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Internal controls are a system of checks and balances within the AIS
designed to maintain good accounting records and prevent and detect fraud and errors. Sarbanes Oxley act of 2002 requires large public Companies to have internal controls attested to by auditors.
Chapter 3-1
Chapter 3-3
1. Journalizing
General Journal a chronological record of transactions. Journal Entries are recorded in the journal.
General Journal
Date Jan. 3 Account Title Cash Common stock 10 Building Note payable Ref. 100 300 130 220 150,000 150,000 Debit 100,000 100,000 Credit
Chapter 3-4
2. Posting
Posting the process of transferring amounts from the journal to the ledger accounts.
General Journal
Date Jan. 3 Account Title Cash Common stock Ref. Debit 100,000 100,000
GJ1
Credit
100
GJ1
100,000
100,000
Chapter 3-5
2. Posting
Posting the process of transferring amounts from the journal to the ledger accounts.
General Journal
Date Jan. 3 Account Title Cash Common stock Ref. 100 300 Debit 100,000 100,000
GJ1
Credit
GJ1
100,000
100,000
Chapter 3-6
3. Trial Balance
Trial Balance a list of each account and its balance; used to prove equality of debit and credit balances.
Acct. No. 100 105 110 130 200 220 300 330 400 500 Account Cash Accounts receivable Inventory Building Accounts payable Note payable Common stock Retained earnings Sales Cost of goods sold Debit $ 140,000 35,000 30,000 150,000 $ 60,000 150,000 100,000 75,000 30,000 $ 385,000 $ 385,000 Credit
Chapter 3-7
4. Adjusting Entries
Revenues - recorded in the period in which they are earned and realizable. Expenses - recognized in the period in which they are incurred.
Adjusting entries - needed to ensure that all assets and liabilities that should be recorded are recorded as of the end of the period reported. revenue recognition and expense recognition principles are followed.
Chapter 3-8
Chapter 3-9
Expense Recorded
Chapter 3-10
Cash
Prepaid Insurance Debit Credit Debit Cash
12,000
Credit
12,000
12,000
Chapter 3-11
Prepaid insurance
Prepaid Insurance Debit Credit
1,000
Insurance expense Debit Credit
12,000
11,000
Chapter 3-12
1,000
1,000
Revenue Recorded
Chapter 3-13
24,000
24,000
24,000
Chapter 3-14
Rent revenue
Rent Revenue Debit Credit
8,000
Unearned Rent Revenue Debit Credit
8,000
8,000
24,000
16,000
Chapter 3-15
Revenue Recorded
BEFORE
Cash Receipt
Cash
Investments Debit Credit Debit Cash
300,000
Credit
300,000
300,000
Chapter 3-17
Interest revenue
Interest Receivable Debit Credit
1,250
Interest Revenue Debit Credit
1,250
1,250
Chapter 3-18
Expense Recorded
BEFORE
Cash Payment
salaries
Notes payable
Cash Debit Credit
200,000
Notes Payable Debit Credit
200,000
200,000
Chapter 3-20
Interest payable
Interest Expense Debit Credit
1,500
Interest Payable Debit Credit
1,500
1,500
Chapter 3-21
Calculations of estimates
Bad debt expense
Chapter 3-22
Chapter 3-23
Balance Sheet
Income Statement
Chapter 3-24
Income Statement
Income Statement Revenues: Sales Interest income Total revenue Expenses: Cost of goods sold Salary expense Depreciation expense Total expenses Net income $ 185,000 17,000 202,000 47,000 25,000 43,000 115,000 $ 87,000
$ 490,000
Chapter 3-25
$ 490,000
Chapter 3-26
Balance Sheet
Balance Sheet Assets Cash Accounts receivable Building Total assets Liabilities Note payable Stockholders' equity Common stock Retained earnings Total liab. & equity $ 140,000 35,000 190,000 $ 365,000 150,000 100,000 115,000 $ 365,000
$ 490,000
Chapter 3-27
7. Closing Entries
To reduce the balance of the income statement (revenue and expense) accounts to zero. To transfer net income or net loss to owners equity (through the Retained Earnings account). Dividends are also closed directly to the Retained Earnings account. Balance sheet (asset, liability, and equity) accounts are not closed.
Chapter 3-28
7. Closing Entries
Example: Ex 3-16
Chapter 3-29
$ 365,000
Chapter 3-30
Illustration: Quality Contractor signs an agreement to construct a garage for $22,000. In January, Quality begins construction, incurs costs of $18,000 on credit, and by the end of January delivers a finished garage to the buyer. In February, Quality collects $22,000 cash from the customer. In March, Quality pays the $18,000 due the creditors.
Illustration 3A-1
Chapter 3-32
Illustration: Quality Contractor signs an agreement to construct a garage for $22,000. In January, Quality begins construction, incurs costs of $18,000 on credit, and by the end of January delivers a finished garage to the buyer. In February, Quality collects $22,000 cash from the customer. In March, Quality pays the $18,000 due the creditors.
Illustration 3A-2
Chapter 3-33
Chapter 3-34
Illustration 3A-5
Chapter 3-35
Illustration 3A-5
Chapter 3-36