OUTLINE

QUIZ (20mins) LECTURE FINISH CHAPTER 3 EXERCISES

ACCRUALS Now: No cash goes in or out Record revenue and expense anyway accrue

DEFERRALS Now: Cash goes in and out Record revenues and expenses later - defer

Accrued Revenues Receivable xxx Revenue xxx

Prepaid Expenses Expense xxx Asset xxx

Accrued Expenses Expense xxx Payable xxx

Unearned Revenues Unearned Rev xxx Revenue xxx

Observations
Each adjusting entry affects a balance sheet (asset/liability) and an income statement account (revenue/expense) Usually no cash items in adjusting entries

Purpose of adjusting entries

Reflect correct amounts on balance sheet and income statement

The Adjusted Trial Balance

After all adjusting entries are journalized and posted 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.

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 Investments 300,000 Accounts payable Interest payable Unearned revenue Note payable Austin, capital Sales Interest revenue Rent revenue Interest expense 1,500 Depreciation expense 100 Insurance expense 1,000 $ 423,850

Income Statement
Income Statement For the Month Ended Jan. 31, Revenues: Sales Interest revenue Rent revenue Total revenue Expenses: Interest expense Depreciation expense Insurance expense Total expenses Net income

100 20,000 1,500 16,000 200,000 40,000 137,000 1,250 8,000

$ 137,000 1,250 8,000 146,250 1,500 100 1,000 2,600 $ 143,650

$ 423,850

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 Investments 300,000 Accounts payable Interest payable Unearned revenue Note payable Austin, capital Sales Interest revenue Rent revenue Interest expense 1,500 Depreciation expense 100 Insurance expense 1,000 $ 423,850

100 20,000 1,500 16,000 200,000 40,000 137,000 1,250 8,000

Statement of Owners Equity

Statement of Owners' Equity For the Month Ended Jan. 31, Austin, Capital, Jan. 1 + Net income - Drawings Austin, Capital, Jan. 31 $ 40,000 143,650 0 $ 183,650

$ 423,850

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 Investments 300,000 Accounts payable Interest payable Unearned revenue Note payable Austin, capital Sales Interest revenue Rent revenue Interest expense 1,500 Depreciation expense 100 Insurance expense 1,000 $ 423,850

Balance Sheet Assets Cash Accounts receivable Interest receivable Prepaid insurance Equipment Accum. Depreciation Investments Total assets $

Jan. 31 50,000 35,000 1,250 11,000 24,000 (100) 300,000 $ 421,150

100 20,000 1,500 16,000 200,000 40,000 137,000 1,250 8,000

$ 423,850

Liabilities & Owners' Equity Accounts payable $ 20,000 Interst payable 1,500 Unearned revenue 16,000 Note payable 200,000 Austin, capital 183,650 Total liab. & equity $ 421,150

Alternative Treatment for Deferrals

Alternative Treatment for Deferrals: Prepaid Expenses

Method 1 Method 2

Supplies Cash

xx
xx

Supplies Expense xx Cash

xx

Supplies Expense xx Supplies

xx

Supplies xx Supplies Expense xx

Alternative Treatment for Deferrals: Unearned Revenues

Method 1 Method 2

Cash

xx Unearned Rev xx

Cash xx Revenues

xx

Unearned Rev xx Revenues

xx

Revenues xx Unearned Rev xx

Over/understatement exercises
Self-Test 5 Question 16 Brief Exercises 2

Alternative Treatments for Deferrals

Self-Test 15 Brief Exercises 11 Exercises 16, 17 PRACTICE HW

Analysis problems for adjusting entries

E3-11, 13 P3-3A (letter C only) P3-4A

NEXT MEETING
CHAPTER 4 BRING COLUMNAR SHEETS