Spiceland8e Ch02

Chapter 2
Review of the
Accounting Process
Copyright 2015 McGraw-Hill Education. All rights

LO2-1
Basic Model
Economic
Events
Cause changes in the financial position of the
company
External
Internal Events
Events
Involve an exchange Do not involve an exchange
transaction with another transaction with another
entity entity
LO2-1
Accounting Equation
Underlies the process used to capture the

effect of economic events
Assets = Liabilitie + Owners

s Equity
Total
Total
Economic
Claims
Resources
Each event, or transaction, has a

dual effect on the accounting
LO2-1
Accounting EquationTransaction
Analysis
1. An attorney invested $50,000 to open a
law office.
Assets = Liabilities +
Owners
+ Equity + $50,000
$50,000 (Investment by
(Cash) owner)
LO2-1
Analysis
2. $40,000 was borrowed from a bank and
a note payable was signed.
Owners
+ Equity
+ $40,000
$40,000
(Note Payable)
(Cash)
LO2-1
Analysis
3. Supplies costing $3,000 were purchased
on account.
+
Owners Equity
+ $3,000
$3,000
(Accounts
(Supplies
payable)
)
LO2-1
Analysis
4. Services were performed on account for
$10,000.
+Owners
$10,000Equity + $10,000
(Accounts (Service
Receivables revenue)
)
LO2-1
Analysis
5. Salaries of $5,000 were paid to
employees.
Owners
- Equity
- $5,000
$5,000
(Salaries expense)
(Cash)
LO2-1
Analysis
6. $500 of supplies were used.
Owners
- $500 Equity
- $500
(Supplie
(Supplies expense)
s)
LO2-1
Analysis
7. $1,000 was paid on account to the
supplies vendor.
Owners
- Equity
- $1,000
$1,000
(Accounts payable)
(Cash)
LO2-1
Accounting Equation for a

Corporation
+ Retained
+ Paid-In Capital
Earnings
+
Revenues Expenses Dividends
+ Gains Losses
LO2-1
Account Relationships
Double-entry Accounts
system Represent elements
Refers to the dual of the accounting
effect that each equation
transaction has on
Account
the accounting
equation Relations
hips
General ledger T-accounts
Collection of Used for
accounts instructional
purposes instead of
formal ledger
LO2-1
T-accounts
Account title at the top

Two sides for recording increases and
decreases
Debits represent the left side
Credits represent the right side
Account Title
debit side credit side
LO2-1
T-accounts
Account title at the top

Two sides for recording increases and
decreases
Debits represent the left side
Credits represent the right side
Assets
Liabilities and
shareholders equity
LO2-1
Example: Account Relationships
Example:
$40,000 was borrowed from a bank and a note
payable was signed.
Liabiliti Owners
Assets = +
es Equity
Cash Note payable
debi
credit debit credit
t 40,000
+
40,000 +
LO2-1
Accounting Equation, Debits and
Credits, Increases and Decreases
LO2-1
General Ledger Accounts

Serve as control accounts
Subsidiary accounts: Maintained in
separate subsidiary ledgers. Example:
Individual account receivable accounts for
each of the companys credit customers
Classified as: Represent the basic financial
Permanent position elements (Assets,
accounts liabilities, and shareholders
equity)
Represent changes in the RE
component of shareholders
equity caused by revenue,
Temporary expense, gain, and loss
accounts transactions
Balances are closed or zeroed
LO2-1
Steps of the Accounting Processing

Cycle
Step 1 Source documents
Step 2 Transaction analysis
During the
accounting
Step 3 Journal
period
Step 4 General ledger
Unadjusted trial
Step 5
balance
Step 6 Adjusting entries
At the end
of the
Adjusted trial
Step 7
accounting balance
period Step 9 Closing process
At the end
Step 8 Financial statements
of Post-closing trial
Step 10
the year balance
Step 1 & 2: Accounting Processing
Cycle
Step1:
To identify external transactions affecting
the accounting equation
Obtain information about transactions from
source documents
o Examples: Sales invoices, bills from suppliers,
and cash register tapes
o Identify the date and nature of each
transaction, the participating parties, and the
monetary terms
Step 2:
Transaction analysis - The process of
reviewing the source documents to
determine the dual effect on the accounting
Transaction Analysis, the
Accounting Equation, and Debits
and Credits
1. An attorney invested $50,000 to open a law
office.
Accounting Equation
Liabilitie Owners'
Assets = s + Equity Account Entry
+50,000 +50,000 Cash
50,000 = 50,000 50,00
1. 0

Owners' Equity
50,000 1.

and Credits
2. $40,000 was borrowed from a bank and a
note payable was signed.
Accounting Equation
Liabilitie Owners'
+50,000 +50,000 Cash
50,000 = 50,000 50,00
1. 0
+40,000 +40,000 40,00
90,000 = 40,000 + 50,000 2. 0
Notes Payable
40,000 2.

and Credits
3. Supplies costing $3,000 were purchased on
account.
Accounting Equation
Liabilitie Owners'
+50,000 +50,000 Supplies
50,000 = 50,000 3. 3,000
+40,000 +40,000
90,000 = 40,000 + 50,000 Accounts Payable
3,000 3.
+3,000 +3,000
93,000 = 43,000 + 50,000
and Credits
4. Services were performed on account for
$10,000.
Accounting Equation
Liabilitie Owners'
+50,000 +50,000 Accounts Receivable
50,000 = 50,000 10,00
4. 0
+40,000 +40,000

90,000 = 40,000 + 50,000
Owners' Equity
+3,000 +3,000 (Revenue)
93,000 = 43,000 + 50,000
10,000 4.
+10,000 +10,000
93,000 = 43,000 + 60,000
and Credits
5. Salaries of $5,000 were paid to employees.
Accounting Equation
Liabilitie Owners'
+10,000 +10,000 Cash
103,000 = 43,000 60,000 50,00
1. 0 5,000 5.
-5,000 -5,000 40,00
98,000 = 43,000 + 55,000 2. 0

Owners' Equity (Salaries
Expense)
5. 5,000

and Credits
6. $500 of supplies were used.
Accounting Equation
Liabilitie Owners'
+10,000 +10,000 Supplies
103,000 = 43,000 60,000 3. 3,000 500 6.

-5,000 -5,000
98,000 = 43,000 + 55,000 Owners' Equity (Supplies
Expense)
-500 -500
97,500 = 43,000 + 54,500 6. 500

and Credits
7. $1,000 was paid on account to the supplies
vendor.
Accounting Equation
Liabilitie Owners'
+10,000 +10,000 Cash
103,000 = 43,000 60,000 50,00
1. 0 5,000 5.
-5,000 -5,000 40,00
98,000 = 43,000 + 55,000 2. 0 1,000 7.
-500 -500 Accounts
Payable
97,500 = 43,000 + 54,500 7. 1,000 3,000 3.

-1,000 -1,000
96,500 = 42,000 + 54,500
LO2-2
Step 3: Record the Transaction in a
Journal
Journals:
Provide a chronological record of all
economic events affecting a company
Each entry is expressed in terms of equal
debits and credits
Special journal
Records a repetitive type of
transaction
Example: Sales
General journal
Any transaction not recorded in a
special journal
LO2-2
Step 3: Record the Transaction in a
Journal
Journals:
Provide a chronological record of all
economic events affecting a firm
Each entry is expressed in terms of equal
debits and credits
Example:
$40,000 borrowed from a bank on signing a
note payable
Journal Entry Debit Credi
Cash 40,000 t
Notes payable 40,000
LO2-2
External Transactions in 2016

LO2-2
Record the Transaction in a Journal

July 1
Two individuals each invested $30,000 in
the corporation. Each investor was issued
3,000 shares of common stock.
Journal Entry July 1 Debit Credi

Cash 60,000 t
Common stock 60,000
LO2-2

July 1
Borrowed $40,000 from a local bank and
signed two notes. The first note for $10,000
requires payment of principal and 10%
interest in six months. The second note for
$30,000 requires the payment of principal in
two years. Interest at 10% is payable each
year on July 1, 2017, and July 1, 2018.
Cash 40,000 t
Notes payable 40,000
LO2-2

July 1
Paid $24,000 in advance for one years rent
on the store building.

Prepaid rent 24,000 t
Cash 24,000
LO2-2

July 1
Purchased furniture and fixtures from Acme
Furniture for $12,000 cash.

Furniture and fixtures 12,000 t
Cash 12,000
LO2-2

July 3
Purchased $60,000 of clothing inventory on
account from the Birdwell Wholesale
Clothing Company.
Inventory 60,000 t
Accounts payable 60,000
LO2-2

July 6
Purchased $2,000 of supplies for cash.

Supplies 2,000 t
Cash 2,000
LO2-2

July 4 - 31
During the month, sold merchandise
costing $20,000 for $35,000 cash.
Journal Entry July 4 - Debit Credi

Cash 31 35,000 t
Sales revenue 35,000
Cost of goods sold 20,000
Inventory
(expense) 20,000
LO2-2

July 9
Sold clothing on account to St. Judes
School for Girls for $3,500. The clothing
cost $2,000.
Accounts receivable 3,500 t
Sales revenue 3,500
Inventory 2,000
LO2-2
Additional Consideration
Perpetu Periodic
al invento
inventor ry
y system
system
Adjusted at
Continuously the end of
updated the period
for:
Purchase,
sale and
return of
merchandis
e
LO2-2

July 16
Subleased a portion of the building to a
jewelry store. Received $1,000 in advance
for the first two months rent beginning on
July 16.
Cash 1,000 t
Deferred rent revenue 1,000
LO2-2

July 20
Paid Birdwell Wholesale Clothing $25,000
on account.

Accounts payable 25,000 t
Cash 25,000
LO2-2

July 20
Paid salaries to employees for the first half
of the month, $5,000.

Salaries expense 5,000 t
Cash 5,000
LO2-2

July 25
Received $1,500 on account from St.
Judes.

Cash 1,500 t
Accounts receivable 1,500
LO2-2

July 30
The corporation paid its shareholders a
cash dividend of $1,000.

Retained earnings 1,000 t
Cash 1,000
LO2-3
Step 4: Posting the Journal to the
General Ledger
Accounts
LO2-3
General
Ledger
Accounts
Step 4:
Posting from
the Journal to
the General
Ledger
Accounts
General Ledger Accounts LO2-3
Step 4: Posting from the Journal to the

LO2-3
Step 5: Prepare an unadjusted trial
balance
Unadjusted trial balance
List of the general ledger accounts along with
their balances
Purpose:
To check for completeness and prove that
accounting equation is in balance
Total Total
debit credit
balances balances
May contain offsetting errors
Facilitates the preparation of adjusting entries
LO2-3
Unadjusted Trial Balance

LO2-4
Adjusting Entries
Record the effect of internal events on

the accounting equation
o Recorded at the end of any period when
financial statements are prepared
Objective:
To implement the accrual accounting
model
o To ensure that all revenues are recognized
in the period goods or services are
transferred to customers, and that all
expenses are recognized in the period
incurred
LO2-4
Step 6: Record and Post Adjusting
Entries
Adjusting
Entries
Prepaymen
Accruals
ts
Prepaid Accrued
Expenses Liabilities
Deferred Accrued
Revenues Receivables
Estimates
LO2-4
Prepayments
Occur when the cash flow precedes

either expense or revenue recognition
Sometimes referred to as deferrals
Includes:
Prepaid Deferred
expenses revenues
LO2-5
Prepaid Expenses
Cost of assets acquired in one period and

expensed in a future period
Adjusting entries
LO2-5
Prepaid Expenses
Example:
The unadjusted trial balance of the Dress Right
Clothing Corporation lists supplies of $2,000
that were purchased in July. Assume that Dress
Right determines that at the end of July,
$1,200 of supplies remain.
Supplies expense 800 t
Supplies 800
Supplies Supplies Expense
Beg.b Beg.b
0 0
al. 2,00 al.
800 800
End.b 0
1,20 End.b
800
al. 0 al.
LO2-5
Prepaid Expenses
Example:
At the beginning of July, Dress Right Clothing
Corporation paid $24,000 to its landlord
representing one years rent paid in advance.

Rent expense (24000 12) 2,000 t
Prepaid rent 2,000
Prepaid Rent Rent Expense

Beg.b Beg.b
0 0
al. 24,0 2,00 al. 2,00
End.b 00
22,0 0 End.b 2,000
al. 00 al. 0
LO2-5
Prepaid Expenses
Example:
Furniture and fixtures of $12,000 were
purchased during the month of July by Dress
Right Clothing Corporation. Assume that the
furniture and fixtures have a useful life of five
years (60 months) and will be worthless at the
end of that period.
Depreciation expense 200 t
Accumulated depreciation-
furniture and fixtures 200
Contra asset account 12,000 60

LO2-5
Deferred Revenues
Cash received from customers in advance

of providing a good or service
Represent a companys obligation to
provide goods or services in the future
Adjusting entries
LO2-5
Deferred Revenues
Example:
Dress Right Clothing Corporation subleased a
portion of its building to a jewelry store for
$500 per month. On July 16, the jewelry store
paid Dress Right $1,000 in advance for the
first two months rent.
Deferred rent revenue 250 t
Rent revenue 250
Deferred Rent
Rent Revenue
Revenue Beg.b Beg.b
0 0
1,00 al. al.
250 250
0 End.b End.b
750 250
al. al.
Alternative Approach to Record LO2-5
Prepayments
Prepaid Expenses
Example:
On July 1, 2016, Dress Right paid $24,000 in
cash for one years rent on its building .
July Rent expense 24,000 t
1 Cash 24,000
July Prepaid rent 22,000
31 Rent expense 22,000
Rent Expense Prepaid Rent

Beg.b
Beg.bal. 0 0
24,00 al. 22,0
22,000
2,00
0 End.b 22,0
00
End.bal.
Alternative Approach to Record LO2-5
Prepayments
Deferred revenues
Example: Dress Right Clothing Corporation
subleased a portion of its building to a jewelry
store for $500 per month. On July 16, the
jewelry store paid Dress Right $1,000 in
advance
Journal forEntry
the first two months
July 1 rent. Credi
Debit
July Cash 1,000 t
1 Rent revenue 1,000
July Rent revenue 750
31 Deferred rent 750
Deferred Rent
revenue
Rent Revenue
Beg.b Revenue Beg.b
0 0
1,00 al. al.
750 750
0 End.b End.b
250 750
LO2-4
Accruals
Involve cash flows that occur after either

expense or revenue recognition
Includes:
Accrued Accrued
Liabilities
Many accruals involve Receivables
external
transactions that automatically are
recorded from a source document
Some accruals involve internal
transactions and require adjusting
entries
LO2-5
Accrued Liabilities
Represent liabilities recorded when an

expense has been incurred prior to cash
payment
Adjusting entries
LO2-5
Accrued Liabilities
Example:
On July 20, Dress Right Clothing Corporation
paid employees $5,000 for salaries for the first
half of the month. Assume that salaries for the
second half of July are $5,500.
Salaries payable 5,500
Salaries Payable Salaries Expense
Beg.b Beg.b
0 0
5,50 al. al.
July 5,00
0 End.b
5,55 20 5,50
0
0 al. End.b 10,5 0
LO2-5
Accrued Liabilities
Example:
The unadjusted trial balance of Dress Right
Clothing Corporation reflects a balance in the
notes payable account of $40,000. The
company borrowed this amount on July 1,
2016, evidenced by two notes, each requiring
thePrincipal
payment of 10%rate
Interest interest.
Time = Interest
$40,000 10% 1
/12 = $333
(rounded)

Interest expense 333 t
Interest payable 333
LO2-5
Accrued Receivables
Involve situations when revenue is

recognized in a period prior to the cash
receipt
Adjusting entries
LO2-5
Accrued Receivables
Example:
Assume that Dress Right loaned another
corporation $30,000 at the beginning of
August, evidenced by a note receivable. Terms
of the note call for the payment of principal,
$30,000, and interest at 8% in three months.
Principal Interest rate Time = Interest
$30,000 8% 1
/12 = $200
Journal Entry August Debit Credi

31
Interest receivable 200 t
Interest revenue 200
LO2-5
Estimates
Third classification of adjusting entries

Example:
Depreciation expense requires an
estimate of:
Expected useful life
Expected residual value
Bad debt expense requires estimate of:
Amount of accounts receivable
uncollectible
LO2-5
Step 7: Prepare an Adjusted Trial
Balance
Adjusted trial balance
Trial balance after adjusting entries have
been recorded
Step 5 Step 7
Step 6
Unadjust Adjusted
Adjusting
ed Trial Trial
entries
Balance Balance
LO2-5
Adjusted Trial Balance

LO2-6
Step 8: Preparation of Financial
Statements
Financial Statements
Primary means of communicating
financial information to external parties
Income statement
Statement of Comprehensive
Income
Balance Sheet
Statement of Cash Flows
Statement of Shareholders Equity

LO2-6
Income Statement
A change statement that reports the change in
shareholders equity (retained earnings) that
occurred during the period as a result of
revenues, expenses, gains, and losses
Income Statement
LO2-6
Statement of Comprehensive
Income
Reports the changes in shareholders equity
during the period that were not a result of
transactions with owners
Includes other comprehensive income
(OCI) or loss items
Can be reported in one of two ways:
In a single, continuous statement of
comprehensive income
Two separate, but consecutive statements
o The first statement is an income statement.
The second statement, a statement of
comprehensive income, begins with net income
followed by OCI items to arrive at
comprehensive income
LO2-6
Balance Sheet
Presents the financial position of a
company
Organized list of assets, liabilities, and
shareholders equity at a point in time
Cash
Classification: according to common
Will be converted into
characteristics cash
Current
Will be used up within
assets
one year or the
operating cycle,
whichever is longer
Liabilities that will be
Current satisfied within one year
liabilities or the operating cycle,
whichever is longer
LO2-6
Balance Sheet (continued)
Noncurrent assets
Include property and equipment, long-
term receivables and investments
Long term liabilities

Include all liabilities not classified as
current
Shareholders equity
Lists the paid-in capital portion of
equitycommon stockand retained
earnings
LO2-6
Balance
Sheet
LO2-6

Provides information about cash receipts
and cash disbursements
Cash refers to cash plus cash equivalents
Three categories of transactions affecting
cash
Operating activities
Inflows and outflows of cash related to
transactions entering into the determination of
net income
Investing activities
Involve the acquisition and sale of (1) long-term
assets used in the business and (2) non
operating activities
Financing investment assets
Involve cash inflows and outflows from
transactions with creditors and owners
LO2-6

LO2-6

Discloses the sources of changes in the
permanent shareholders equity accounts
Distributions to owners
Investments by owners
Net income Other comprehensive
income
LO2-7
Step 9: Closing Process
Serves a dual
purpose (2) Temporary
(1) Temporary
account balances
accounts are
are closed
reduced to zero
(transferred) to
balances
retained earnings
To measure activity To reflect the
in the upcoming changes that have
accounting period occurred
Revenues and Income summary is
expenses are closed closed to retained
to income summary earnings
Income summary:
A bookkeeping convenience that provides a
check that all temporary accounts have been
LO2-7
Closing Revenue Accounts to
Income Summary

Sales revenue 38,500 t
Rent revenue 250
Income summary 38,750
LO2-7
Closing Expense Accounts to
Income Summary

Income summary 35,833 t
Salaries expense 10,500
Supplies expense 800
Rent expense 2,000
Depreciation expense 200
Interest expense 333
LO2-7
Closing Income Summary to
Retained Earnings
Income
Expens 35,83 38,75
Summary Revenu
es 3 0 es
2,91 Net
7 income

Income summary 2,917 t
Retained earnings 2,917
Additional Consideration
Closing process for recording a cash

dividend
Dividends 1,000 t
Cash 1,000

Retained earnings 1,000 t
Dividends 1,000
LO2-7
Post-Closing Trial Balance
(Step 10)
LO2-8
Conversion from Cash Basis to
Accrual Basis
Cash basis
accounting
Produces a measure called net operating cash
flow
Calculated as: Cash receipts Cash
disbursements (from operating activities)
Accrual basis
accounting
Measures an entitys accomplishments and
resource sacrifices during the period,
regardless of when cash is received or paid
LO2-8
Conversion from Cash Basis to
Accrual Basis
Example:
If a company paid $20,000 cash for insurance
during the fiscal year and you determine that
there was $5,000 in prepaid insurance at the
beginning of the year and $3,000 at the end of
Prepaid
the year, then you can determine (accrual basis)
Balance, beginning
insurance expense for $
ofthe year. Insurance
year 20,00
5,000
Plus:
Less: Cash paid
Insurance 22,000
?
expense $0
Balance, end of year
3,000
Conversion from Cash Basis to LO2-8
Accrual Basis
150,000 - 12,000
Example:
+ 18,000
Suppose a company paid $150,000 for salaries
to employees during the year and you
determine that there were $12,000 and
$18,000 in salaries payable at the beginning
Salaries
and end of the year, respectively.
Balance, beginning of Payable$
year 156,00
12,000
Plus: Salaries expense 150,00?
Less: Cash paid 0
$0
Balance, end of year
18,000
Salaries Payable Salaries Expense
12,00 Beg.b
Cash 150,00 0 al.
paid 0 156,0 Salaries 156,0
? ?
00 exp.
18,0 End.b 00
156,0
00
LO2-8
Cash to Accrual
LO2-8
Converting Cash Basis to Accrual

Basis Income
APPENDIX 2A
Worksheet, Dress Right Clothing Corporation
APPENDIX 2B
Reversing Entries
Example:
The following adjusting entry for accrued
salaries was prepared for the Dress Right
Clothing Corporation to record accrued
salaries at the end of July.
1
Salaries payable 5,500
Salaries Expense Salaries Payable
Bal. July 10,50 5,50 Bal. July
31 0 (Cash 5,50 0 31
payment) 0
Balanc
0
e
APPENDIX 2B
Reversing Entries
Example:
The following reversing entry for accrued
salaries is recorded for the Dress Right
Clothing Corporation for accrued salaries at
the beginning of August.
1
Salaries payable 5,500 t
Salaries expense 5,500
Salaries Expense Salaries Payable
Bal. July 10,50 5,50 Bal. July
31 0 (Reversing 5,50 0 31
5,500
(Cash entry) 0
5,500
payment)10,50 Balanc
Balance
0
0
e
APPENDIX 2C
Subsidiary Ledgers
Contain a group of subsidiary accounts

associated with particular general ledger
control accounts
Accounts receivable, Accounts payable,
Control account
Property and equipment, Investments
Subsidiary account
APPENDIX 2C
Special Journals
Used to capture the dual effect of

transactions in debit/credit form
For repetitive types of transactions
Cash receipts journal
Cash disbursements journal
Sales journal
Purchases journal
Simplify the recording process
Specifically designed formats
Summary posting is made on a periodic
basis
APPENDIX 2C
Subsidiary Ledgers and Special
Journals
Sales Journal
Records all credit sale
Cash sales are recorded in the cash receipts
journal
Every entry has exactly the same effect on

the accounts
Sales revenue account is credited and the
Accounts receivable control account is
debited
Debit/Credit effect is recorded in one column

APPENDIX 2C
Sales Journal
General Ledger
Accounts 11 40
Sales Revenue
Receivable 0 0
July 31
2,000
Balance
Aug. 31 3,29 3,29 Aug. 31
SJ1 5 5 SJ1
APPENDIX 2C
Sales Journal
Accounts Receivable
Subsidiary Ledger
Leland High School 80
1
August 5 1,50
SJ1 0
APPENDIX 2C
Subsidiary Ledgers and Special
Journals
Cash Receipts Journal
Purpose:
To record all cash receipts, regardless of
the source
Every transaction recorded in this journal
produces a debit to the cash account and
credits to various other accounts
APPENDIX 2C
Cash Receipts Journal
Accounts Receivable
Subsidiary Ledger
Leland High School 801
August 5
1,500 August 17
SJ1 750
CR1
End of Chapter
2

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Chapter 2

Copyright 2015 McGraw-Hill Education. All rights

Underlies the process used to capture the

Assets = Liabilitie + Owners

Each event, or transaction, has a

Accounting Equation for a

Account title at the top

Account title at the top

Example: Account Relationships

General Ledger Accounts

Steps of the Accounting Processing

External Transactions in 2016

Record the Transaction in a Journal

Journal Entry July 1 Debit Credi

Record the Transaction in a Journal

Record the Transaction in a Journal

Journal Entry July 1 Debit Credi

Record the Transaction in a Journal

Journal Entry July 1 Debit Credi

Record the Transaction in a Journal

Record the Transaction in a Journal

Journal Entry July 6 Debit Credi

Record the Transaction in a Journal

Journal Entry July 4 - Debit Credi

Record the Transaction in a Journal

Record the Transaction in a Journal

Record the Transaction in a Journal

Journal Entry July 20 Debit Credi

Record the Transaction in a Journal

Journal Entry July 20 Debit Credi

Record the Transaction in a Journal

Journal Entry July 25 Debit Credi

Record the Transaction in a Journal

Journal Entry July 30 Debit Credi

Step 4: Posting from the Journal to the

Unadjusted Trial Balance

Record the effect of internal events on

Occur when the cash flow precedes

Cost of assets acquired in one period and

Journal Entry July 31 Debit Credi

Prepaid Rent Rent Expense

Contra asset account 12,000 60

Cash received from customers in advance

Rent Expense Prepaid Rent

Involve cash flows that occur after either

Represent liabilities recorded when an

Journal Entry July 31 Debit Credi

Involve situations when revenue is

Journal Entry August Debit Credi

Third classification of adjusting entries

Adjusted Trial Balance

Statement of Cash Flows

Statement of Shareholders Equity

Balance Sheet (continued)

Long term liabilities

Statement of Cash Flows

Statement of Cash Flows

Statement of Shareholders Equity

Journal Entry July 31 Debit Credi

Journal Entry July 31 Debit Credi

Journal Entry July 31 Debit Credi

Closing process for recording a cash

Journal Entry July 31 Debit Credi