Adjusting Entry for accounting
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Transcript of Adjusting Entry for accounting
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The Inter-relationship between the Income Statement and the Balance Sh
Income Statement The Balance SheetASSETS = LIABILITIES + EQUITY
Revenue
Expenses
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Misc. Confusing Topic1. Sale of property, plant, and equipment versus the sale of inventory.
a. Sold inventory that cost $60 for $100.b. Sold land that cost $800 for $1,000.
60
Balance Sheet Income Statement
Cash Inventory Revenue Cost of goods sold
800
Cash Land Gain on sale (IS)
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The final accounting tool the journal entry
Accounts Debits Credits
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= +
Dr. Cr. Dr. Cr. Dr. Cr.
+ - - + - +
Contributed Capital
Dr. Cr. Dr. Cr.
- + - +
Income
Statement Dr. Cr. Dr.Accounts
- + +
Revenues Ex
Retained Earnings
Assets Liabi li ties Owners' Equity
The Balance Sheet Accounts
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Analyzing Income Statements using Common Size Income StatementsGeo Group Inc. For the Years Ended December 31, Common Size
Income Statement 2005 2004 2003 2005 2004 200
Revenue:
Revenue $ 612,900 $ 593,994 $ 549,238 100% 100% 1
Expenses:
Operating 540,128 495,226 467,018 88.13% 83.37% 85.0
General and administrative 48,958 45,879 39,379 7.99% 7.72% 7.Depreciation and amortization 15,876 13,898 13,341 2.59% 2.34% 2.
Total expenses 604,962 555,003 519,738 98.70% 93.44% 94.
Operating income 7,938 38,991 29,500 1.30% 6.56% 5.
Other (income) expense:
Interest expense, net 23,016 22,138 17,896 3.76% 3.73% 3.Other (income) expense (9,131) (8,541) (61,623) -1.49% -1.44% -11.
13,885 13,597 (43,727) 2.27% 2.29% -7.
Income before tax (5,947) 25,394 73,227 -0.97% 4.28% 13.Income tax (expense) benefit 11,826 (8,231) (36,852) 1.93% -1.39% -6.
Income from continuing operations 5,879 17,163 36,375 0.96% 2.89% 6.
Special items 1,127 (348) 3,644 0.18% -0.06% 0.
Net income (loss) $ 7,006 $ 16,815 $ 40,019 1.14% 2.83% 7.
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Step One: Compute every item on the IS as a percentage of Sales.Step Two: Any percentage that increases (decreases) from the previous year is growing faster (slower) th
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The Accounting Cycle
During the Accounting Year End of the Accounting Year
GeneralJournal
GeneralLedger
Trial Balance AdjustedTrial Balance
FinancialStatements
AdjustingEntries
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Adjusting EntriesAccrual accounting requires adjustments at the end of the reporting period (primarily because ofmatchingand revenue realization).
1. Some items have not been recorded.2. Some items need to be updated.
Objective:To make sure that the proper amount of revenues and expenses have been recognized in the correctaccounting period.
Financial Statements affected1. Balance sheet primarily current asset and current liability accounts2. Income statement primarily revenue and expense accounts
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ExampleJune 1: purchased $500 of office suppliesJune 30: Supplies costing $425 are left at the end of the month.
How does this affect our June Income Statement and the June 30 Balance Sheet?
Balance Sheet Income Statement
(end of June) (for the month of June)
Supplies Supply Expense
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Five types of adjusting entries1. Prepaid items
2. Unearned or deferred revenues
3. Accrued expenses
4. Accrued revenues
5. Estimated items
Three Characteristics of Adjusting Entries
1.
2.
3.
Cash amountpreviously recorded
Cash amount NOTyet recorded
Non-Cash
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Listthe accounts that are likely to need adjustments.
InfoLogix IncBalance Sheet ($ thousands) December 31,
2009 2008 Change
ASSETS
Currents assets:
Cash and cash equivalents $1,018 $3,037Accounts receivables (net of uncollectible accounts) 14,158 22,610
Unbilled revenue 252 1,498Inventory, net 1,089 1,775
Prepaid expenses 674 1,228
Total current assets 17,191 30,148
Property and equipment, net 600 944
Intangible assets, net 7,343 8,709
Goodwill 10,337 10,540
Deferred financing costs 471 501
Total assets $35,942 $50,842
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LIABILITIES AND STOCKHOLDERS EQUITY
Accounts payable $7,591 $11,099
Line of credit 7,559 9,000Current portion of long-term debt 12,417 12,163
Sales tax payable 276 477
Accrued expenses payable 3,183 3,090
Accrued earn out payable 1,958 1,958Deferred revenue 1,690 276
Other liabilities 900
Total current liabilities 34,674 38,963
Long-term debt, net of current maturities 345 4,401
Warrant liabilities 3,467
Total liabilities 38,486 43,364
Stockholders (deficit) equity:
Common stock, issued and outstanding
3,722,156 shares and 1,024,091 shares
Additional paid in capital 38,132 25,766
Accumulated deficit (40,676) (18,288)
Total stockholders (deficit) equity (2,544) 7,478
Total liabilities and stockholders (deficit) equity $35,942 $50,842
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Deferrals: Cash transaction has occurred prior to year-end
1. Prepaid Expenses (allocate expired assets to expense)
January 1: Prepaid one-year rent on equipment, $1,500July1: Accounting year-end
Balance Sheet Asset Accounts Income statement account
Prepaid Expense (BS) Cash Rent ExpenseBB 01/1: 1,500 1/1: 1,500
EB
Jan. 1 Prepaid expense (BS) 1,500Cash 1,500
Adjust. 7/1
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2. Unearned or deferred revenue (allocate earned portion of unearned revenue to revenue)
January 1: Rented a building to a customer, two years in advance, $2,000July 1: Accounting year-end
Balance Sheet Accounts Income statement account
Deferred revenue (BS-liability) Cash Rent Revenue
BB 01/1: 2,000 1/1: 2,000
EB
Jan. 1 Cash 2,000Deferred Revenue (BS) 2,000
Adjust. 7/1
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3. Accrued expense (record expenses to reflect expenses, not paid, but incurred during the year)
Dec. 15 Dec. 31 Jan. 15
Year-end is December 31.
Wages are earned $3,000 a month, but are paid on the 15thof each month. At December 31, $1,500is owed the workers.
Balance Sheet Accounts Income statement account
Accrued Payable (BS lia.) Cash Wage ExpenseBB 0
EB
12/31 Adjustment:
Jan 15, payment:
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4. Accrued revenue (record revenue to reflect revenue earned but not yet collected)
On November 1, you invested in a $10,000 1-year 6% CD. The accounting year ends on December31.
Balance Sheet Accounts Income statement account
Accrued revenue (BS-asset) Cash Interest Income (IS)BB 0
EB
12/31 Adjustment:
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InfoLogixDeferrals: Cash transaction has occurred prior to year-end(Cash amount XX unknown, YY expense or revenue unknown)
1.Prepaid Expenses (allocate expired assets to expense)
Balance Sheet Asset Account
Prepaid Expense (BS)BB 1,228
Cash ExpensePaid Recognized
EB 674
Prepay: Prepaid expense (BS) XXCash XX
Adjustment: Expense (IS) YYPrepaid expense (BS) YY
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2. Unearned or deferred revenue (allocate earned portion of unearned revenue to revenue)
Balance Sheet liability Account
Deferred revenue (BS-liability)BB 276
Revenue Cash inRecognized advance
EB 1,690
In advance: Cash XXDeferred Revenue (BS) XX
Adjustment: Deferred Revenue (BS) YYRevenue (IS) YY
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InfoLogixAccruals: Cash transaction has not yet occurred prior to year-end
3.Accrued Expenses (record expenses to reflect expenses, not paid, but incurred during the year)
As of December 31, incurred $3,183 of expenses not yet paid.
Balance Sheet Liability Account
Accrued Expense Payable (BS)BB 3,090Expense recognized
Cash paid before cash paid
EB 3,183
12/31 Adjustment: Expense (IS) YYAccrued expense payable (BS) YY
Payments during yr: Accrued expense payable (BS) XXCash XX
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4. Accrued revenue (record revenue to reflect revenue earned but not yet collected)
Balance Sheet Asset Accounts
Unbilled revenue (BS-asset)BB 1,498
Revenue earned Cashnot collected collected .
EB 252
12/31 Adjustment: Unbilled Revenue (BS) YYRevenue (IS) YY
Collections during yr: Cash (BS) XXUnbilled Revenue (BS) XX
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The Impact of revenues on the financial statements:
Debit CreditCash (BS) XXXReceivable (BS) XXX
Unearned Revenue (BS-CL) XXXRevenue on IS XXX
Revenues result in a:Credit to the ISDebit to the BS
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Expenses: The Relationship between the Income Statement and the Balance Sheet Accounts
$XXX
$XXX
$XXX
$XXXCash Paid in:
Current period
Prior period (prepaid item)
Future period (paid in the future)
Prepaid item
Accrued Payable
Income Statement
Expense (is recognized)
Balance Sheet
Current Assets Current Liabilities
Cash
1
2
3
1
2
3
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The impact of expenses on the financial statements
Debit CreditExpense (IS) XXX
Cash (BS) XXX
Prepaid item (BS) XXXAccrued payable (BS-CL) XXX
Expenses result in a:Debit to the ISCredit to the BS