7/27/2019 ch3 - part 2

1/15

OUTLINE QUIZ (20mins)

LECTURE FINISH CHAPTER 3

EXERCISES

7/27/2019 ch3 - part 2

2/15

ACCRUALS

Now: No cash goes in orout

Record revenue andexpense anyway accrue

Accrued Revenues

Receivable xxx

Revenue xxx

Accrued Expenses

Expense xxx

Payable xxx

DEFERRALS

Now: Cash goes in and out

Record revenues and

expenses later - defer

Prepaid Expenses

Expense xxx

Asset xxx

Unearned Revenues

Unearned Rev xxx

Revenue xxx

7/27/2019 ch3 - part 2

3/15

Observations Each adjusting entry affects a balance sheet (asset/liability)

and an income statement account (revenue/expense)

Usually no cash items in adjusting entries

7/27/2019 ch3 - part 2

4/15

Purpose of adjusting entries Reflect correct amounts on balance sheet and income

statement

7/27/2019 ch3 - part 2

5/15

After all adjusting entries are journalized andposted the company prepares another trial

balance from the ledger accounts (Adjusted Trial

Balance).

Its purpose is to prove the equality of debit

balances and credit balances in the ledger.

The adjusted Trial Balance is the primary basis

for the preparation of the financial statements.

The Adjusted Trial Balance

7/27/2019 ch3 - part 2

6/15

Income Statement

For the Month Ended Jan. 31,

Revenues:

Sales 137,000$Interest revenue 1,250

Rent revenue 8,000

Total revenue 146,250

Expenses:

Interest expense 1,500

Depreciation expense 100Insurance expense 1,000

Total expenses 2,600

Net income 143,650$

Income Statement

Preparing Financial Statements

Adjusted Trial Balance Debit Credit

Cash 50,000$Accounts receivable 35,000

Interest receivable 1,250

Prepaid insurance 11,000

Equipment 24,000

Accumulated depreciation 100$

Investments 300,000

Accounts payable 20,000

Interest payable 1,500

Unearned revenue 16,000

Note payable 200,000

Austin, capital 40,000

Sales 137,000

Interest revenue 1,250Rent revenue 8,000

Interest expense 1,500

Depreciation expense 100

Insurance expense 1,000

423,850$ 423,850$

7/27/2019 ch3 - part 2

7/15

Statement of Owners' Equity

For the Month Ended Jan. 31,

Austin, Capital, Jan. 1 40,000$

+ Net income 143,650- Drawings 0

Austin, Capital, Jan. 31 183,650$

Statement of

Owners Equity

Preparing Financial Statements

Adjusted Trial Balance Debit Credit

Cash 50,000$Accounts receivable 35,000

Interest receivable 1,250

Prepaid insurance 11,000

Equipment 24,000

Accumulated depreciation 100$

Investments 300,000

Accounts payable 20,000

Interest payable 1,500

Unearned revenue 16,000

Note payable 200,000

Austin, capital 40,000

Sales 137,000

Interest revenue 1,250Rent revenue 8,000

Interest expense 1,500

Depreciation expense 100

Insurance expense 1,000

423,850$ 423,850$

7/27/2019 ch3 - part 2

8/15

Adjusted Trial Balance Debit Credit

Cash 50,000$Accounts receivable 35,000

Interest receivable 1,250

Prepaid insurance 11,000

Equipment 24,000

Accumulated depreciation 100$

Investments 300,000

Accounts payable 20,000

Interest payable 1,500

Unearned revenue 16,000

Note payable 200,000

Austin, capital 40,000

Sales 137,000

Interest revenue 1,250Rent revenue 8,000

Interest expense 1,500

Depreciation expense 100

Insurance expense 1,000

423,850$ 423,850$

Balance Sheet Jan. 31

Assets

Cash 50,000$

Accounts receivable 35,000

Interest receivable 1,250

Prepaid insurance 11,000

Equipment 24,000

Accum. Depreciation (100)

Investments 300,000

Total assets 421,150$

Liabilities & Owners' Equity

Accounts payable 20,000$

Interst payable 1,500Unearned revenue 16,000

Note payable 200,000

Austin, capital 183,650

Total liab. & equity 421,150$

Preparing Financial Statements

7/27/2019 ch3 - part 2

9/15

Alternative Treatment for Deferrals

7/27/2019 ch3 - part 2

10/15

Method 1 Method 2

Alternative Treatment for Deferrals:

Prepaid Expenses

Supplies xx

Cash xx

Supplies Expense xx

Supplies xx

Supplies Expense xx

Cash xx

Supplies xx

Supplies Expense xx

7/27/2019 ch3 - part 2

11/15

Method 1 Method 2

Alternative Treatment for Deferrals:

Unearned Revenues

Cash xx

Unearned Rev xx

Unearned Rev xx

Revenues xx

Cash xx

Revenues xx

Revenues xx

Unearned Rev xx

7/27/2019 ch3 - part 2

12/15

Over/understatement exercises Self-Test 5

Question 16

Brief Exercises 2

7/27/2019 ch3 - part 2

13/15

Alternative Treatments for

Deferrals Self-Test 15

Brief Exercises 11

Exercises 16, 17 PRACTICE HW

7/27/2019 ch3 - part 2

14/15

Analysis problems for adjusting

entries E3-11, 13

P3-3A (letter C only)

P3-4A

7/27/2019 ch3 - part 2

15/15

NEXT MEETING CHAPTER 4 BRING COLUMNAR SHEETS