procedure for preparing accounting equations based on transaction details is also outlined.
This document provides an introduction to accounting basics. It defines accounting as the language of business that delivers financial information to various users. Accounting involves recording and interpreting business transactions expressed in monetary terms. The main purposes of accounting are to provide information about a business entity's results of operations, financial position, cash flows, and other useful information to both internal and external users for decision making. The key elements in accounting are assets, liabilities, capital/equity, income, and expenses, which are related through the accounting equation. Financial statements including the income statement, balance sheet, statement of cash flows, and notes to financial statements present the financial information in an organized manner and are interrelated.
This document discusses key accounting concepts and principles, including:
- Accrual accounting, where transactions are recognized in the period they occur rather than when payment is made.
- Matching principle, where expenses match related revenues in the same period.
- Cost principle, where assets are recorded at their purchase price.
- Use of estimates and judgment in accounting given some items cannot be precisely measured.
- Prudence or conservatism, where higher estimates are used for expenses and lower estimates for revenues.
- Substance over form, where the economic reality of transactions matters more than legal form.
The document is a chapter from an accounting textbook that discusses analyzing transactions and the basics of double-entry accounting. It introduces accounts, the rules of debit and credit, and how transactions are recorded in journals and T-accounts to update the balances of asset, liability, equity, revenue and expense accounts. It provides examples of common transactions recorded, such as cash deposits and withdrawals, purchases, expenses and revenue. The overall purpose is to teach students the fundamental principles and mechanics of double-entry accounting.
This document provides an overview of IFRS 11 - Joint Arrangements and Associates. It defines joint arrangements as arrangements where two or more parties have joint control based on a contractual agreement. Joint arrangements are classified as either a joint operation or a joint venture depending on the parties' rights and obligations. For a joint operation, parties account for their share of assets, liabilities, revenue and expenses. For a joint venture, parties account for their interest as an investment using the equity method. Examples of each type of arrangement are also provided.
The accounting equation states that assets are equal to liabilities plus owner's equity. It represents the relationship between what a business owns (assets), what it owes (liabilities), and the owner's claim on the assets (owner's equity). Every transaction affects at least two accounts to maintain the balance of the accounting equation. The equation ensures that the sources of a business's assets are identified as either belonging to creditors (liabilities) or the owner (owner's equity).
Introduction to Financial statements - AccountingFaHaD .H. NooR
Financial statement introduction and its elements.
There are three fundamental financial statements used in accounting.
The income statement shows revenues and expenses.
The balance sheet is a listing of all asset, liability, and equity account balances that do not appear on the income statement.
The statement of cash flows shows how the company receives and spends its cash.
Bab 4 Income Statement and Related Informationmsahuleka
The document discusses key elements and objectives related to preparing and understanding income statements, including:
- The uses and limitations of income statements in evaluating past performance and predicting future cash flows
- Components of single-step and multiple-step income statements and how they differ
- Reporting of irregular items like discontinued operations, extraordinary items, and changes in accounting principles
- Intraperiod tax allocation and where earnings per share information is reported
The article gives an overview of what are accounting source documents and what are their goals, content, and examples.
#manufacturing #manufacturer #accountingsource #mrpeasy #manufacturingsoftware #mrp #erp #erpsystem #mrpsoftware
Accounting is the technique of recording, classifying, and summarizing financial transactions and interpreting the results. It involves recording business transactions in journals and ledgers, grouping like transactions, and preparing financial statements like the trial balance, income statement, and balance sheet. The double-entry system records both aspects of each transaction to ensure accuracy and allow calculation of profit and financial position. Financial accounting focuses on external reporting while cost and management accounting support internal decision making.
Accounting - Lesson 3 : The Business Transactions Elearningpower
This document provides an overview of lesson 3 in an accounting course for beginners. It discusses 4 key learning objectives: 1) business transactions, 2) four transactions that affect the balance sheet, 3) four transactions that affect the income statement. It defines important terms like revenue, expense, assets, liabilities, and equity. It also summarizes the basic steps for analyzing a business transaction and the 8 most important types of transactions that affect financial statements.
* Assets = Php 500,000
* Owner's Equity = Php 340,000
* Using the accounting equation: A = L + OE
* So: Php 500,000 = L + Php 340,000
* Php 500,000 - Php 340,000 = L
* Php 160,000 = L
Therefore, the amount of liabilities is Php 160,000
2. Ramos Enterprise has liabilities of Php 200,000 and total assets of Php
600,000
This document provides an introduction to key financial statements used in agriculture: the balance sheet, income statement, and cash flow statement. It describes the components and purpose of each statement. The balance sheet presents the financial position of a farm at a point in time, including assets, liabilities, and owner equity. The income statement measures revenue and expenses over a period of time, usually a year. The cash flow statement tracks cash inflows and outflows over time. Financial ratios are also discussed that can evaluate the liquidity, solvency, profitability, and efficiency of a farm business.
Debit and Credit
Accounting is the systematic recording and organizing of all the financial information of a company. This refers to the bookkeeping function of Accounting; where bookkeepers record accounts in journals and transferring it to a ledger. Accounting also has the reporting function where all the gathered financial information is used to create financial statements to analyze and understand the financial health and performance of the business. It’s pretty straightforward, almost all people can understand this definition at first look, but what confuses everybody is the concept of Debit and Credit. Now to set things clear, let’s define first debit and credit.
We seriously do appreciate you examining this slide share. Just in case you want to study more about other important accounting theories, our company, TrendStatic Business Solutions delivers different Basic Accounting for Non-Accountants training programs. Educating regular individuals without Accounting qualifications all the stuff that they have to properly recognize to start out on accounting.
This document provides an introduction to the concepts of accounting. It defines accounting as a system that collects and processes financial information to allow informed decisions by users. It discusses the need for accounting to determine results of business transactions and the financial position. It outlines the key functions of accounting like identifying, recording, classifying, summarizing, analyzing, interpreting and communicating financial information. It also discusses the accounting cycle and different branches and users of accounting information. Finally, it provides definitions of some basic accounting terms.
Understanding Basics of Financial StatementsAnkita6745
Understanding the basic concepts and term used in the Financial Statements.Understanding the ratios used for analyzing the Financial Statements.Discussing factors that drive corporate valuations.
Chapter 2: Consolidation of Financial InformationAbdulkadir Molla
1. The chapter discusses the consolidation of financial information when one company obtains control over another. It describes the acquisition method used to consolidate the financial statements of the entities.
2. Under the acquisition method, the acquirer measures the consideration transferred to acquire the other entity, identifies and measures the acquired assets and assumed liabilities, and recognizes goodwill or gain from a bargain purchase.
3. Whether the acquired entity is dissolved or maintains separate incorporation, the acquisition method is used to consolidate the financial information. Worksheets and consolidation entries are prepared to eliminate intraentity balances and combine the financial statements.
The document defines accounting as recording, classifying, and summarizing financial transactions and events to prepare financial statements. It discusses the basic accounting concepts like the accounting equation, assets, liabilities, equity, revenues and expenses. It also explains the key steps in accounting cycle which includes recording transactions, posting to ledger accounts, preparing an unadjusted trial balance, making adjusting entries, preparing an adjusted trial balance and financial statements, and closing temporary accounts. The accounting cycle aims to generate useful financial information for decision making in the form of income statement, balance sheet, and other financial reports.
This document provides an overview of basic bookkeeping concepts including debits and credits, cash vs. accrual accounting, T-accounts, the chart of accounts, income and expense accounts, and how to set up journals, income statements, and a balance sheet. It discusses the importance of keeping accurate financial records for a business and introduces key accounting principles and terminology.
Internal and external users of financial informationDyann Barras
This document discusses the internal and external users of accounting information. External users such as creditors, stockholders, vendors, and government agencies rely on accounting information to make important financial decisions but have limited access to it. Internal users directly involved in running the business use the information to improve performance and profitability. The needs of internal users include employees, purchasing managers, and production managers who use it to monitor costs and ensure quality.
The document describes the accounting cycle and process of journalizing business transactions. It explains that companies initially record transactions in chronological order in a general journal. Journalizing involves making separate entries for each transaction with the date, accounts and amounts to be debited and credited, and an explanation. Journal entries can be simple, involving two accounts, or compound, involving three or more accounts. Sample transactions are provided as an example of journalizing entries.
This document provides an overview of key accounting concepts and terms. It begins with the accounting equation that assets are equal to liabilities plus owner's equity. It then discusses t-accounts, rules of debit and credit, and the basic financial statements of income statement, balance sheet, and statement of cash flows. It also covers the accounting cycle, adjusting entries, closing entries, special journals, and inventory costing methods. The document is a comprehensive reference for accounting basics.
Principal accounting - Ch02 analyzing transactionArfan Fahmi
The document provides objectives and content for analyzing transactions in accounting. It discusses accounts and their characteristics, debit and credit rules, analyzing transaction effects on financial statements, preparing trial balances, and discovering and correcting errors. It also covers horizontal analysis to compare financial statements over different periods.
1. The document discusses accounting concepts such as accounts, debits and credits, T-accounts, and the double-entry accounting system.
2. It explains how transactions are recorded in journals and posted to ledger accounts using debits and credits to satisfy the double-entry principle.
3. Examples of accounting entries are provided to illustrate how specific transactions affect asset, liability, equity, revenue and expense accounts.
The document is a chapter from an accounting textbook that discusses analyzing transactions and the basics of double-entry accounting. It introduces accounts, the rules of debit and credit, and how transactions are recorded in journals and T-accounts to update the balances of asset, liability, equity, revenue and expense accounts. It provides examples of common transactions recorded, such as cash deposits and withdrawals, purchases, expenses and revenue. The overall purpose is to teach students the fundamental principles and mechanics of double-entry accounting.
This document provides an overview of IFRS 11 - Joint Arrangements and Associates. It defines joint arrangements as arrangements where two or more parties have joint control based on a contractual agreement. Joint arrangements are classified as either a joint operation or a joint venture depending on the parties' rights and obligations. For a joint operation, parties account for their share of assets, liabilities, revenue and expenses. For a joint venture, parties account for their interest as an investment using the equity method. Examples of each type of arrangement are also provided.
The accounting equation states that assets are equal to liabilities plus owner's equity. It represents the relationship between what a business owns (assets), what it owes (liabilities), and the owner's claim on the assets (owner's equity). Every transaction affects at least two accounts to maintain the balance of the accounting equation. The equation ensures that the sources of a business's assets are identified as either belonging to creditors (liabilities) or the owner (owner's equity).
Introduction to Financial statements - AccountingFaHaD .H. NooR
Financial statement introduction and its elements.
There are three fundamental financial statements used in accounting.
The income statement shows revenues and expenses.
The balance sheet is a listing of all asset, liability, and equity account balances that do not appear on the income statement.
The statement of cash flows shows how the company receives and spends its cash.
Bab 4 Income Statement and Related Informationmsahuleka
The document discusses key elements and objectives related to preparing and understanding income statements, including:
- The uses and limitations of income statements in evaluating past performance and predicting future cash flows
- Components of single-step and multiple-step income statements and how they differ
- Reporting of irregular items like discontinued operations, extraordinary items, and changes in accounting principles
- Intraperiod tax allocation and where earnings per share information is reported
The article gives an overview of what are accounting source documents and what are their goals, content, and examples.
#manufacturing #manufacturer #accountingsource #mrpeasy #manufacturingsoftware #mrp #erp #erpsystem #mrpsoftware
Accounting is the technique of recording, classifying, and summarizing financial transactions and interpreting the results. It involves recording business transactions in journals and ledgers, grouping like transactions, and preparing financial statements like the trial balance, income statement, and balance sheet. The double-entry system records both aspects of each transaction to ensure accuracy and allow calculation of profit and financial position. Financial accounting focuses on external reporting while cost and management accounting support internal decision making.
Accounting - Lesson 3 : The Business Transactions Elearningpower
This document provides an overview of lesson 3 in an accounting course for beginners. It discusses 4 key learning objectives: 1) business transactions, 2) four transactions that affect the balance sheet, 3) four transactions that affect the income statement. It defines important terms like revenue, expense, assets, liabilities, and equity. It also summarizes the basic steps for analyzing a business transaction and the 8 most important types of transactions that affect financial statements.
* Assets = Php 500,000
* Owner's Equity = Php 340,000
* Using the accounting equation: A = L + OE
* So: Php 500,000 = L + Php 340,000
* Php 500,000 - Php 340,000 = L
* Php 160,000 = L
Therefore, the amount of liabilities is Php 160,000
2. Ramos Enterprise has liabilities of Php 200,000 and total assets of Php
600,000
This document provides an introduction to key financial statements used in agriculture: the balance sheet, income statement, and cash flow statement. It describes the components and purpose of each statement. The balance sheet presents the financial position of a farm at a point in time, including assets, liabilities, and owner equity. The income statement measures revenue and expenses over a period of time, usually a year. The cash flow statement tracks cash inflows and outflows over time. Financial ratios are also discussed that can evaluate the liquidity, solvency, profitability, and efficiency of a farm business.
Debit and Credit
Accounting is the systematic recording and organizing of all the financial information of a company. This refers to the bookkeeping function of Accounting; where bookkeepers record accounts in journals and transferring it to a ledger. Accounting also has the reporting function where all the gathered financial information is used to create financial statements to analyze and understand the financial health and performance of the business. It’s pretty straightforward, almost all people can understand this definition at first look, but what confuses everybody is the concept of Debit and Credit. Now to set things clear, let’s define first debit and credit.
We seriously do appreciate you examining this slide share. Just in case you want to study more about other important accounting theories, our company, TrendStatic Business Solutions delivers different Basic Accounting for Non-Accountants training programs. Educating regular individuals without Accounting qualifications all the stuff that they have to properly recognize to start out on accounting.
This document provides an introduction to the concepts of accounting. It defines accounting as a system that collects and processes financial information to allow informed decisions by users. It discusses the need for accounting to determine results of business transactions and the financial position. It outlines the key functions of accounting like identifying, recording, classifying, summarizing, analyzing, interpreting and communicating financial information. It also discusses the accounting cycle and different branches and users of accounting information. Finally, it provides definitions of some basic accounting terms.
Understanding Basics of Financial StatementsAnkita6745
Understanding the basic concepts and term used in the Financial Statements.Understanding the ratios used for analyzing the Financial Statements.Discussing factors that drive corporate valuations.
Chapter 2: Consolidation of Financial InformationAbdulkadir Molla
1. The chapter discusses the consolidation of financial information when one company obtains control over another. It describes the acquisition method used to consolidate the financial statements of the entities.
2. Under the acquisition method, the acquirer measures the consideration transferred to acquire the other entity, identifies and measures the acquired assets and assumed liabilities, and recognizes goodwill or gain from a bargain purchase.
3. Whether the acquired entity is dissolved or maintains separate incorporation, the acquisition method is used to consolidate the financial information. Worksheets and consolidation entries are prepared to eliminate intraentity balances and combine the financial statements.
The document defines accounting as recording, classifying, and summarizing financial transactions and events to prepare financial statements. It discusses the basic accounting concepts like the accounting equation, assets, liabilities, equity, revenues and expenses. It also explains the key steps in accounting cycle which includes recording transactions, posting to ledger accounts, preparing an unadjusted trial balance, making adjusting entries, preparing an adjusted trial balance and financial statements, and closing temporary accounts. The accounting cycle aims to generate useful financial information for decision making in the form of income statement, balance sheet, and other financial reports.
This document provides an overview of basic bookkeeping concepts including debits and credits, cash vs. accrual accounting, T-accounts, the chart of accounts, income and expense accounts, and how to set up journals, income statements, and a balance sheet. It discusses the importance of keeping accurate financial records for a business and introduces key accounting principles and terminology.
Internal and external users of financial informationDyann Barras
This document discusses the internal and external users of accounting information. External users such as creditors, stockholders, vendors, and government agencies rely on accounting information to make important financial decisions but have limited access to it. Internal users directly involved in running the business use the information to improve performance and profitability. The needs of internal users include employees, purchasing managers, and production managers who use it to monitor costs and ensure quality.
The document describes the accounting cycle and process of journalizing business transactions. It explains that companies initially record transactions in chronological order in a general journal. Journalizing involves making separate entries for each transaction with the date, accounts and amounts to be debited and credited, and an explanation. Journal entries can be simple, involving two accounts, or compound, involving three or more accounts. Sample transactions are provided as an example of journalizing entries.
This document provides an overview of key accounting concepts and terms. It begins with the accounting equation that assets are equal to liabilities plus owner's equity. It then discusses t-accounts, rules of debit and credit, and the basic financial statements of income statement, balance sheet, and statement of cash flows. It also covers the accounting cycle, adjusting entries, closing entries, special journals, and inventory costing methods. The document is a comprehensive reference for accounting basics.
Principal accounting - Ch02 analyzing transactionArfan Fahmi
The document provides objectives and content for analyzing transactions in accounting. It discusses accounts and their characteristics, debit and credit rules, analyzing transaction effects on financial statements, preparing trial balances, and discovering and correcting errors. It also covers horizontal analysis to compare financial statements over different periods.
1. The document discusses accounting concepts such as accounts, debits and credits, T-accounts, and the double-entry accounting system.
2. It explains how transactions are recorded in journals and posted to ledger accounts using debits and credits to satisfy the double-entry principle.
3. Examples of accounting entries are provided to illustrate how specific transactions affect asset, liability, equity, revenue and expense accounts.
1. The document discusses key accounting concepts like the accounting equation, double-entry recording, T-accounts, debit and credit rules for different types of accounts.
2. It provides examples of recording business transactions like starting a business, purchases, expenses, revenues using T-accounts and following the double-entry system.
3. Special accounts like returns inwards, returns outwards are discussed which are used to record returns of goods from customers or suppliers.
Uy Law Office recorded various business transactions in December including an initial investment of PHP 500,000 cash by owner Jan Uy, obtaining a bank loan, paying expenses, rendering and collecting fees from clients, purchasing assets, and paying salaries. Journal entries were prepared to record each transaction and update the relevant accounts in the general ledger and T-accounts.
Portfolio Project Option 1 Student Template
Option #1: Venture Consultants, Power and Demolition Company, and Warnerwood Accounting Cases
PART 1:
Venture Consultants
The month of March transactions
Date
Account Names
Debit
Credit
1-Mar
2-Mar
3-Mar
6-Mar
9-Mar
12-Mar
19-Mar
22-Mar
25-Mar
29-Mar
30-Mar
30-Apr
$221,000
$221,000
PART 2A
Power and Demolition Co, Adjustment April 30, 2015
Adjust #
Account Names
Debit
Credit
1
2
3
4
5
6
7
8
PART 2B
Power and Demolition Co, Adjustment April 30, 2015
Continued
UTB
ADJUSTMENT
Acct #
Account Names
Debit
Credit
Debit
Credit
Debit
101
Cash
$7,000
$7,000
126
Supplies
$16,000
128
Pre-paid insurance
$12,600
167
Equipment
$200,000
Accumulated. Depreciation
$14,000
201
Account payable
$6,800
Utilities payable
Wages payable
Rent Payable
PropertyTxPayable
Interest payable
251
Long-term notes payable
$30,000
301
Bonn, Equity
$86,900
302
Bonn, Withdrawals
$12,000
401
Demolition fees earned
$187,000
623
Wage expense
$41,400
633
Interest expense
$3,300
640
Rent expense
$13,200
683
Property tax expense
$9,700
684
Repairs expense
$4,700
690
Utilities expense
$4,800
Supply expense
Insurance expense
Depreciation expense
TOTALS
$324,700
$324,700
PART 3
Warnerwood Company
Column->
A
B
C
D
E
F
G
Date
Activities
# Units Buy
Cost/unit
#Units Sold
Price/unit
Cost GAS
Sales
1-Mar
BI
5-Mar
TI
9-Mar
TO
18-Mar
TI
25-Mar
TI
29-Mar
TO
TOTAL
Q1. Units in Available for Sales is BI + TI (Column B)=
Units (BI + TI) =
Q2. BI + TI - TO = EI=
820
minus
580
equals
240
Q3. FIFO
Q3. LIFO
Q3. Weighted Average
Weighted cost/unit=
Cost EI=
Q.4
Sales
COGS/Method
Gross Profit
Q4. FIFO
Q4. LIFO
Q4. WtAvg
Portfolio
Project Option 1 Student Template
Option #1
:
Venture Consultants, Power and Demolition Company, and Warnerwood
Accounting Cases
PART 1:
Venture Consultants
The month of March transactions
Date
Account
Names
Debit
Credit
1
-
Mar
2
-
Mar
3
-
Mar
6
-
Mar
9
-
Mar
12
-
Mar
19
-
Mar
22
-
Mar
25
-
Mar
29
-
Mar
30
-
Mar
.
Transaction analysis involves collecting transaction data, determining the effects on accounts in the accounting equation, and recording debits and credits in the general journal. A transaction is an event that results in a change to at least one balance sheet item such as an asset, liability, or equity account. The accounting equation of Assets = Liabilities + Equity must be kept in balance by recording equal debits and credits for each transaction.
AWeek Five Exercise AssignmentFinancial Ratios1. Liquidity r.docxikirkton
AWeek Five Exercise Assignment
Financial Ratios
1. Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:
Edison
Stagg
Thornton
Cash
$4,000
$2,500
$1,000
Short-term investments
3,000
2,500
2,000
Accounts receivable
2,000
2,500
3,000
Inventory
1,000
2,500
4,000
Prepaid expenses
800
800
800
Accounts payable
200
200
200
Notes payable: short-term
3,100
3,100
3,100
Accrued payables
300
300
300
Long-term liabilities
3,800
3,800
3,800
a. Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?
2. Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc:
20X5
20X4
Net credit sales
$832,000
$760,000
Cost of goods sold
440,000
350,000
Cash, Dec. 31
125,000
110,000
Average Accounts receivable
180,000
140,000
Average Inventory
70,000
50,000
Accounts payable, Dec. 31
115,000
108,000
a. Compute the accounts receivable and inventory turnover ratios for 20X5. Alaska rounds all calculations to two decimal places.
3. Profitability ratios, trading on the equity. Digital Relay has both preferred and common stock outstanding. The company reported the following information for 20X7:
Net sales
$1,500,000
Interest expense
$120,000
Income tax expense
$80,000
Preferred dividends
$25,000
Net income
$130,000
Average assets
$1,100,000
Average common stockholders' equity
$400,000
a. Compute the profit margin ratio, the return on equity and the return on assets, rounding calculations to two decimal places.
b. Does the firm have positive or negative financial leverage? Briefly explain.
4. Horizontal analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.
20X2
20X1
Current Assets
$76,000
$80,000
Property, Plant, and Equipment (net)
99,000
90,000
Intangibles
25,000
50,000
Current Liabilities
40,800
48,000
Long-Term Liabilities
143,000
160,000
Stockholders’ Equity
16,200
12,000
Net Sales
500,000
500,000
Cost of Goods Sold
332,500
350,000
Operating Expenses
93,500
85,000
Prepare a horizontal analysis for 20X1 and 20X2. Briefly comment on the results of your work.
5. Vertical analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.
20X2
20X1
Current Assets
$ 76,000
$ 80,000
Property, Plant, and Equipment (net)
99,000
90,000
Intangibles
25,000
50,000
Current Liabilities
40,800
48,000
Long-Term Liabilities
143,000
160,000
Stockholders’ Equity
16,200
12,000
Net Sales
500,000
500,000
Cost of Goods Sold
332,500
350,000
Operating Expenses
93,500
85,000
Prepare a vertical analysis for 20X1 and 20X2. Briefly comment on the results of your work.
6. Ratio computation. The financial statements of the Lone Pine Company follow.
LONE PINE COMPANY
Comparat ...
The document provides financial statement information for M/s R Company for 2004 and 2003, including balance sheets, income statements, and additional notes. It asks to prepare a statement of cash flows using the indirect method, noting equipment purchases and sales, bond redemptions, stock issuances, dividend payments, and other transactions during 2004.
Sherif Consultant Group provides engineering consulting services. The document provides 25 transactions from January 1-25, 2019 to practice journalizing, posting to accounts, and preparing financial statements using the accounting equation and T-accounts. Key aspects covered include unearned and prepaid revenues, depreciation using straight-line method, and allowance method for estimating uncollectible accounts. The income statement shows net income of $12,000 and the balance sheet lists assets of $87,500 equal to liabilities and owner's equity.
Sherif Consultant Group provides engineering consulting services. During January 2019, Sherif recorded over 25 transactions including starting the business, purchases, sales, expenses, payments, and adjusting entries. The transactions were recorded in a general journal and posted to accounts. Financial statements including an income statement, owner's equity statement, and balance sheet were prepared showing the results for the month.
Sherif Consultant Group provides engineering consulting services. During January 2019, Sherif recorded over 25 transactions including starting the business, purchases, sales, expenses, payments, and adjustments. The assistant summarized the accounting cycle by journalizing transactions, posting to accounts, and preparing financial statements including an income statement showing net income of $12,000 and an ending capital balance of $76,500, as well as a balance sheet with total assets of $87,500 equal to total liabilities and owner's equity.
The accountant provided tax advice to a client on December 1, 20X3 but would not be paid until January 15, 20X4. Under accrual accounting, the accountant should record the revenue in 20X3 because accrual accounting records revenue in the period the service is provided, regardless of when payment is received. Accrual accounting attempts to record the financial effects of transactions in the period they occur rather than when cash is exchanged.
The document provides a tutorial with solutions for ACC 205 Week 1-5 assignments on financial ratios. It includes 16 pages of tutorial solutions and 10 practice problems covering basic accounting concepts like identifying assets, liabilities, revenues and expenses; preparing basic financial statements; journal entries; adjusting entries; and bank reconciliations. The high-level tasks involve preparing basic financial statements, journal entries, adjusting entries and a bank reconciliation based on sample business transactions provided.
1. Accounting provides financial information to internal and external users to help them make decisions. It involves recording, classifying, measuring, and communicating financial data.
2. The basic accounting equation is Assets = Liabilities + Owner's Equity. It shows the resources owned (assets), claims against assets (liabilities), and ownership interest (owner's equity) of a business.
3. Transactions affect the basic accounting equation by increasing or decreasing at least one item on each side of the equation.
ANSWER ALL QUESTIONS IN FIELD READ CAREFULLY PLEASE LABEL EACH QU.docxnolanalgernon
ANSWER ALL QUESTIONS IN FIELD: READ CAREFULLY PLEASE LABEL EACH QUESTION
Question 1
Classifying Accounts
Balances for each of the following accounts appear in an adjusted trial balance. Identify each as an asset, liability, revenue, or expense.
1. Accounts Receivable
2. Equipment
3. Fees Earned
4. Insurance Expense
5. Land
6. Prepaid Rent
7. Rent Revenue
8. Salary Expense
9. Salary Payable
10. Supplies
11. Unearned Rent
12. Wages Payable
Question 2
Financial Statements from the End-of-Period Spreadsheet
Elliptical Consulting is a consulting firm owned and operated by Jayson Neese. The following end-of-period spreadsheet was prepared for the year ended June 30, 2019:
Elliptical Consulting
End-of-Period Spreadsheet
For the Year Ended June 30, 2019
Unadjusted
Adjusted
Trial Balance
Adjustments
Trial Balance
Account Title
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Cash
27,000
27,000
Accounts Receivable
53,500
53,500
Supplies
3,000
(a)
2,100
900
Office Equipment
30,500
30,500
Accumulated Depreciation
4,500
(b)
1,500
6,000
Accounts Payable
3,300
3,300
Salaries Payable
(c)
375
375
Jayson Neese, Capital
82,200
82,200
Jayson Neese, Drawing
2,000
2,000
Fees Earned
60,000
60,000
Salary Expense
32,000
(c)
375
32,375
Supplies Expense
(a)
2,100
2,100
Depreciation Expense
(b)
1,500
1,500
Miscellaneous Expense
2,000
2,000
150,000
150,000
3,975
3,975
151,875
151,875
Based on the preceding spreadsheet, prepare an income statement for Elliptical Consulting.
Elliptical Consulting
Income Statement
For the Year Ended June 30, 2019
$
Expenses:
$
Total expenses
$
Based on the preceding spreadsheet, prepare a statement of owner's equity for Elliptical Consulting.
Elliptical Consulting
Statement of Owner's Equity
For the Year Ended June 30, 2019
$
$
$
Based on the preceding spreadsheet, prepare a balance sheet for Elliptical Consulting.
Elliptical Consulting
Balance Sheet
June 30, 2019
Assets
Current assets:
$
Total current assets
$
Property, plant, and equipment:
$
Total property, plant, and equipment
Total assets
$
Liabilities
Current liabilities:
$
Total liabilities
$
Owner's Equity
Total liabilities and owner's equity
$
Question 3:
Income Statement; Net Loss
The following revenue and expense account balances were taken from the ledger of Wholistic Health Services Co. after the accounts had been adjusted on February 28, 2019, the end of the fiscal year:
Depreciation Expense
$7,500
Insurance Expense
3,000
Miscellaneous Expense
8,150
Rent Expense
54,000
Service Revenue
448,400
Supplies Expense
2,750
Utilities Expense
33,900
Wages Expense
360,000
Prepare an income statement. Use a minus sign to indicate a net loss.
Wholistic Health Services Co.
Income Statement
For the Year Ended February 28, 2019
$
Expenses:
$
Total expenses
Question 4:
Statement .
The document discusses accounting concepts related to debits and credits, including:
1. Setting up a chart of accounts to organize asset, liability, equity, revenue and expense accounts.
2. Analyzing business transactions and determining the proper debit and credit treatment based on whether the account balance will increase or decrease.
3. Preparing T-accounts and journal entries to record transactions, and ensuring debits equal credits.
4. Preparing a trial balance from the journal entries to check that accounts balance.
5. Using the trial balance to generate basic financial statements - the income statement, statement of owner's equity, and balance sheet.
Chapter 2 Basic Financial Statements exercise and solutions Osama Yousaf
This document contains sample balance sheets, income statements, and accounting exercises involving the accounting equation and recording business transactions. The exercises demonstrate how to prepare basic financial statements, record the effects of transactions on the accounting equation, and interpret financial statements. Key elements include assets, liabilities, owner's equity, revenues, expenses, and how various transactions impact these elements.
1
—Balance sheet computations.
(Balance Sheet) Presented below is the trial balance of Hightower Corporation at December 31, 2017.
Debit
Credit
Cash
295,000
Sales Revenue
$12,150
Debt Investments (trading) (at cost, $218,000)
230,000
Cost of Goods Sold
7,200
Debt Investments (long-term)
448,000
Equity Investments (long-term)
416,000
Notes Payable (short-term)
135,000
Accounts Payable
682,000
Selling Expenses
3,000,000
Investment Revenue
95,000
Land
390,000
Buildings
1,560,000
Dividends Payable
204,000
Accrued Liabilities
144,000
Accounts Receivable
652,000
Accumulated Depreciation–Buildings
228,000
Allowance for Doubtful Accounts
38,000
Administrative Expenses
1,350,000
Interest Expense
317,000
Inventory
895,000
Gain
120,000
Notes Payable (long-term)
1,350,000
Equipment
900,000
Bonds Payable
1,500,000
Accumulated Depreciation–Equipment
90,000
Franchises
240,000
Common Stock ($5 par)
1,500,000
Treasury Stock
287,000
Patents
293,000
Retained Earnings
117,000
Paid-in Capital in Excess of Par
120,000
Totals
$18,473,000
$18,473,000
Instructions
Compute each of the following:
1. Total current assets
2. Total property, plant, and equipment
3. Total assets
4. Total liabilities
5. Total stockholders’ equity
2
—Statement of cash flows.
A comparative balance sheet for Talkington Corporation is presented below.
December 31
Assets
2017
2016
Cash
Accounts receivable
$
68,100
$
21,600
Inventory
82,800
33,000
Land
170,200
83,800
Equipment
71,400
74,000
Accumulated depreciation–equipment
280,500
212,400
Total
(74,000)
(42,000)
$597,000
$545,000
Liabilities and Stockholders’ Equity
Accounts payable
$ 34,000
$ 47,000
Bonds payable
150,000
200,000
Common stock ($1 par)
164,000
164,000
Retained earnings
249,000
134,000
Total
$597,000
$545,000
Additional information:
1.
Net income for 2017 was $155,000; there were no gains or losses.
2.
Cash dividends of $400,000 were declared and paid.
3.
Bonds payable of $50,000 were retired.
Instructions:
Compute each of the following:
1.
Net cash provided by operating activities
2.
Net cash provided (used) by investing activities
3.
Net cash provided (used) by financing activities
3
—Statement of cash flows ratios.
Financial statements for Hilton Company are presented below:
Hilton Company
Balance Sheet
December 31, 2017
Assets
Liabilities & Stockholders’ Equity
Cash
$ 40,000
Accounts payable
$ 20,000
Accounts receivable
35,000
Bonds payable
50,000
Buildings and equipment
150,000
Common stock
65,000
Accumulated depreciation—
Retained earnings
60,000
buildings and equipment
(50,000)
$195,000
Patents
20,000
$195,000
Hilton Company
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash flows from operating activities
Net income
$50,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accounts receivable
$(16,000)
Increase.
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2. The Accounting Cycle
• The accounting cycle is the process by which accountants
prepare financial statements for an entity for a specific
period of time.
2
3. The Accounting Cycle
1. Analyze business transactions
2. Journalize the
transactions
6. Prepare adjusted trial
balance
7. Prepare financial
statements
8. Journalize and post
closing entries
9. Prepare a post-closing
trial balance
4. Prepare a trial balance
3. Post to ledger accounts
5. Journalize and post
adjusting entries
3
4. Account:
• An account is an individual accounting
record of increases and decreases in a
specific asset, liability, owner’s equity
revenue or expense items.
• There are separate accounts for each
classification type such as cash, salaries
expense, accounts payable, etc.
4
5. CHART OF ACCOUNTS
• DEFINITION: is a list of general ledger accounts.
• Is a listing of accounts in title and numerical designation.
5
6. Ledger
• Definition: The complete set of accounts for a business entity.
• It is the reference book of the accounting system and is used to
summarise and classify and to prepare data for financial statements.
A group of accounts for a
business entity is called a ledger.
6
7. Major Account Classifications
Assets are
resources owned
by the business.
Liabilities are debts
owed to outsiders
(creditors).
Cash
Supplies
Building
Accounts
receivable
Accounts
payable
Notes payable
Wages payable
7
8. Major Account Classifications
Liabilities are debts
owed to outsiders
(creditors).
Cash
Supplies
Building
Accounts
receivable
Accounts
payable
Notes payable
Wages payable
Assets are
resources owned
by the business.
Liabilities are often identified
on the balance sheet by titles
that include payable.
8
9. Owner’s
equity is the
owner’s right to
the assets of the
business.
Revenues are
increases in
owner’s equity as
a result of selling
products or
providing service.
Ayele, Capital
Fees Earned
Sales
Commission
Revenue
Expenses are the
using up of assets
or consuming of
services to
generate revenue.
Rent Expense
Salary Expense
Utilities
Expense
Major Account Classifications
9
11. Credit for
increases
(+)
Credit for
decreases
(-)
Debit for
increases
(+)
Debit for
decreases
(-)
Expense Accounts Revenue Accounts
Rules of Debit / Credit
Statement of profit or loss and other
comprehensive income accounts
11
12. Increase
(Normal Balances) Decreases
Balance sheet accounts:
Asset Debit Credit
Liability Credit Debit
Owner’s Equity:
Capital Credit Debit
Drawing Debit Credit
Income statement accounts:
Revenue Credit Debit
Expense Debit Credit
Normal Balances of Accounts
12
13. Double-Entry Accounting
“ Double-entry accounting is based on a simple
concept: each party in a business transaction
will receive something and give something in
return. In bookkeeping terms, what is received
is a debit and what is given is a credit. The T
account is a representation of a scale or
balance.”
Luca Pacioli
Developer of
Double-Entry
Accounting
Scale or Balance
Receive
DEBIT
Give
CREDIT
T account
Left Side
Receive
DEBIT
Right Side
Give
CREDIT
13
14. The T-Account
T-account has a title.
Cash
Left side
debit
The left side of the account is the debit side.
Right side
credit
The right side of the account is the credit side. 14
21. 1. Determine whether an asset, a liability,
owner’s equity, revenue, or expense account
is affected by the transaction.
2. For each account affected by the transaction,
determine whether the account increases or
decreases.
3. Determine whether each increase or decrease
should be recorded as a debit or a credit.
System to Analyze Transactions
21
23. JOURNAL
Transactions are initially recorded in chronological order
in a journal before being transferred to the accounts in
the ledger.
Every company has a general journal which contains;
1. spaces for dates,
2. account titles and explanations,
3. references, and
4. two money columns.
• Entering transaction data in the journal is known as
journalizing.
23
24. Post.
Ref.
JOURNAL
Date Description Debit Credit
Page 1
1
2
3
4
Nov. 1
2006
Cash 25 000 00
AYELE, Capital 25 000 00
Invested cash in NetSolutions.
(A) On November 1, Ayele deposits
Br25,000 in a bank account in the
name of Net Solutions.
24
25. 4
5
6
7
8
9
10
5 Land 20 000 00
Cash 20 000 00
Purchased land for building
site.
(B) On November 5,
NetSolutions bought land
for Br20,000, paying cash.
25
26. 10
11
12
13
14
15
16
10 Supplies 1 350 00
Accounts Payable 1 350 00
Purchased supplies on account.
(C) On November 10, NetSolutions
purchased supplies on account
for Br1,350.
26
27. (D) On November 18, NetSolutions
received fees of Br7,500 from
customers for services provided .
18 Cash 7 500 00
Fees Earned 7 500 00
Received fees from customers.
14
15
16
17
18
19
20
27
29. 30 Accounts Payable 950 00
Cash 950 00
Paid creditors on account.
30
31
32
33
34
35
36
(F) On November 30, NetSolutions
paid creditors on account, Br950.
29
30. In every entry the sum of
the debits always equal
the sum of the credits.
30
31. (G) On November 30, a count revealed
that Br800 of the supplies
inventory had been used.
30 Supplies Expense 800 00
Supplies 800 00
Supplies used during
November.
25
26
27
28
29
30
31
31
32. Post.
Ref.
JOURNAL
Date Description Debit Credit
Page 2
1
2
3
4
Nov. 30
2006
Ayele , Drawing 2 000 00
Cash 2 000 00
Ayele withdrew cash for
personal use.
(H) On November 30, Ayele withdrew
Br2,000 in cash from Net Solutions
for personal use.
32
34. Post.
Ref.
JOURNAL
Date Description Debit Credit
Page 2
1
2
3
4
Dec. 1
2006
Prepaid Insurance 2 400 00
Cash 2 400 00
Paid premium on two-year
policy.
Dec. 1 Net Solutions paid a premium of
Br2,400 for a comprehensive
insurance policy covering two years.
34
40. Dec. 13 NetSolutions paid a receptionist and
part-time assistant Br950 for two
weeks’ wages.
Post.
Ref.
JOURNAL
Date Description Debit Credit
Page 3
1
2
3
4
Dec. 13
2006
Wages Expense 51 950 00
Cash 11 950 00
Paid two week’s wages.
40
41. Dec. 16 NetSolutions received Br3,100 from
fees earned for the first half of
December.
5
6
7
8
16 Cash 11 3 100 00
Fees Earned 41 3 100 00
Received fees from customers.
41
42. Dec. 16 Fees earned on account totaled
Br1,750 for the first half of
December.
9
10
11
12
16 Accounts Receivable 12 1 750 00
Fees Earned 41 1 750 00
Received fees from customers.
42
43. Dec. 20 NetSolutions paid Br900 to
Executive Supply Co. on the
Br1,800 debt owed from the
December 4 transaction.
13
14
15
16
20 Accounts Payable 21 900 00
Cash 11 900 00
Paid part of amount owed to
Executive Supply Co.
43
44. Dec. 21 NetSolutions received Br650 from
customers in payment of their
accounts.
18
19
20
21
21 Cash 11 650 00
Accounts Receivable 12 650 00
Received cash from customer
on account.
44
46. Dec. 27 NetSolutions paid the receptionist
and part-time assistant Br1,200 for
two weeks’ wages.
27
28
29
30
27 Wages Expense 51 1 200 00
Cash 11 1 200 00
Paid two weeks’ wages.
46
47. Dec. 31 NetSolutions received Br2,870 from
fees earned for the second half of
December.
5
6
7
8
31 Cash 11 2 870 00
Fees Earned 41 2 870 00
Received fees from customers.
47
48. Dec. 31 NetSolutions paid its Br310
telephone bill for the month.
31
32
33
34
31 Utilities Expense 54 310 00
Cash 11 310 00
Paid telephone bill.
48
49. Dec. 31 NetSolutions paid its Br225 electric
bill for the month.
Post.
Ref.
JOURNAL
Date Description Debit Credit
Page 4
1
2
3
4
Dec. 31
2006
Utilities Expense 54 225 00
Cash 11 225 00
Paid utility bill.
49
50. Dec. 31 Net Solutions fees earned totalled
Br1,120 on account for the second
half of December.
9
10
11
12
31 Accounts Receivable 12 1 120 00
Fees Earned 41 1 120 00
Recorded fees earned on
account.
50
51. Dec. 31 Ayelewithdrew Br2,000 for personal
use.
14
15
16
17
31 Ayele , Drawing 32 2 000 00
Cash 11 2 000 00
Ayele withdrew cash
for personal use.
51
52. Posting
• is a process of transferring data from journal to
the accounts in the ledger.
52
53. Example
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
and the account number to which the journal was posted.
J1
Date Account Title and Explanation Ref Debit Credit
2002
01-Sep Cash 101 15,000
M. Doucet, Capital 301 15,000
Invested cash in business.
General Journal
101
Date Account Title and Explanation Ref Debit Credit Balance
2002
01-Sep J1 15,000 15,000
Cash
General Ledger
53
54. ILLUSTRATION 2-14
POSTING A JOURNAL ENTRY
In the ledger, enter in the appropriate columns of the account(s)
credited the date, journal page, and credit amount shown in the
journal and the account number to which the journal was posted.
J1
Date Account Title and Explanation Ref Debit Credit
2002
01-Sep Cash 101 15,000
M. Doucet, Capital 301 15,000
Invested cash in business.
General Journal
301
Date Account Title and Explanation Ref Debit Credit Balance
2002
1-Sep J1 15,000 15,000
M. Doucet, Capital
General Ledger
54
56. THE TRIAL BALANCE
A trial balance is a list of accounts and their balances at a
given time.
The primary purpose of a trial balance is to prove the
mathematical equality of debits and credits after posting.
A trial balance also discover errors in journalizing and
posting.
The procedures for preparing a trial balance consist of
1. listing the account titles and their balances,
2. totaling the debit and credit columns, and
3. proving the equality of the two columns.
56
59. 1. Failure to record a transaction or to post a
transaction.
2. Recording the same erroneous amount for
both the debit and the credit parts of a
transaction.
3. Recording the same transaction more than
once.
4. Posting a part of a transaction correctly as a
debit or credit but to the wrong account.
Errors that will not cause the
trial balance to be unequal:
59
60. Error Correction Procedure
1. Journal entry is incorrect Draw a line through the error
but posted correctly. and insert correct title or
amount.
Error Correction Procedure
Correction
of Errors
60
61. Error Correction Procedure
1. Journal entry is incorrect Draw a line through the error
but not posted. and insert correct title or
amount.
Error Correction Procedure
2. Journal entry is correct Draw a line through the
but posted incorrectly. posted error and post
correctly.
Correction
of Errors
61
62. Error Correction Procedure
Error Correction Procedure
3. Journal entry is incorrect Journalize and post a
and posted incorrectly. correcting entry.
Correction
of Errors
62
63. What would be the necessary
correcting entry?
Journal – As recorded and posted
Correcting Errors – An Example
On May 5, a purchase of office equipment on
account was incorrectly journalized and posted
as shown.
Date Description Debit Credit
May 5 Supplies 12,500
Accounts Payable 12,500
63
64. Journal – As recorded and posted
Correcting Errors – An Example
On May 5, a purchase of office equipment on
account was incorrectly journalized and posted
as shown.
Date Description Debit Credit
May 5 Supplies 12,500
Accounts Payable 12,500
Date Description Debit Credit
May 5 Office Equipment 12,500
64
65. Date Description Debit Credit
May 5 Office Equipment 12,500
Supplies 12,500
Journal – As recorded and posted
Correcting Errors – An Example
On May 5, a purchase of office equipment on
account was incorrectly journalized and posted
as shown.
Date Description Debit Credit
May 5 Supplies 12,500
Accounts Payable 12,500
65
66. Learning Objectives
The Matching Concept and the Adjusting Process
1. The Matching Concept
2. Nature of the Adjusting Process
3. Recording Adjusting Entries
4. Summary of Adjustment Process
C3
66
68. Cash Basis of Accounting
Revenue reported when cash is received
Expense reported when cash is paid
Does not properly match revenues and expenses
68
69. Accrual Basis of Accounting
Revenue reported when earned
Expense reported when incurred
Properly matches revenues and expenses in
determining net income
Requires adjusting entries at end of period
69
71. Adjustments – deferrals and accruals
• Deferrals are created by recording a transaction
in a way that delays or defers the recognition of
an expense or a revenue
Deferred expenses
Deferred revenues
• Accruals are created by an unrecorded expense
that has been incurred or an unrecorded
revenue that has been earned
Accrued expenses
Accrued revenues
71
73. Basic Steps of the Accounting
Cycle
1. Transactions are analyzed and recorded in the journal.
2. Transactions are posted to the ledger.
3. A trial balance is prepared, adjustment data are
assembled, and an optional work sheet is completed.
4. Financial statements are prepared.
5. Adjusting entries are journalized and posted.
6. Closing entries are journalized and posted.
7. A post-closing trial balance is prepared.
73
74. The work sheet is a useful
device for understanding the flow
of accounting data from the
unadjusted trial balance to the
financial statements.
74
75. WORK SHEET
Account Titles Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Balance Sheet
Trial Balance Adjustments Adjusted Trial Balance Income Statement
1. Prepare trial
balance on the
worksheet.
2. Enter
adjustment
data.
3. Enter
adjusted
balances
4. Extend adjusted balance to
appropriate columns.
5. Calculate income/loss and
complete the worksheet.
75
76. The Work Sheet
Trial Balance
Accounts Dr Cr Dr Cr Dr Cr
Adjustments Adjusted TB
Prepared from the general ledger.
Accounts are listed in the following
order: assets, liabilities, owner’s
equity, revenues, and expenses.
76
77. Adjustments are entered here. Two
possibilities:
1. Deferrals – Existing balances are
changed.
2. Accruals – New information is
entered.
Trial Balance
Accounts Dr Cr Dr Cr Dr Cr
Adjustments Adjusted TB
The Work Sheet
77
78. The Work Sheet
Adjustments are combined with
the trial balance. Account
balances are now adjusted.
Trial Balance
Accounts Dr Cr Dr Cr Dr Cr
Adjustments Adjusted TB
78
80. (a) The Supplies account has a debit balance
of Br2,000. A count of supplies at the end
of the period reveals that Br760 is on hand.
Therefore, Br1,240 in supplies was used
during the two-month period.
80
82. (b)The Prepaid Insurance account has a
debit balance of Br2,400, which
represents prepayment of insurance for
24 months beginning December 1.
Thus, the insurance expense for this
month is Br100 (Br2,400 ÷ 24).
82
84. (c) The Unearned Rent account has a credit
balance of Br360, which represents the
receipt of three-months’ rent beginning
with December 1. Thus, the rent revenue
for December is Br120.
FOR
RENT
84
94. Next, the unadjusted Trial
Balance columns and the
Adjustments columns are
combined to determine the
amounts displayed in the
Adjusted Trial Balance.
94
97. Effect of Omitting Adjusting Entry on the
Balance Sheet and Income Statement
• Deferred expenses;
Expenses Understated and Net Income Overstated
Assets Overstated and Owner’s Equity Overstated
• Deferred revenues;
Revenues Understated and Net Income Understated
Liabilities Overstated and Owner’s Equity Understated
• Accrued expenses;
Expenses Understated and Net Income Overstated
Liabilities Understated and Owner’s Equity Overstated
• Accrued revenues;
Revenues Understated and Net Income Understated
Assets Understated and Owner’s Equity Understated
97
98. Revenue and expense balances in
the Adjusted Trial Balance column
are extended to the Income
Statement column.
Adjusted TB
Accounts Dr Cr Dr Cr Dr Cr
Income State. Balance Sheet
The Work Sheet
98
99. Asset, liability, owner’s equity, and
drawing balances in the Adjusted
Trial Balance column are extended
to the Balance Sheet column.
Adjusted TB
Accounts Dr Cr Dr Cr Dr Cr
Income State. Balance Sheet
The Work Sheet
99
100. To make room on the slides for
the Income statement and
Balance Sheet columns, the Trial
Balance and Adjustments
columns have been removed.
100
106. The difference between the
Income Statement column
totals is the net income (or net
loss) for the period.
106
107. The difference between the
Balance Sheet column totals is
also the income (or net loss)
for the period.
107
108. 9,755 16,960 33,645 26,440
7,205 7,205
16,960 16,960 33,645 33,645
Income Statement Balance Sheet
Net Income Net Income
108
109. NetSolutions
Income Statement
For Two Months Ended December 31, 2006
Fees earned Br16,840
Rent revenue 120
Total revenues Br16,960
Expenses:
Wages expense Br 4,525
Supplies expense 2,040
Rent expense 1,600
Utilities expense 985
Insurance expense 100
Depreciation expense 50
Miscellaneous expense 455
Total expenses 9,755
Net income Br 7,205
Every amount on this income statement was taken from the
Income Statement column of the work sheet. 109
110. NetSolutions
Statement of Changes in Equity
For the Two Months Ended December 31, 2006
AYELE’s Investment on November 1, 2006 Br25,000
Net income for November and December 7,205
Less withdrawals 4,000
Increase in owner’s equity 3,205
AYELE, Capital, December 31, 2006 Br 28,205
Either
from
the
income
statement
or
the
work
sheet.
110
111. NetSolutions
Statement of financial Position
December 31, 2006
Assets Liabilities
Current assets: Current liabilities:
Cash Br 2,065 Accounts payable Br900
Accounts receivable 2,720 Wages payable 250
Supplies 760 Unearned rent 240
Prepaid insurance 2,300 Total liabilities Br 1,390
Total current assets Br 7,845
Property, plant, and
equipment:
Land Br20,000
Office equip. Br1,800
Less accum.
depreciation 50 1,750 Owner’s Equity
Total property, plant AYELE, Capital 28,205
and equipment 21,750 Total liabilities and
Total assets Br29,595 owner’s equity Br29,595
From the
Statement
of Owner’s
Equity
111
112. Adjusting and Closing Entries
Adjusting entries are recorded
in the journal at the end of the
accounting period.
112
113. Adjusting and Closing Entries
If a work sheet has been
prepared, the data for
these entries are in the
Adjustments columns.
113
114. OWNER’S CAPITAL
The Closing Process
Income Summary
1
Revenues are
transferred to
Income Summary
2
Expenses are
transferred to
Income Summary
3 Net Income or Net Loss is
transferred to Owner’s Capital
4
Drawings are transferred to
Owner’s Capital
114
115. OWNER’S CAPITAL
Income Summary
1
Revenues are
transferred to
Income Summary
2
Expenses are
transferred to
Income Summary
3 Net Income or Net Loss is
transferred to Owner’s Capital
4
Drawings are transferred to
Owner’s Capital
The Income Summary
account does not appear on
the financial statements.
Adjusting and Closing Entries
115
116. Wages Expense
Bal. 4,525
Rent Expense
Bal. 1,600
Depreciation Expense
Bal. 50
Utilities Expense
Bal. 985
Supplies Expense
Bal. 2,040
Insurance Expense
Bal. 100
Miscellaneous Expense
Bal. 455
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
AYELE, Capital
Bal. 25,000
AYELE, Drawing
Bal. 4,000
Income Summary
Note: The
balances shown
are adjusted
balances before
closing. The
following
sequence
demonstrates the
closing process.
The Closing Process
116
117. Wages Expense
Bal. 4,525
Rent Expense
Bal. 1,600
Depreciation Expense
Bal. 50
Utilities Expense
Bal. 985
Supplies Expense
Bal. 2,040
Insurance Expense
Bal. 100
Miscellaneous Expense
Bal. 455
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
AYELE, Capital
Bal. 25,000
AYELE, Drawing
Bal. 4,000
Income Summary
Debit each revenue
account for the
amount of its
balance, and credit
Income Summary
for the total
revenue.
16,840
120
16,960
The Closing Process
117
118. Wages Expense
Bal. 4,525
Rent Expense
Bal. 1,600
Depreciation Expense
Bal. 50
Utilities Expense
Bal. 985
Supplies Expense
Bal. 2,040
Insurance Expense
Bal. 100
Miscellaneous Expense
Bal. 455
AYELE, Capital
Bal. 25,000
AYELE, Drawing
Bal. 4,000
Income Summary
Debit Income
Summary for the
total expenses and
credit each expense
account for its
balance.
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
16,840
120
16,960
9,775
455
100
2,040
985
50
1,600
4,525
The Closing Process
118
119. Wages Expense
Bal. 4,525
Rent Expense
Bal. 1,600
Depreciation Expense
Bal. 50
Utilities Expense
Bal. 985
Supplies Expense
Bal. 2,040
Insurance Expense
Bal. 100
Miscellaneous Expense
Bal. 455
AYELE, Capital
Bal. 25,000
AYELE, Drawing
Bal. 4,000
Income Summary
Debit Income
Summary for the
amount of its
balance (in this
case, the net
income) and credit
the capital account.
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
16,840
120
16,960
9,775
455
100
2,040
985
50
1,600
4,525
7,205
7,205
The Closing Process
119
120. Wages Expense
Bal. 4,525
Rent Expense
Bal. 1,600
Depreciation Expense
Bal. 50
Utilities Expense
Bal. 985
Supplies Expense
Bal. 2,040
Insurance Expense
Bal. 100
Miscellaneous Expense
Bal. 455
AYELE, Capital
Bal. 25,000
AYELE, Drawing
Bal. 4,000
Income Summary
Debit the capital
account for the
balance of the
drawing account,
and credit drawing
for the same
amount.
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
16,840
120
16,960
9,775
455
100
2,040
985
50
1,600
4,525
7,205
7,205
4,000
4,000
The Closing Process
120
121. Wages Expense
Bal. 4,525
Rent Expense
Bal. 1,600
Depreciation Expense
Bal. 50
Utilities Expense
Bal. 985
Supplies Expense
Bal. 2,040
Insurance Expense
Bal. 100
Miscellaneous Expense
Bal. 455
AYELE, Capital
Bal. 25,000
AYELE, Drawing
Bal. 4,000
Income Summary
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
16,480
120
16,960
9,775
445
100
2,040
985
50
1,600
4,525
7,205
7,205
4,000
4,000
Close Revenues
Close Expenses
Close Income Summary
Close Drawing
16,840
120
16,960
4,525
1,600
50
985
2,040
100
455
9,775
7,205
7,205
4,000
4,000
Review of the Closing Process
121
122. After the closing entries
are posted, all of the
temporary accounts have
zero balances.
122