Presentation is loading. Please wait.

Presentation is loading. Please wait.

3-1 Intermediate Accounting 15th Edition 3 The Accounting Information System Kieso, Weygandt, and Warfield.

Similar presentations


Presentation on theme: "3-1 Intermediate Accounting 15th Edition 3 The Accounting Information System Kieso, Weygandt, and Warfield."— Presentation transcript:

1 3-1 Intermediate Accounting 15th Edition 3 The Accounting Information System Kieso, Weygandt, and Warfield

2 3-2 The Accounting Cycle LO 3 Identify steps in the accounting cycle. Transactions 1. Journalization 6. Financial Statements 7. Closing entries 8. Post-closing trail balance 9. Reversing entries 3. Trial balance 2. Posting 5. Adjusted trial balance 4. Adjustments Work Sheet Illustration 3-6

3 3-3 General Journal – a chronological record of transactions. Journal Entries are recorded in the journal. 1. Journalizing LO 4 Record transactions in journals, post to ledger accounts, and prepare a trial balance. September 1: Stockholders invested $15,000 cash in the corporation in exchange for shares of stock. Illustration 3-7

4 3-4 Posting – the process of transferring amounts from the journal to the ledger accounts. 2. Posting LO 4 Record transactions in journals, post to ledger accounts, and prepare a trial balance. Illustration 3-7 Illustration 3-8

5 3-5 Posting – Transferring amounts from journal to ledger. 2. Posting LO 4 Illustration 3-8

6 3-6 1. October 1: Stockholders invest $100,000 cash in an advertising venture to be known as Pioneer Advertising Agency Inc. Common stock100,000 Cash100,000Oct. 1 DebitCredit Cash 100,000100,000 DebitCredit Common Stock 2. Posting LO 4 Record transactions in journals, post to ledger accounts, and prepare a trial balance.

7 3-7 2. October 1: Pioneer Advertising purchases office equipment costing $50,000 by signing a 3-month, 12%, $50,000 note payable. Notes payable50,000 Equipment50,000Oct. 1 DebitCredit Equipment 50,00050,000 DebitCredit Notes Payable 2. Posting LO 4 Record transactions in journals, post to ledger accounts, and prepare a trial balance.

8 3-8 3. October 2: Pioneer Advertising receives a $12,000 cash advance from KC, a client, for advertising services that are expected to be completed by December 31. Unearned service revenue12,000 Cash12,000Oct. 2 DebitCredit Cash 100,00012,000 DebitCredit Unearned Service Revenue 2. Posting 12,000 LO 4 Record transactions in journals, post to ledger accounts, and prepare a trial balance.

9 3-9 4. October 3: Pioneer Advertising pays $9,000 office rent, in cash, for October. Cash9,000 Rent expense9,000Oct. 3 DebitCredit Cash 100,0009,000 DebitCredit Rent Expense 2. Posting 12,000 9,000 LO 4 Record transactions in journals, post to ledger accounts, and prepare a trial balance.

10 3-10 5. October 4: Pioneer Advertising pays $6,000 for a one-year insurance policy that will expire next year on September 30. Cash6,000 Prepaid insurance6,000Oct. 4 DebitCredit Cash 100,0006,000 DebitCredit Prepaid Insurance 2. Posting 12,000 9,000 6,000 LO 4 Record transactions in journals, post to ledger accounts, and prepare a trial balance.

11 3-11 6. October 5: Pioneer Advertising purchases, for $25,000 on account, an estimated 3-month supply of advertising materials from Aero Supply. Accounts payable25,000 Supplies25,000Oct. 5 DebitCredit Supplies 25,00025,000 DebitCredit Accounts Payable 2. Posting LO 4 Record transactions in journals, post to ledger accounts, and prepare a trial balance.

12 3-12 8. October 20: Pioneer Advertising’s board of directors declares and pays a $5,000 cash dividend to stockholders. Cash5,000 Dividends5,000Oct. 20 DebitCredit Cash 100,0005,000 DebitCredit Dividends 2. Posting 12,000 9,000 6,000 5,000 LO 4 Record transactions in journals, post to ledger accounts, and prepare a trial balance.

13 3-13 9. October 26: Employees are paid every four weeks. The total payroll is $2,000 per day. The pay period ended on Friday, October 26, with salaries of $40,000 being paid. Cash40,000 Salaries expense40,000Oct. 26 DebitCredit Cash 100,00040,000 DebitCredit Salaries Expense 2. Posting 12,000 9,000 6,000 5,000 40,000 LO 4 Record transactions in journals, post to ledger accounts, and prepare a trial balance.

14 3-14 10. October 31: Pioneer Advertising receives $28,000 in cash and bills Copa Company $72,000 for advertising services of $100,000 provided in October. Accounts receivable72,000 Cash28,000Oct. 31 DebitCredit Cash 100,00072,000 DebitCredit Accounts Receivable 2. Posting 12,000 9,000 6,000 5,000 40,000 Service revenue100,000 100,000 DebitCredit Service Revenue 28,000 80,000

15 3-15 Trial Balance Trial Balance – A list of each account and its balance; used to prove equality of debit and credit balances. 3. Trial Balance LO 4 Illustration 3-19

16 3-16 4. Adjusting Entries LO 5 Explain the reasons for preparing adjusting entries. Makes it possible to:  Report on the statement of financial position the appropriate assets, liabilities, and equity at the statement date.  Report on the income statement the proper revenues and expenses for the period. ► Revenues are recorded in the period in which they are earned. ► Expenses are recognized in the period in which they are incurred.

17 3-17 Types of Adjusting Entries 1.Prepaid Expenses. Expenses paid in cash and recorded as assets before they are used or consumed. Prepayments 3. Accrued Revenues. Revenues earned but not yet received in cash or recorded. 4. Accrued Expenses. Expenses incurred but not yet paid in cash or recorded. 2. Unearned Revenues. Revenues received in cash and recorded as liabilities before they are earned. Accruals LO 5 Explain the reasons for preparing adjusting entries. Illustration 3-20

18 3-18 Deferrals are either   prepaid expenses or   unearned revenues. Adjusting Entries for Deferrals Illustration 3-21 LO 5 Explain the reasons for preparing adjusting entries.

19 3-19 Payment of cash that is recorded as an asset because service or benefit will be received in the future. Adjusting Entries for “Prepaid Expenses”  insurance  supplies  advertising Cash Payment Expense Recorded BEFORE LO 5 Explain the reasons for preparing adjusting entries.  rent  buildings and equipment Prepayments often occur in regard to:

20 3-20 Supplies. Supplies. Pioneer purchased advertising supplies costing $25,000 on October 5. Prepare the journal entry to record the purchase of the supplies. Cash25,000 Supplies25,000Oct. 5 DebitCredit Supplies 25,00025,000 DebitCredit Cash Adjusting Entries for “Prepaid Expenses” LO 5 Explain the reasons for preparing adjusting entries.

21 3-21 Supplies. An inventory count at the close of business on October 31 reveals that $10,000 of the advertising supplies are still on hand. Supplies15,000 Supplies expense15,000Oct. 31 DebitCredit Supplies 25,00015,000 DebitCredit Supplies Expense 15,000 Adjusting Entries for “Prepaid Expenses” 10,000 LO 5 Explain the reasons for preparing adjusting entries.

22 3-22 Statement Presentation: Supplies identifies that portion of the asset’s cost that will provide future economic benefit. Adjusting Entries for “Prepaid Expenses” Illustration 3-35

23 3-23 Statement Presentation: Supplies expense identifies that portion of the asset’s cost that expired in October. Illustration 3-35 Adjusting Entries for “Prepaid Expenses” LO 5 Explain the reasons for preparing adjusting entries.

24 3-24 Insurance. On Oct. 4 th, Pioneer paid $6,000 for a one-year fire insurance policy, beginning October 1. Show the entry to record the purchase of the insurance. Cash6,000 Prepaid insurance6,000Oct. 4 DebitCredit Prepaid Insurance 6,0006,000 DebitCredit Cash Adjusting Entries for “Prepaid Expenses” LO 5 Explain the reasons for preparing adjusting entries.

25 3-25 Insurance. An analysis of the policy reveals that $500 ($6,000 / 12) of insurance expires each month. Thus, Pioneer makes the following adjusting entry. Prepaid insurance500 Insurance expense500Oct. 31 DebitCredit Prepaid Insurance 6,000500 DebitCredit Insurance Expense Adjusting Entries for “Prepaid Expenses” 500 5,500 LO 5 Explain the reasons for preparing adjusting entries.

26 3-26 Statement Presentation: Prepaid insurance identifies that portion of the asset’s cost that will provide future economic benefit. Adjusting Entries for “Prepaid Expenses” Illustration 3-35

27 3-27 Statement Presentation: Insurance expense identifies that portion of the asset’s cost that expired in October. Illustration 3-35 Adjusting Entries for “Prepaid Expenses” LO 5 Explain the reasons for preparing adjusting entries.

28 3-28 Depreciation. Pioneer Advertising estimates depreciation on its office equipment to be $400 per month. Accordingly, Pioneer recognizes depreciation for October by the following adjusting entry. Accumulated depreciation400 Depreciation expense400Oct. 31 DebitCredit Depreciation Expense 400400 DebitCredit Accumulated Depreciation Adjusting Entries for “Prepaid Expenses” LO 5 Explain the reasons for preparing adjusting entries.

29 3-29 Unearned Revenue. Pioneer Advertising received $12,000 on October 2 from KC for advertising services expected to be completed by December 31. Show the journal entry to record the receipt on Oct. 2 nd. Unearned advertising revenue12,000 Cash12,000Oct. 2 DebitCredit Cash 12,00012,000 DebitCredit Unearned Rent Revenue Adjusting Entries for “Unearned Revenues” LO 5 Explain the reasons for preparing adjusting entries.

30 3-30 DebitCredit Service Revenue 100,00012,000 DebitCredit Unearned Service Revenue 4,000 8,000 Adjusting Entries for “Unearned Revenues” Unearned Revenues. Analysis reveals that Pioneer earned $4,000 of the advertising services in October. Thus, Pioneer makes the following adjusting entry. Service revenue4,000 Unearned service revenue4,000Oct. 31 4,000 LO 5 Explain the reasons for preparing adjusting entries.

31 3-31 Adjusting Entries for Accruals Illustration 3-27 Accruals are either  accrued revenues or  accrued expenses. LO 5 Explain the reasons for preparing adjusting entries.

32 3-32 Revenues earned but not yet received in cash or recorded. Adjusting Entries for “Accrued Revenues”  rent  interest  services performed BEFORE Accrued revenues often occur in regard to: Cash Receipt Revenue Recorded Adjusting entry results in: LO 5 Explain the reasons for preparing adjusting entries.

33 3-33 Accrued Revenues. In October Pioneer earned $2,000 for advertising services that it did not bill to clients before October 31. Thus, Pioneer makes the following adjusting entry. Service revenue2,000 Accounts receivable2,000Oct. 31 DebitCredit Accounts Receivable 72,000 Adjusting Entries for “Accrued Revenues” DebitCredit Service Revenue 100,000 4,000 2,000 106,000 2,000 74,000 LO 5

34 3-34 Interest payable500 Interest expense500Oct. 31 DebitCredit Interest Expense 500500 DebitCredit Interest Payable Adjusting Entries for “Accrued Expenses” Accrued Interest. Pioneer signed a three-month, 12%, note payable in the amount of $50,000 on October 1. Prepare the adjusting entry on Oct. 31 to record the accrual of interest. LO 5 Explain the reasons for preparing adjusting entries.

35 3-35 Adjusting Entries for “Accrued Expenses” Accrued Salaries. At October 31, the salaries for these days represent an accrued expense and a related liability to Pioneer. The employees receive total salaries of $10,000 for a five-day work week, or $2,000 per day. LO 5 Explain the reasons for preparing adjusting entries.

36 3-36 Salaries payable6,000 Salaries expense6,000Oct. 31 DebitCredit Salaries Expense 40,0006,000 DebitCredit Salaries Payable Adjusting Entries for “Accrued Expenses” Accrued Salaries. Employees receive total salaries of $10,000 for a five-day work week, or $2,000 per day. Prepare the adjusting entry on Oct. 31 to record accrual for salaries. 6,000 46,000 LO 5 Explain the reasons for preparing adjusting entries.

37 3-37 Salaries expense34,000 Salaries payable6,000Nov. 23 DebitCredit Salaries Expense 34,0006,000 DebitCredit Salaries Payable Adjusting Entries for “Accrued Expenses” Accrued Salaries. On November 23, Pioneer will again pay total salaries of $40,000. Prepare the entry to record the payment of salaries on November 23. Cash40,000 6,000 LO 5 Explain the reasons for preparing adjusting entries.

38 3-38 Adjusting Entries for “Accrued Expenses” Bad Debts. Assume Pioneer reasonably estimates a bad debt expense for the month of $1,600. It makes the adjusting entry for bad debts as follows. Illustration 3-32 LO 5 Explain the reasons for preparing adjusting entries.

39 3-39 Shows the balance of all accounts, after adjusting entries, at the end of the accounting period. 5. Adjusted Trial Balance Illustration 3-33

40 3-40 6. Preparing Financial Statements LO 6 Prepare financial statement from the adjusted trial balance. Financial Statements are prepared directly from the Adjusted Trial Balance. Balance Sheet Income Statement Retained Earnings Statement

41 3-41 6. Preparing Financial Statements LO 6 Illustration 3-34

42 3-42 6. Preparing Financial Statements Illustration 3-35 LO 6

43 3-43 7. Closing Entries LO 7 Prepare closing entries.  To reduce the balance of the income statement (revenue and expense) accounts to zero.  To transfer net income or net loss to owner’s equity.  Balance sheet (asset, liability, and equity) accounts are not closed.  Dividends are closed directly to the Retained Earnings account.

44 3-44 7. Closing Entries LO 7 Prepare closing entries. Retained earnings 5,000 Dividends 5,000 Service revenue106,000 Salaries & wages expense46,000 Supplies expense15,000 Rent expense9,000 Insurance expense500 Interest expense500 Depreciation expense400 Bad debt expense1,600 Retained earnings33,000 Illustration 3-33 Closing Journal Entries:

45 3-45 7. Closing Entries Illustration 3-37

46 3-46 8. Post-Closing Trial Balance LO 7 Illustration 3-38

47 3-47 9. Reversing Entries LO 7 Prepare closing entries. After preparing the financial statements and closing the books, a company may reverse some of the adjusting entries before recording the regular transactions of the next period.

48 3-48 Financial Statements of a Merchandising Company LO 7 Illustration 3-39

49 3-49 Financial Statements of a Merchandising Company LO 7 Illustration 3-40

50 3-50 Financial Statements of a Merchandising Company LO 7 Illustration 3-41


Download ppt "3-1 Intermediate Accounting 15th Edition 3 The Accounting Information System Kieso, Weygandt, and Warfield."

Similar presentations


Ads by Google