summary intro to accounting
TRANSCRIPT
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Summary Introduction
to Accounting
Class: B and F
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BASIC ACCOUNTINGEQUATIONSTUDY OBJECTIVE 6
Assets Liabilities Owners Equity= +
Cash
Petty cash
Short term investment
Account receivable
Notes receivable
Other receivable
Inventories
SuppliesPrepaid insurance
Prepaid rent
Land
Office building
Less: Accumulated Depreciation office building
Office equipment
Less: Accumulated Depreciation office equipment
Assets
Notes payable
Account payable
Tax payable
Salaries payable
Other payable
Liabilities Owner's EquityOwner, Capital
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Accounting EquationSTUDY OBJECTIVE 6
Assets Liabilities Owners Equity= +
+ +1
+ +2
+ -3
+ -4
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INCREASES AND DECREASES INOWNERS EQUITY
INCREASES DECREASES
Owners
EquityRevenues
Withdrawals
by Owner
Expenses
Investmentsby Owner
Revenues-Expenses=Net Income (Income Statement Items)
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BASIC FORM OF ACCOUNT
The simplest form an account consists of
1 the title of the account
2 a left or debit side
3 a right or credit side The alignment of these parts resembles the
letter T = T account
Left or debit side
Title of Account
Right or credit side
Debit balance Credit balance
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Cash
Debits Credits
15,000
Example: 1. The owner makes an initialinvestment of$15,000 to startthe business. Cash is debitedas the owners Capital is
credited.
DEBITING AN ACCOUNT
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DEBITING / CREDITING AN ACCOUNT
Cash
Debits Credits
15,000 7,000
8,000
Example: Cash is debited for$15,000 andcredited for$7,000, leaving a debitbalance of$8,000.
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DOUBLE-ENTRY SYSTEM
equal debits and credits made accountsfor each transaction
total debits always equal the totalcredits
accounting equation always stays in
balance
Assets Liabilities Equity
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EXPANDED BASIC EQUATION AND
DEBIT/CREDIT RULES AND EFFECTS
LiabilitiesAssets Owners Equity
= + -
+=
+ -
Assets
Dr. Cr.
+ -
Liabilities
Dr. Cr.
- +
Dr. Cr.
Owners
Drawing
+ -
Dr. Cr.
Revenues
- +
Dr. Cr.
Expenses
+ -
Dr. Cr.
Owners
Capital
- +
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SUMMARY DEBIT-CREDIT
Debits Credits
Assets/aset Increase DecreaseLiabilities/Kewajiban Decrease Increase
Equity/Modal Decrease IncreaseRevenues/Pendapatan Decrease Increase
Expenses/Beban Increase Decrease
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GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2005
July 1 Cash 20,000
K. Browne, Capital 20,000
(Invested cash in the
business)
If an entry involves only two accounts, one debit andone credit, it is considered a simple entry.
Journal Entries---- Example
When three or more accounts are required in one journal entry, theentry is referred to as a compound entry.
2
1
3
GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit2005
July 1 Delivery Equipment 14,000
Cash 8,000
Accounts Payable 6,000
(Purchased truck for cash
with balance on account)
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POSTING A JOURNAL ENTRY
In the ledger, enter in the appropriate columns of the account(s)debited the date,journal page, and debit amount shown in the journal.
GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2005Sept. 1 Cash 10 15,000
R. Neal, Capital 25 15,000(invested cash in business)
R. NEAL, CAPITAL NO. 25Date Explanation Ref. Debit Credit Balance
2005Sept. 1 J1 15,000 15,000
GENERAL LEDGERCASH NO. 10
Date Explanation Ref. Debit Credit Balance
2005Sept. 1 J1 15,000 15,000
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THE TRIAL BALANCE
STUDY OBJECTIVE 7 The primary purpose of a trial balance is
to prove debits = credits after posting.
If debits and credits do not agree,
the trial balance can be used to uncovererrors in journalizing and posting.
The Steps in preparing the Trial Balanceare:
1. List the account titles and balances
2. Total the debit and credit columns
3. Prove the equality of the two columns
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PIONEER ADVERTISING AGENCY
Trial Balance
October 31, 2005
Debit Credit
Cash $ 15,200Advertising Supplies 2,500Prepaid Insurance 600
Office Equipment 5,000Notes Payable $ 5,000Accounts Payable 2,500Unearned Fees 1,200C. R. Byrd, Capital 10,000C. R. Byrd, Drawing 500Fees Earned 10,000Salaries Expense 4,000Rent Expense 900
$ 28,700 $ 28,700
The totaldebits mustequal the totalcredits.
A TRIAL BALANCE
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TIME-PERIOD ASSUMPTION Thetime period (or periodicity) assumption
assumes the economic life of a business can be divided into artificial
time periods, generally month, a quarter, or a year (referred to as afiscal year)
ACCRUAL BASIS OF ACCOUNTING Cash basis accounting
revenue is recorded when cash is received
expenses are recorded when cash is paid
Using accrual basis, we have 2 assumption:
Revenue recognition
Revenue must be recognized in the accounting period in which it
is earned, not just when money is exchanged.
In a service business, revenue is earned at the time the service is
performed. Matching principles
Revenuesearned
thismonth
are offsetagainst....
Expensesincurred
inearning
the
revenue
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Adjusting entries are classified as
Prepayments (prepaid expensesand unearnedrevenues)
Prepaid Expenses
Expenses paid in cash - recorded as assets before used or consumed Unearned Revenues
Cash received - recorded as liabilities before the revenue is earned
Accruals (accruedrevenuesand accruedexpenses)
Accrued RevenuesRevenues earned but not yet received in cash or recorded
Accrued Expenses
Expenses incurred but not yet paid in cash or recorded
ADJUSTING ENTRIES
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ADJUSTING ENTRIES FOR PREPAYMENTSAdjusting Entries
Asset
UnadjustedBalance
CreditAdjusting
Entry (-)
Expense
DebitAdjusting
Entry (+)
Prepaid Expenses
Liability
Unadjusted
Balance
Debit
Adjusting
Entry (-)
Revenue
Credit
Adjusting
Entry (+)
Unearned Revenues
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Advertising Supplies Expense
Oct. 31 1,500
Advertising Supplies
Oct. 5 2,500 Oct. 31 1,500
31 1,000
Date Account Titles and Explanation Debit CreditOct. 31 Advertising Supplies Expense 1,500
Advertising Supplies 1,500(To record supplies used)
JOURNAL ENTRY
POSTING
ADJUSTMENT October 31, an inventory count reveals that $1,000of $2,500 of supplies are still on hand.
EXAMPLE: ADJUSTING ENTRIESFOR PREPAYMENTS SUPPLIES
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Adjusting Entries
Asset
Debit
Adjusting
Entry (+)
Accrued Revenues
Revenue
Credit
Adjusting
Entry (+)
Accrued Expenses
Expense
Debit
Adjusting
Entry (+)
Liability
Credit
Adjusting
Entry (+)
ADJUSTING ENTRIES FOR ACCRUALS
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EXAMPLE: ADJUSTING ENTRIES FORACCRUALS ACCRUED INTEREST
Interest PayableOct. 31 50
Interest Expense
Oct. 31 50
Date Account Titles and Explanation Debit CreditOct. 31 Interest Expense 50
Interest Payable 50(To accrue interest on notes payable)
JOURNAL ENTRY
POSTING
ADJUSTMENT October 31, the portion of the interest to be accruedon a 3-month note payable is calculated to be $50.
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ADJUSTED TRIAL BALANCE
Adjusted Trial Balanceprepared after all adjusting entries have been
journalized and posted
purpose is to prove equality of the total debit
and credit balances in the ledger after
adjustments have been made
Financial statements
prepared directly from the adjusted trial balance
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PIONEER ADVERTISING AGENCYAdjusted Trial Balance
October 31, 2005Before After
Adjustment Adjustment
Debit Credit Debit Credit
Cash $ 15,200 $ 15,200
Accounts Receivable 200Advertising Supplies 2,500 1,000Prepaid Insurance 600 550Office Equipment 5,000 5,000Accumulated Depreciation - Office Equipment $ 40Notes Payable $ 5,000 5,000Accounts Payable 2,500 2,500Interest Payable 50Unearned Revenue 1,200 800Salaries Payable 1,200C. R. Byrd, Capital 10,000 10,000
C. R. Byrd, Drawing 500 500Service Revenue 10,000 10,600Salaries Expense 4,000 5,200Advertising Supplies Expense 1,500Rent Expense 900 900Insurance Expense 50Interest Expense 50Depreciation Expense 40
$ 28,700 $ 28,700 $ 30,190 $ 30,190
TRIAL BALANCE AND ADJUSTEDTRIAL BALANCE COMPARED
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PREPARING FINANCIAL STATEMENTS
Financial statements are prepared directly from theadjusted trial balance
Income statement use the revenue and expense accounts
Owners Equity Statement use the owners capital and drawing accounts and the netincome
(or net loss) from the Income Statement
Balance sheet use asset and liability accounts and ending owners capital
balance reported in Owners Equity Statement
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PREPARATION OF THE INCOME STATEMENT ANDTHE OWNERS EQUITY STATEMENT FROM THEADJUSTED TRIAL BALANCE
PIONEER ADVERTISING AGENCYIncome Statement
For the Month Ended October 31, 2005
Revenues
Fees earned $ 10,600
ExpensesSalaries expense $ 5,200
Advertising supplies expense 1,500
Rent expense 900
Insurance expense 50
Interest expense 50
Depreciation expense 40
Total expenses 7,740
Net income $ 2,860
The income statement is prepared from the revenue and expense accounts.
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PREPARATION OF THE INCOME STATEMENT AND THE OWNERS
EQUITY STATEMENT FROM THE ADJUSTED TRIAL BALANCE
PIONEER ADVERTISING AGENCYOwners Equity Statement
For the Month Ended October 31, 2005
C.R. Byrd, Capital, October 1 $ -0-Add: Investments $ 10,000
Net income 2,860 12,860
12,860Less: Drawings 500
C.R . Byrd, Capital, October 31 $ 12,360
The owners equity statement is prepared from the owners capital anddrawing accounts and the net income (ornet loss) shown in the incomestatement.
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PREPARATION OF THE BALANCE SHEETFROM THE ADJUSTED TRIAL BALANCEPIONEER ADVERTISING AGENCY
Balance SheetOctober 31, 2005
Assets Liabilities and Owners Equity
Cash $ 15,200 LiabilitiesAccounts receivable 200 Notes payable $ 5,000Advertising supplies 1,000 Accounts payable 2,500Prepaid insurance 550 Interest payable 50Office equipment $ 5,000 Unearned fees 800Less: Accumulated Salaries payable 1,200
depreciation 40 4,960 Total liabilities 9,550
Owners equityC.R. Byrd, Capital 12,360
Total liabilities and ownersTotal assets $ 21,910 equity $ 21,910
The balance sheet is then prepared from the asset and liability accounts
and the ending owners capital balanceas reported in the owners equitystatement.
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SUMMARY OF BASIC RELATIONSHIPS FORPREPAYMENTS
1 Prepaid Assets and a Prepaid expenses Assets overstated DrExpensesExpenses Expenses initially recorded in Expenses understated CrAssets
asset accounts have
been used.
b Prepaid expenses Assets understated DrAssetsinitially recorded in Expenses overstated CrExpensesexpense accounts
have not been used.
2 Unearned Liabilities and a Unearned revenues Liabilities overstated DrLiabilitiesRevenues Revenues initially recorded in Revenues understated CrRevenues
liability accountshave been earned.
b Unearned revenues Liabilities understated DrRevenuesinitially recorded in Revenues overstated CrLiabilities
revenue accounts
have not been earned.
Type of Account Reason for Account Balances Adjusting
Adjustment Relationship Adjustment before Adjustment Entry
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FORM AND PROCEDUREFOR A WORK SHEET
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PREPARING A WORK SHEET1 PREPARING A TRIAL BALANCE
PIONEER ADVERTISING AGENCY
Work Sheet
For the Month Ended October 31, 200 5Adjusted
Trial Balance Adjustments Trial Balance
Account Titles Dr. Cr. Dr. Cr. Dr. Cr.
Cash
Advertising SuppliesPrepaid Insurance
Office Equipment quipmentNotes Payable
Accounts Payable
Unearned RevenueC.R. Byrd, Capital
C.R. Byrd, Drawing
Service Revenue
Salaries Expense
Rent Expense
Totals
.
0015,2000002,50000006000005,000
5,0002,5001,200
000010,0000000500
10,000
0004,00000009000028,700 28,700
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ADJUSTING ENTRIES JOURNALIZED
GENERAL JOURNALDate Account Titles and Explanation Ref. Debit Credit2005 aOct. 31
b31
c31
d31
e31
f31
g31
Advertising Supplies Expense 1,500
Advertising Supplies 1,500
Insurance Expense 50
Prepaid Insurance 50
Depreciation Expense 40Accumulated Expense 40
Unearned Fees 400
Fees Earned 400
Accounts Receivable 200
Fees Earned 200Interest Expense 50
Interest Payable 50
Salaries Expense 1,200
Salaries Payable 1,200
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PREPARING A WORK SHEET2 ENTER THE ADJUSTMENTS
PIONEER ADVERTISING AGENCY
Work Sheet
For the Month Ended October 31, 2005Adjusted
Trial Balance Adjustments Trial Balance
Account Titles Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200Advertising Supplies 2,500Prepaid Insurance 600Office Equipment 5,000Notes Payable 5,000Accounts Payable 2,500Unearned Revenue 1,200C.R. Byrd, Capital 10,000C.R. Byrd, Drawing 500Service Revenue 10,000
Salaries Expense 4,000Rent Expense 900
Totals 28,700 28,700
Advertising Supplies Expense
Insurance Expense
Accum. DeprOff Equip
Depreciation Expense
Accounts ReceivableInterest Expense
Interest Payable
Salaries PayableTotals 3,440 3,440
a 1,500b 50
d 400
d 400
e 200g 1,200
a 1,500b 50
c 40c 40e 200f 50
f 50g 1,200
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PREPARING A WORK SHEET3 ENTER ADJUSTED BALANCES
PIONEER ADVERTISING AGENCY
Work Sheet
For the Month Ended October 31, 2005
Adjusted
Trial Balance Adjustments Trial Balance
Account Titles Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200 15,2001,000
5505,000
500
5,200900
1,50050
4050
200
5,0002,500
80010,000
10,600
40
501,200
Advertising Supplies 2,500 a1,500Prepaid Insurance 600 b 50Office Equipment 5,000Notes Payable 5,000Accounts Payable 2,500Unearned Revenue 1,200 d 400C.R. Byrd, Capital 10,000C.R. Byrd, Drawing 500Service Revenue 10,000 d 400
e 200Salaries Expense 4,000 g1,200Rent Expense 900
Totals 28,700 28,700
Advertising Supplies Expense a1,500Insurance Expense b 50Accum. DeprOff Equip c 40Depreciation Expense c 40Interest Expense f 50Accounts Receivable e 200
Interest Payable f 50Salaries Payable g1,200
Totals 3,440 3,440 30,190 30,190
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PREPARING A WORK SHEET4 EXTEND ADJUSTED BALANCES
PIONEER ADVERTISING AGENCY
Work Sheet
For the Month Ended October 31, 200 5
Adjusted Income
Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200Advertising Supplies 1,000
Prepaid Insurance 550Office Equipment 5,000Notes Payable 5,000Accounts Payable 2,500
Unearned Revenue 800
C.R. Byrd, Capital 10,000
C.R. Byrd, Drawing 500
Service Revenue 10,600Salaries Expense 5,200
Rent Expense 900
Advertising Supplies Expense 1,500Insurance Expense 50
Accum. Depr. Office Equip. 40
Depreciation Expense 40
Interest Expense 50Accounts Receivable 200
Interest Payable 50Salaries Payable 1,200
Totals 30,190 30,190 7,740 10,600
Net Income 2,860
Totals 10,600 10,600
10,600.05,200.0 0000000
900.000000001,500.000000000
50.0000000
405 50
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PREPARING A WORK SHEET4 EXTEND ADJUSTED
BALANCESPIONEER ADVERTISING AGENCYWork Sheet
For the Month Ended October 31, 2005
Adjusted Income
Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200Advertising Supplies 1,000
Prepaid Insurance 550Office Equipment 5,000
Notes Payable 5,000Accounts Payable 2,500Unearned Revenue 800
C.R. Byrd, Capital 10,000C.R. Byrd, Drawing 500Service Revenue 10,600 10,600Salaries Expense 5,200 5,200RentExpense 900 900
Advertising Supplies Expense 1,500 1,500Insurance Expense 50 50
Accum. Depr. Office Equip. 40Depreciation Expense 40 40Interest Expense 50 50Accounts Receivable 200Interest Payable 50
Salaries Payable 1,200
Totals 30,190 30,190 7,740 10,600 22,450 19,590
Net Income 2,860 2,860
Totals 10,600 10,600 22,450 22,450
15,200
1,0005 5505,000
5,0002,500
80010,000
5500
40
20050
1,200
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PREPARATION OF FINANCIAL STATEMENTSINCOMESTATEMENT
PIONEER ADVERTISING AGENCYIncome Statement
For the Month Ended October 31, 2005
RevenuesService revenue
ExpensesSalaries expenseAdvertising supplies expenseRent expenseInsurance expenseInterest expenseDepreciation expense
Total expensesNet income
The income statement isprepared from the incomestatement columns of the
work sheet.
$10,600
$5,200
1,500
900
50
50
40
7,740$ 2,860
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PREPARATION OF FINANCIAL STATEMENTSOWNERS EQUITY STATEMENT
PIONEER ADVERTISING AGENCYOwners Equity Statement
For the Month Ended October 31, 2005
C.R. Byrd, Capital, October 1Add: Investments
Net income
Less: Drawings
C.R. Byrd, Capital, October 31
The owners equity
statement is prepared fromthe balance sheet columns
of the work sheet.
$ -0-
$10,000
2,860 12,860
12,860500
$12,360
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PREPARATION OF FINANCIAL STATEMENTSBALANCE SHEET
The balance sheet is prepared from thebalance sheet columns of the work sheet.
PIONEER ADVERTISING AGENCY
Balance Sheet
October 31, 2005
Assets Liabilities and Owners Equity
Cash LiabilitiesAccounts receivable Notes payable
Advertising supplies Accounts payable
Prepaid insurance Interest payable
Office equipment Unearned revenue
Less: Accumulated Salaries payable
depreciation Total liabilities
Owners equityC.R. Byrd, Capital
Total liabilities and owners
Total assets equity
$ 15,200
200
1,000
550
$5,000
40 4,960
$21,910
$ 5,000
2,500
50
800
1,200
9,550
12,360
$21,910
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MERCHANDISING COMPANYAmerchandising companybuys and sells goods to earn a
profit.1)Wholesalers sell to retailers2)Retailers sell to consumers
Primary source of revenue is Sales
Expenses for a merchandiserare divided into twocategories:
1. Cost of goods soldThe total cost of merchandise sold during the period
2. Operating expensesExpenses incurred in the process of earning sales revenue(Examples: sales salaries and insurance expense)
Gross profitis equal to Sales Revenue less Cost ofGoods Sold
MEASURING NET INCOME FOR
MERCHANDISING COMPANY
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INCOMEMEASUREMENTPROCESS FOR AMERCHANDISINGCOMPANY
PERPETUAL VS.PERIODIC
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Page 220 General Journal Perpetual vs PeriodicDate Transaction
4 Purchase of merchandise on credit Merchandise Inventory 3,800 Purchase 3,800
Account Payable 3,800 Account Payable 3,800
6 Freight cost on purchases Merchandise Inventory 150 Freight-in 150
Cash 150 Cash 150
8 Purchase returns and allowances Account Payable 300 Account Payable 300
Merchandise Inventory 300 Purchase return and
allowances
300
14 Payment on account with a discount Account Payable 3,500 Account Payable 3,500
Cash 3,430 Cash 3,430
Merchandise Inventory 70 Purchase discount 70
4 Sale of merchandise on credit Account Receivable 3,800 Account Receivable 3,800
Sales Revenue 3,800 Sales Revenue 3,800
Cost of goods sold 2,400
Merchandise Inventory 2,400
8 Return of Merchandise sold Sales Return and allowances 300 Sales Return and allowances 300
Account Receivable 300 Account Receivable 300
Merchandise Inventory 140
Cost of goods sold 14014 Cash 3,430 Cash 3,430
Sales discount 70 Sales discount 70
Account Receivable 3,500 Account Receivable 3,500
Cash received on account with a
discount
No entry for cost of goods sold
No entry
Perpetual Inventory System Periodic Inventory System
General Journal as Buyer
General Journal as Seller
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Determining Cost of Goods Sold
Periodic