Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Accounting Records and Systems © The McGraw-Hill Companies, Inc., Part One: Financial Accounting

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 New balance 5,450 (decrease) 750 7,200 4,800 3,000 15,750 The Account Slide 4-1 (increase) Beginning balance-0- 5,000 4, ,000 21,200 Cash

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Debits and Credits Slide 4-2 AssetsLiabilitiesOwners’ Equity Debit Credit Debit Credit Debit Credit

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 The Accounting Process Slide Post journal entries to ledger 4. Identify, journalize, and post adjusting entries 5. Journalize and post closing entries 6. Prepare financial statements2. Journalize original entries 1. Analyze transactions

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Transaction Analysis Slide 4-4 On August 1, Snelson invested $5,000 in the business as owner. Cash Paid-in Capital 5,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Transaction Analysis Slide 4-5 On August 1, the firm paid $750 rent for the month of August. Cash Prepaid Expenses 5,

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Transaction Analysis Slide 4-6 The firm borrowed $4,000 from a bank on a 9 percent note payable, with interest payable quarterly and the principal due in full at the end of two years. 4,000 Cash Notes Payable 5, ,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Transaction Analysis Slide 4-7 Equipment costing $7,200 was purchased for cash. The expected life of the equipment was 10 years. 4,000 Cash Equipment, at Cost 5, ,200 Refer to pages 94 through 96 for the remaining entries for the month of August.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Balance 5,450 Balancing an Account Slide 4-8 Balance ,0007,200 4,0004, ,000 12,000 To Balance 5,45021,200 Cash

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 The Trial Balance Slide 4-9 CAMPUS PIZZERIA, INC. Trial Balance As of August 31 Cash…………………………………………………….$ 5,450 Accounts receivable…………………………………….-0- Inventory………………………………………………..550 Prepaid expenses………………………………………..750 Equipment, at cost………………………………………7,200 Accounts payable……………………………………….$ 2,200 Notes payable…………………………………………..4,000 Paid-in capital…………………………………………..5,000 Sales revenue…………………………………………...12,200 Cost of sales…………………………………………….6,000 Wage expense…………………………………………..3,000 Utilities expense……………………………………… Totals………………………………………………..$23,400$23,400 Balance Debit Credit

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Adjusting Entries Slide 4-10 Fuel oil was purchased for $1,000. Fuel Oil Inventory Accounts Payable 1,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Adjusting Entries Slide 4-11 By the end of the accounting period, $600 of the fuel had been consumed. Fuel Oil Inventory Fuel Expense 1,

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Adjusting Entries Slide 4-12 Paid an insurance premium on company car, $1,200. Prepaid Insurance Cash 1,200

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Prepaid Insurance Insurance Expense 1,200 Adjusting Entries Slide 4-13 At year-end, $800 of this is an expense. 800

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Adjusting Entries Slide 4-14 Employees earned $150 of wages during the period. These wages have not been paid. Wages Expense Accrued Wages 150

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Adjusting Entries Slide 4-15 Annual depreciation on equipment totaled $2,000. Depreciation Accumulated Expense Depreciation 2,000 Additional adjusting entries are explained on pages 99 through 101 of the textbook.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., , Closing Entries Slide 4-16 Closing the Sales Revenues account Sales Income Revenues Summary 12,400 12,400

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., ,00012,400 6,0006,000 Closing Entries Slide 4-17 Closing the Cost of Sales account Cost of Income Sales Summary

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Closing Entries Slide 4-18 Closing the Income Summary account (17) 382 Income Summary (B)6,000 (C)3,000 (D)450 (E)750 (F)60 (G) 30 10,290 (A) 12,400 Credit Income Tax Expense (H) 1,728

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Financial Statements Slide 4-19 CAMPUS PIZZERIA, INC. Balance Sheet As of August 31 Assets Liabilities and Owners’ Equity Cash$ 5,450Accounts payable$ 2,200 Accounts receivable200Notes payable4,000 Inventory550Accrued expenses30 Prepaid expenses 0Income tax liability 382 Total current assets 6,200 Total liabilities 6,612 Equipment, at cost7,200Paid-in capital5,000 Less: Accum. Depr. 60Retained earnings 1,728 Equipment, net 7,140 Total owners’ equity 6,728 Total assets$13,340Total liab. and own. eq.$13,340

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Sales revenues$12,400 Cost of sales 6,000 Gross margin6,400 Operating expenses: Wages$3,000 Rent750 Utilities450 Depreciation60 Interest 30 4,290 Income before income taxes2,110 Income tax expense 382 Net income$ 1,728 Financial Statements Slide 4-20 CAMPUS PIZZERIA, INC. Income Statement For the Month of August

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Chapter 4 The End