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Demonstration Problem Chapter 4 – Exercise 11 Record Transactions and Adjustments Accounting What the Numbers Mean 10e.

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Presentation on theme: "Demonstration Problem Chapter 4 – Exercise 11 Record Transactions and Adjustments Accounting What the Numbers Mean 10e."— Presentation transcript:

1 Demonstration Problem Chapter 4 – Exercise 11 Record Transactions and Adjustments Accounting What the Numbers Mean 10e

2 Problem Definition Enter the following column heading across the top of a sheet of paper: Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income

3 Problem Definition Enter the following column heading across the top of a sheet of paper: Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income Enter the transaction/adjustment letter in the first column and show the effect, if any, of the transaction entry or adjusting entry on the appropriate balance sheet category or on the income statement by entering the amount and indicating whether it is an addition (+) or a subtraction (-). Column headings reflect the expanded balance sheet equation; items that affect net income should not be shown as affecting stockholders equity. In some cases, only one column may be affected because all of the specific accounts affected by the transaction are included in that category. Transaction a has been done as an illustration. (Note: As an alternative to using the horizontal model, you may write the journal entry for each transaction or adjustment.)

4 a.Provided services to a client on account; revenues totaled $550. b.Paid an insurance premium of $360 for the coming year. An asset, Prepaid Insurance, was debited. c.Recognized insurance expense for one month from the above premium via a reclassification adjusting entry. d.Paid $800 of wages accrued at the end of the prior month. e.Paid $2,600 of wages for the current month. f.Accrued $600 of wages at the end of the current month. g.Received cash of $1,500 on accounts receivable accrued at the end of the prior month. Problem Definition

5 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income a

6 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income a Journal entry: Dr. Accounts Receivable $550 Cr. Service Revenue $550

7 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income a Journal entry: Dr. Accounts Receivable $550 Cr. Service Revenue $550 Accounts receivable (an asset account) increases and Service Revenue (a revenue account) also increases which causes Net Income to increase.

8 a.Provided services to a client on account; revenues totaled $550. b.Paid an insurance premium of $360 for the coming year. An asset, Prepaid Insurance, was debited. c.Recognized insurance expense for one month from the above premium via a reclassification adjusting entry. d.Paid $800 of wages accrued at the end of the prior month. e.Paid $2,600 of wages for the current month. f.Accrued $600 of wages at the end of the current month. g.Received cash of $1,500 on accounts receivable accrued at the end of the prior month. Problem Definition

9 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income b

10 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income b Journal entry: Dr. Prepaid Insurance $360 Cr. Cash $360

11 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income b Journal entry: Dr. Prepaid Insurance $360 Cr. Cash $360 Prepaid Insurance (an asset account) increases and Cash (an asset account) decreases. No effect on Net Income.

12 a.Provided services to a client on account; revenues totaled $550. b.Paid an insurance premium of $360 for the coming year. An asset, Prepaid Insurance, was debited. c.Recognized insurance expense for one month from the above premium via a reclassification adjusting entry. d.Paid $800 of wages accrued at the end of the prior month. e.Paid $2,600 of wages for the current month. f.Accrued $600 of wages at the end of the current month. g.Received cash of $1,500 on accounts receivable accrued at the end of the prior month. Problem Definition

13 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income c

14 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income c Journal entry: Dr. Insurance Expens $30 Cr. Prepaid Insurance $30

15 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income c Journal entry: Dr. Insurance Expense $30 Cr. Prepaid Insurance $30 Insurance Expense (an expense account) increases which causes Net Income to decrease; Prepaid Insurance (an asset account) decreases.

16 a.Provided services to a client on account; revenues totaled $550. b.Paid an insurance premium of $360 for the coming year. An asset, Prepaid Insurance, was debited. c.Recognized insurance expense for one month from the above premium via a reclassification adjusting entry. d.Paid $800 of wages accrued at the end of the prior month. e.Paid $2,600 of wages for the current month. f.Accrued $600 of wages at the end of the current month. g.Received cash of $1,500 on accounts receivable accrued at the end of the prior month. Problem Definition

17 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income d

18 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income d Journal entry: Dr. Wages Payable $800 Cr. Cash $800

19 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income d Journal entry: Dr. Wages Payable $800 Cr. Cash $800 Wages Payable (a liability account) decreases and Cash (an asset account) also decreases. No effect on Net Income.

20 a.Provided services to a client on account; revenues totaled $550. b.Paid an insurance premium of $360 for the coming year. An asset, Prepaid Insurance, was debited. c.Recognized insurance expense for one month from the above premium via a reclassification adjusting entry. d.Paid $800 of wages accrued at the end of the prior month. e.Paid $2,600 of wages for the current month. f.Accrued $600 of wages at the end of the current month. g.Received cash of $1,500 on accounts receivable accrued at the end of the prior month. Problem Definition

21 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income e. -2,600 -2,600

22 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income e. -2,600 -2,600 Journal entry: Dr. Wages Expense $2,600 Cr. Cash $2,600

23 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income e. -2,600 -2,600 Journal entry: Dr. Wages Expense $2,600 Cr. Cash $2,600 Wages Expense (an expense account) increases which causes Net Income to decrease; Cash (an asset account) decreases.

24 a.Provided services to a client on account; revenues totaled $550. b.Paid an insurance premium of $360 for the coming year. An asset, Prepaid Insurance, was debited. c.Recognized insurance expense for one month from the above premium via a reclassification adjusting entry. d.Paid $800 of wages accrued at the end of the prior month. e.Paid $2,600 of wages for the current month. f.Accrued $600 of wages at the end of the current month. g.Received cash of $1,500 on accounts receivable accrued at the end of the prior month. Problem Definition

25 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income f

26 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income f Journal entry: Dr. Wages Expense $600 Cr. Wages Payable $600

27 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income f Journal entry: Dr. Wages Expense $600 Cr. Wages Payable $600 Wages Expense (an expense account) increases which causes Net Income to decrease; Wages Payable (a liability account) increases.

28 a.Provided services to a client on account; revenues totaled $550. b.Paid an insurance premium of $360 for the coming year. An asset, Prepaid Insurance, was debited. c.Recognized insurance expense for one month from the above premium via a reclassification adjusting entry. d.Paid $800 of wages accrued at the end of the prior month. e.Paid $2,600 of wages for the current month. f.Accrued $600 of wages at the end of the current month. g.Received cash of $1,500 on accounts receivable accrued at the end of the prior month. Problem Definition

29 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income g. +1,500 -1,500

30 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income g. +1,500 -1,500 Journal entry: Dr. Cash $1,500 Cr. Accounts Receivable $1,500

31 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income g. +1,500 -1,500 Journal entry: Dr. Cash $1,500 Cr. Accounts Receivable $1,500 Cash (an asset account) increases and Accounts Receivable (an asset account) decreases. No effect on Net Income.

32 Problem Solution Transaction/ Stockholders Net Adjustment Assets Liabilities Equity Income a b c d e. -2,600 -2,600 f g. +1,500 -1,500

33 Problem Solution Journal entries: a. Dr. Accounts Receivable $ 550 Cr. Service Revenue $ 550 b. Dr. Prepaid Insurance Cr. Cash c. Dr. Insurance Expense Cr. Prepaid Insurance d. Dr. Wages Payable Cr. Cash e. Dr. Wages Expense ,600 Cr. Cash ,600 f. Dr. Wages Expense Cr. Wages Payable g. Dr. Cash ,500 Cr. Accounts Receivable ,500

34 Accounting What the Numbers Mean 10e David H. Marshall Wayne W. McManus Daniel F. Viele You should now have a better understanding of recording transactions and adjustments. Remember that there is a demonstration problem for each chapter that is here for your learning benefit.


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