accounting 3 chapter 24 section 1 accounting for accrued revenue and expenses
TRANSCRIPT
Accounting 3Chapter 24 Section 1
Accounting for Accrued Revenue and Expenses
Accrued Revenue Accrued Revenue – Revenue earned in one
fiscal period but not received until a later fiscal period.
At the end of a fiscal period, accrued revenue is recorded by an adjusting entry which increases a revenue account and a receivable account.
Analyzing an Adjustment for Accrued Interest Income. Accrued Interest Income – Interest earned at
the end of a fiscal period, but not yet received.
To calculate interest income: Principal x Interest Rate x Time as fraction of a
year = Accrued Interest Income.
Analyzing an Adjustment for Accrued Interest Income. Example: $1,000.00 loan at 12% for 90 days
dated November 1. November 1 – December 31 = 60 days $1,000.00 (P) x 12% (IR) x 60/360 = $20.00
So Interest Receivable (which shows the interest we have earned but will receive later) is debited for $20.00. Interest Income (which shows how much we have earned to date) will be credited for $20.00.
Journalizing Accrued Interest IncomeGeneral Journal Page ___
Date Account TitlePost
Ref.
Doc.
No.Debit Credit
15
Dec 31 Interest Receivable 2 0 00
Interest Income 2 0 00
Adjusting Entries
Posting an Adjusting Entry for Accrued Interest Income Posting these two account changes is no
different than any posting we have ever done, except that these are new accounts.
Reversing Entries Reversing Entry – An entry made at the beginning of one
fiscal period to reverse an adjusting entry made in the previous fiscal period.
Because every temporary account must be closed at the end of a fiscal period for accurate records, the adjusting entries must be made.
However, to also accurately show the amount of money that is due to us automatically in the beginning of the next fiscal period, a reversing entry is made.
If we just left everything closed, someone coming in to look at the current fiscal period books after a note has matured and we received our interest income, would want to know where the extra money came from. The reversing entry is what takes care of that question.
Example: On December 31, interest income is closed as
part of the regular closing entries. (Total of $88.00)
Interest Income is debited by $88 to reduce the balance to zero.
When the 90 day maturity date of the previous note is reached (Jan 30 of the next year), the company will receive $30 in interest.
Example Cont’d: Because $20 of this $30 was earned in the previous
year, something must be done to show that this is still coming.
$20 is then debited to Interest Income (technically showing a negative balance) and credited to Interest Receivable (giving it a zero balance).
Once the maturity date is reached and the $30 is received, $30 is credited to interest income (which gives this account a positive $10 balance) and debited to cash.
Next two slides show visible effects.
General Journal Page ___
Date Account TitlePost
Ref.
Doc.
No.Debit Credit
17
Adjusting Entries
Dec 31 Interest Receivable 2 0 00 Interest Income 2 0 00
Reversing Entries
Jan 1 Interest Income 2 0 00
Interest Receivable 2 0 00
Account Acct No.
Date ItemPost
RefDebit Credit BALANCE
DEBIT CREDIT
Account Acct No.
Date ItemPost
RefDebit Credit BALANCE
DEBIT CREDIT
Interest Receivable 1120
Interest Income 7110
Dec 31 G15 2 0 00 2 0 00
Dec 29 CR36 1 2 00 6 8 00
31 G15 2 0 00 8 8 00
31 G15 8 8 00 ___________
Jan 1 G17 2 0 00 2 0 00
Jan 1 G17 2 0 00 _______
30 CR51 3 0 00 1 0 00
Adjusting
Closing
Reversing
Loan Maturity
Adjusting
Reversing
Collecting a Note Receivable issued in a Previous Fiscal Period The journalizing is done just like receiving any other
note receivable. The note receivable account and the interest income
account are credited for the amount due. The cash account is debited for the total of these two
accounts. The posting is done as shown on the previous slide
for the Interest Income account.
Work Together p. 620 on several slides
Account Title Trial Balance AdjustmentsDebit DebitCredit Credit
WorksheetWrenn Corporation
For Year Ended December 31, 2007
Interest Receivable (a) 6 8 00
Interest Income (a) 6 8 00 1 5 4 5 00
Follow the arrows to see the logical steps for this problem. Example: When you get to the end of a post, follow the arrow to keep you in the correct sequence.
General Journal Page ___
Date Account TitlePost
Ref.
Doc.
No.Debit Credit
14
Adjusting Entries
Dec 06 31 Interest Receivable 1120 6 8 00
Interest Income 7110 6 8 00
Closing Entries
31 Interest Income 7110 1 6 1 3 00
Income Summary 3120 1 6 1 3 00
Reversing Entries
Jan 07 1 Interest Income 7110 6 8 00
Interest Receivable 1120 6 8 00
Look at postings now
Start of pg G15
Look at these postings now
After viewing all posts, go to Cash Receipts Journal
Account Acct No.
Date ItemPost
RefDebit Credit BALANCE
DEBIT CREDIT
Account Acct No.
Date ItemPost
RefDebit Credit BALANCE
DEBIT CREDIT
Notes Receivable 1115
Interest Receivable 1120
Nov 16 G11 3 0 0 0 00 3 0 0 0 00
Mar 07 16 CR16 3 0 0 0 00
Dec 06 31 G14 6 8 00 6 8 00
Jan 07 1 G15 6 8 00
To GJ
--------------
------------
Account Acct No.
Date ItemPost
RefDebit Credit BALANCE
DEBIT CREDIT
Account Acct No.
Date ItemPost
RefDebit Credit BALANCE
DEBIT CREDIT
Income Summary 3120
Interest Income 7110
Dec 06 31 G14 1 6 1 3 00 1 6 1 3 00
Dec 06 31 CR15 1 5 00 1 5 4 5 00
31 G14 6 8 00 1 6 1 3 00
31 G14 1 6 1 3 00 --------------Jan 07 1 G15 6 8 00 6 8 00
Mar 07 16 CR16 1 7 8 00 1 1 0 00
Cash Receipts Journal Page ___
Date Account TitlePost
Ref.
GENERAL
DEBIT CREDIT
Accts Rec.
Credit
Sales
Credit
Cash
Debit
Doc
No.
Sales Tax Payable
Debit CreditSales Dis.
Debit
Mar 16 Notes Receivable 32 1115 3000.00 3178.00
Interest Income 7110 178.00
16
Assignments
Assignments Do Application 24-1 by hand and turn it in. Move on to Section 24-2.