Академический Документы
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I.
Definitions
B.
C.
10/5/2016
Accounts
Prepaid Rent
Cash
To record prepayment of rent.
June 30 (June
adjustment)
Debit
Credit
3,000
3,000
Rent Expense
1,000
Prepaid Rent
To adjust prepaid rent for June and record rent expense.
Reference
June 1
Total
debits
Balance
Reference
June 30
Total
debits
Balance
1,000
Prepaid Rent
Debit (+)
Credit (-)
Reference
3,000
1,000 June 30
Total
3,000
1,000 Credits
2,000
Rent Expense
Debit (+)
Credit (-)
1,000
1,000
1,000
Reference
Total
0 Credits
Accounts
Supplies
Cash
Debit
700
2
10/5/2016
Credit
700
Supply Expense
300
Supplies
To record supplies used in the month of June.
Reference
June 2
Total
debits
Balance
Reference
June 30
Total
debits
Balance
300
Supplies
Debit (+)
Credit (-)
Reference
700
300 June 30
Total
700
300 Credits
400
Supplies Expense
Debit (+)
Credit (-)
300
300
300
Reference
Total
0 Credits
Accounts
Cash
Unearned Service
Revenue
To record purchase of supplies.
Debit
Credit
400
Unearned Service
Revenue
200
Service Revenue
To record service revenue that has now been earned (1/2 month).
400
June 30 (June
adjustment)
200
Reference
June 30
Total
debits
Debit (-)
Credit (+)
Reference
200
400 June 15
Total
200
400 Credits
200 Balance
Service Revenue
Debit (-)
Credit (+)
Reference
200 June 30
Total
Total
debits
0
200 Credits
200 Balance
Depreciation: the allocation of the cost of plant asset to
expense over the assets useful life.
Reference
expense) and a
contra-asset).
Example: Company bought car washing equipment on June 2 for $24,000. They
expect the equipment to be used for five years and to have no value at that the end
of its use.
Date
June 2 (when
purchases)
Accounts
Equipment
Debit
Credit
24,000
Cash
To record purchase of equipment
June 30 (June
adjustment)
24,000
Depreciation Expense
400
Accumulated
Depreciation
400
To record depreciation expense for June (24,000/60 months = 400 per month)
Reference
June 2
Total
debits
Balance
Equipment
Debit (+)
Credit (-)
24,000
24,000
24,000
Reference
Total
0 Credits
debits
Reference
June 30
Total
debits
Balance
Credits
400 Balance
Depreciation Expense
Debit (+)
Credit (-)
400
400
400
Reference
Total
0 Credits
5
10/5/2016
Accounts
Debit
Credit
Accounts Receivable
300
Service Revenue
300
To record revenue earned in the month
of June.
Accounts
Receivable
Reference
Debit (+)
Credit (-)
Reference
July 15th (when paid)
600
June 30 Cash
300
Accounts Receivable
300
Total
300
0 Total
Service Revenue
300
debits
Credits
Balance (July)
300
6/30
th
To record receipt of payment for one months service (1/2
June15
and
in July)
300in July
Total
Total
debits
300
300 Credits
Balance
7/31
0
Reference
Total
debits
Service Revenue
Debit (-)
Credit (+)
Reference
300 June 30
Total
0
300 Credits
Balance
300 6/30
300 July 15
Balance
600 7/31
Accrued expense are expenses recorded because they have been incurred,
though the company has not yet paid for them; examples
are wages, interest,
income taxes.
Example: The company pays salaries of 1,800 per month, half on the 15 th
and half on the 30th. If
the last day of the month falls on a weekend, they pay the
following Monday. Assume that June 30th fell on Sunday. The company must
record the wage expense at the end of June even
though they do not pay it
until July.
6
10/5/2016
Date
June 15
Accounts
Debit
Credit
Salary Expense
900
Cash
To record wage expense for the first Salary
half of the
month.
Expense
Reference
Debit (+)
Credit (-)
Reference
June 30
900
June 15 Salary Expense
900
Salary
Payable
June 30
900
To record wage expense
half of the month.0 Total
Total for the second
1,800
debits
Credits
July 1 (when paid)
900
Balance Salary Payable
1,800
Cash
To pay Junes payroll.
Reference
Total
debits
July 1
900
900
900
Salary Payable
Debit (-)
Credit (+)
Reference
900 June 30
Total
0
900 Credits
900 Balance
900
0 Balance
Example: The company determines it will owe income taxes of 600 on the
income earned during June.
Date
June 30
Accounts
Debit
Credit
Income Tax Expense
Income
tax(+)
expense
600
Reference
Debit
Credit (-)
Reference
Income
tax
payable
June 30
600
To record income tax
expense.
Total
600
0 Total
debits
Credits
When paid
Income
Tax
Payable
600
Balance
600
Cash
To record payment of previously accrued taxes.
Reference
Total
debits
When
Paid
7
10/5/2016
600
600
D.
Measure income for the period (income statement); make sure all
revenue and expense is recorded in the proper period
Update the balance sheet make sure assets and liabilities are not
over or under stated.
Adjusting Entries:
Debit
Expense
Liability
Expense
Asset
Expense
Credit
Prepaid Asset
Revenue
Contra asset
Revenue
Liaiblity
The original (unadjusted trial balance) now needs to be updated for the
adjusting entries. Post
the entries in debt and credit adjustment columns and
recomputed the ending balances. Think
of the trail balance account row as a T
account.
Debit
24,800
2,200
700
3,000
24,000
Credit
Debit
Credit
300
300
1,000
400
13,100
900
400
8
10/5/2016
Adjustments
200
Adjusted Trial
Balance
Debit
Credit
24,800
2,500
400
2,000
24,000
400
13,100
900
200
600
600
20,000
18,800
20,000
18,800
3,200
3,200
7,000
300
200
1,000
900
300
400
900
500
59,300
59,300
600
3,700
3,700
7,500
1,000
1,800
300
400
500
600
61,500
61,500
Closing Entries
Closing the books means to prepare the accounts for the next accounting
period. Closing
entries close temporary accounts (revenue, expense, and
dividends) to retained earnings.
Closing the accounts sets their balance to
zero so that they are ready to measure transactions
for the next period.
Process:
1. Debit (decrease) each revenue account for its balance and credit RE
(increase)
2. Credit (decrease) each expense account for its balance and debit RE
(decrease).
3. Credit (decrease) dividends for its balance and debit RE (decrease).
Date
June 30
Accounts
Service revenue
Retained earnings
Debit
Credit
7,500
7,500
Retained Earnings
Rent expense
Salary expense
Supplies expense
Depreciation expense
Utilities expense
Income tax expense
4,600
Retained Earnings
Dividends
3,200
1,000
1,800
300
400
500
600
3,200
Each revenue and expense account now has a zero balance. The RE equity account
now reflects the current period income and dividend activity.
Reference
Retained Earnings
Debit (-)
Credit (+)
Exp 6/30
Div 6/30
Total
Debits
Reference
Beg Bal
18,800 6/1
7,500 Rev 6/30
4,600
3,200
7,800
Total
26,300 Credits
End Bal
18,500 6/30
II.
Account Classification
A classified balance sheet is one in which the assets and liabilities are
reported in current and long-term sections and in the order of liquidity within each
section.
C.
- XXXXXXX
Explanation
What you earned from selling the product
Cost of the product you sold
Whats left from revenue after the cost of the
product, to cover operating expenses
Cost to operate your business
XXXXXXXX
+ or XXX
XXXXXXXX
XXXXXXXX
- XXXXXXX
XXXXXXXX
11
10/5/2016
Taxes
Net Income
D.
- XXXXXXX
XXXXXXXX
2.
Debt Ratio: measures solvency the companys ability to pay all its
obligations, both
current and long-term.
Total liabilities/ Total Assets = % of companys assets that is financed with
debt
3,182 / 5,673 = 56%
The higher the ratio, the greater the risk that the company cannot
meet its obligations
The norm for this ratio is 60% to 70%.
Compare to others within the same industry.
12
10/5/2016
3.
Current Assets
Current
Liabilities
#1
1,748
+50
1,798
#2
#3
#4
Total
Liabilities
Total Assets
Debt
Ratio
2,190
Curre
nt
Ratio
.7982
3,182
56%
2,190
.8210
3,182
5,673
+50
5,723
-20
1,778
2,190
.8119
3,182
-20 + 20
5,723
+30
1,808
2,190
.8256
3,182
+30
5,753
+30 30
1,808
2,190
.8256
3,182
+30 30
5,753
1,808
+40
2,230
.8108
+40
3,222
5,753
#5
#6
#7
1,808
2,230
.8108
3,222
-80
5,673
+40
1,848
2,230
.8287
3,222
+40
5,713
13
10/5/2016
55.60
%
55.60
%
55.31
%
55.31
%
56.01
%
56.80
%
56.40
%