group 1 presentation[1].ppt
TRANSCRIPT
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Chapter3-1
Impact of Adjusted Entriesby Group 1
Fernando Casco-Downing, Katie
Fleming, Michael Kubik, Emily
Stone, Fei Wang
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Chapter3-2
Introduction
Accounting Equation (A= L + SE) Accounting Cycle
Accounting Concepts
Revenue
Expense
Revenue Recognition
Matching Principle
Types of Adjusted Entries Examples of Adjusted Entries
Impact without entries
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Chapter3-3
The Accounting Equation
Relationship among the assets, liabilities andstockholders equity of a business:
The equation must be in balance after everytransaction. For every Debitthere must be a Credit.
Illustration 3-3
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Chapter3-4
The Accounting Cycle
Transactions
1. Journalization
6. Financial Statements
7. Closing entries
8. Post-closing trail balance
9. Reversing entries
3. Trial balance
2. Posting
5. Adjusted trial balance
4. AdjustmentsWorkSheet
Illustration 3-6
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Chapter3-5
Adjusting Entries
Revenues- recorded in the period in which theyare earned.
Expenses - recognized in the period in which they
are incurred.
Adjusting entries - needed to ensure that therevenue recognition and matching principles are
followed.
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Chapter3-6
Types of Adjusting Entries
1. Prepaid Expenses.Expenses paid in cash and
recorded as assets beforethey are used or consumed.
Prepayments
3. Accrued Revenues.Revenues earned but not
yet received in cash orrecorded.
4. Accrued Expenses.Expenses incurred but not
yet paid in cash orrecorded.
2. Unearned Revenues.Revenues received in cash
and recorded as liabilitiesbefore they are earned.
AccrualsIllustration 3-20
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Chapter3-7
Expedient Recording Method
Expedient Records an expense upon payment of cash
before goods or services are consumed
Records revenue upon receipt of cashbefore goods or services are provided
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Chapter3-8
Debit Credit
Service Revenue
45,000
Debit Credit
Cash
45,000
45,000
Expedient General Entries
Q1: On December 1, 2011, Johnson received a $45,000 payment forservices to be rendered equally over a four-month period. Service revenuewas credited.
Service revenue 45,000
Cash 45,000Dec. 1
45,000
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Chapter3-9
Debit Credit
Service Revenue
33,750 33,750
Debit Credit
Unearned Service Revenue
45,000
11,250
Adjusting Entries for Unearned Revenues
Q1: On December 1, 2011, Johnson received a $45,000 payment forservices to be rendered equally over a four-month period. Service revenuewas credited.
Unearned service revenue 33,750
Service revenue 33,750Dec. 31
33,750
(=45,000-45,000/4)
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Chapter3-10
Q1: On December 1, 2011, Johnson received a $45,000 payment forservices to be rendered equally over a four-month period. Service revenuewas credited.
Unearned service revenue (L) 33,750
Service revenue (SE) 33,750Dec. 31 (=45,000-45,000/4)
Impact Without Adjusted Entries
Total
Assets
Total
Liab.
Stk.
Equity
Net
Income
Retained
Earning
None
Understate
33750
Overstate
33750
Overstate
33750
Overstate
33750
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Chapter3-11
Standard Recording Method
Standard
Asset upon payment of cashLiability upon receipt of cash
before goods or services areprovided
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Chapter3-12
Debit Credit
Unearned Service Revenue
45,000
Debit Credit
Cash
45,000
45,000
Standard General Entries
Q1: On December 1, 2011, Johnson received a $45,000 payment forservices to be rendered equally over a four-month period.
Unearned service revenue 45,000
Cash 45,000Dec. 1
45,000
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Chapter3-13
Debit Credit
Service Revenue
45,000
Debit Credit
Unearned Service Revenue
11,250 11,250
Adjusting Entries for Unearned Revenues
Q1: On December 1, 2011, Johnson received a $45,000 payment forservices to be rendered equally over a four-month period.
Service revenue 11,250
Unearned service revenue 11,250Dec. 31
33,75011,250
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Chapter3-14
Expedient Vs. General
Expedient
General
Debit CreditService Revenue
33,750 33,750
Debit CreditUnearned Service Revenue
45,000
11,25033,750
Debit Credit
Service Revenue
45,000
Debit Credit
Unearned Service Revenue
11,250 11,250
33,75011,250
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Chapter3-15
Q2.On December 31, 2011, the company paid a local radio station $16,000for 40 radio ads that were to be aired, 20 per month, throughout January andFebruary of 2012. Prepaid advertising was debited.
Cash 16,000
Prepaid Advertising 16,000Dec. 31
Debit Credit
Prepaid Advertising
16,000 16,000
Debit Credit
Cash
Adjusting Entries for Prepaid Expenses
16,000
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Chapter3-16
Salaries payable 8,400
Salaries expense 8,400Dec. 31
Debit Credit
Salaries Expense
8,400 8,400
Debit Credit
Salaries Payable
Adjusting Entries for Accrued Expenses
Q3. Employee salaries for the month of December 2011 totaling$8,400 will be paid on January 5, 2012.
8,400
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Chapter3-17
Salaries payable(L) 8,400
Salaries expense(SE) 8,400Dec. 31
Adjusting Entries for Accrued Expenses
Q3. Employee salaries for the month of December 2011 totaling$8,400 will be paid on January 5, 2012.
Total
Assets
Total
Liab.
Stk.
Equity
Net
Income
Retained
Earning
None
Understate
8400
Overstate
8400
Overstate
8400
Overstate
8400
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Chapter3-18
Interest payable 900
Interest expense 900Dec. 31
Debit Credit
Interest Expense
900 900
Debit Credit
Interest Payable
Adjusting Entries for Accrued Expenses
Q4.On September 31, 2011, Johnson Corp. borrowed $60,000 from a localbank. A note was signed with principal and 6% interest to be paid on
September 1, 2012.
(Interest = 60,000 * 6% /12 *3)
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Chapter3-19
Interest payable(L) 900
Interest expense(SE) 900Dec. 31
Adjusting Entries for Accrued Expenses
Q4.On September 31, 2011, Johnson Corp. borrowed $60,000 from a localbank. A note was signed with principal and 6% interest to be paid on
September 1, 2012.
(Interest = 60,000 * 6% /12 *3)
Total
Assets
Total
Liab.
Stk.
Equity
Net
Income
Retained
Earning
None
Understate
900
Overstate
900
Overstate
900
Overstate
900
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Chapter3-20
Allowance for Doubtful Accounts 8,000
Bad Debt Expense 8,000Dec. 31
Debit Credit
Bad Debt Expense
8,000 8,000
Debit Credit
Allowance for Doubtful Accounts
Adjusting Entries for Accrued Expenses
Q5.On December 31, 2011, it was determined that $8,000 of the recordedAccounts receivable would prove to be uncollectible.
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Chapter3-21
Impact Without Adjusted Entries
Total
Assets
Total
Liab.
Stk.
Equity
Net
Income
Retained
Earning
Overstated
8000 None
Overstated
8000
Overstated
8000
Overstated
8000
Q5.On December 31, 2011, it was determined that $8,000 of the recordedAccounts receivable would prove to be uncollectible.
Allowance for Doubtful Account (A) 8,000
Bad Debt Expense (SE) 8,000Dec. 31
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Chapter3-22
Impact Without Adjusted Entries
TotalAssets
TotalLiab.
Stk.Equity
NetIncome
RetainedEarning
Q1 None
Understate
33750
Overstate
33750
Overstate
33750
Overstate
33750
Q2 None None None None None
Q3 None
Understate
8400
Overstate
8400
Overstate
8400
Overstate
8400
Q4 None
Understate
900
Overstate
900
Overstate
900
Overstate
900
Q5Overstated
8000 NoneOverstated
8000Overstated
8000Overstated
8000
Total
Overstate
8000
Understate
43050
Overstate
51050
Overstate
51050
Overstate
51050
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Chapter3-23
Conclusion
Accounting Concepts
Revenue and Expense
Revenue Recognition and Matching Principle
Standard Vs. Expedient Recording Method
Types of Adjusted Entries Prepayments : Prepaid Expense and Unearned
Revenue
Accruals: Accrued Rev. and Accrued Exp.
Impact without adjusted entries
Overstated A, L, SE, NI, RE
Understated A, L, SE, NI, RE
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Chapter3-24
Questions