Adjusting Entry for accounting

8/11/2019 Adjusting Entry for accounting

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The Inter-relationship between the Income Statement and the Balance Sh

Income Statement The Balance SheetASSETS = LIABILITIES + EQUITY

Revenue

Expenses


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Misc. Confusing Topic1. Sale of property, plant, and equipment versus the sale of inventory.

a. Sold inventory that cost $60 for $100.b. Sold land that cost $800 for $1,000.

60

Balance Sheet Income Statement

Cash Inventory Revenue Cost of goods sold

800

Cash Land Gain on sale (IS)


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The final accounting tool the journal entry

Accounts Debits Credits


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= +

Dr. Cr. Dr. Cr. Dr. Cr.

+ - - + - +

Contributed Capital

Dr. Cr. Dr. Cr.

- + - +

Income

Statement Dr. Cr. Dr.Accounts

- + +

Revenues Ex

Retained Earnings

Assets Liabi li ties Owners' Equity

The Balance Sheet Accounts


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Analyzing Income Statements using Common Size Income StatementsGeo Group Inc. For the Years Ended December 31, Common Size

Income Statement 2005 2004 2003 2005 2004 200

Revenue:

Revenue $ 612,900 $ 593,994 $ 549,238 100% 100% 1

Expenses:

Operating 540,128 495,226 467,018 88.13% 83.37% 85.0

General and administrative 48,958 45,879 39,379 7.99% 7.72% 7.Depreciation and amortization 15,876 13,898 13,341 2.59% 2.34% 2.

Total expenses 604,962 555,003 519,738 98.70% 93.44% 94.

Operating income 7,938 38,991 29,500 1.30% 6.56% 5.

Other (income) expense:

Interest expense, net 23,016 22,138 17,896 3.76% 3.73% 3.Other (income) expense (9,131) (8,541) (61,623) -1.49% -1.44% -11.

13,885 13,597 (43,727) 2.27% 2.29% -7.

Income before tax (5,947) 25,394 73,227 -0.97% 4.28% 13.Income tax (expense) benefit 11,826 (8,231) (36,852) 1.93% -1.39% -6.

Income from continuing operations 5,879 17,163 36,375 0.96% 2.89% 6.

Special items 1,127 (348) 3,644 0.18% -0.06% 0.

Net income (loss) $ 7,006 $ 16,815 $ 40,019 1.14% 2.83% 7.


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Step One: Compute every item on the IS as a percentage of Sales.Step Two: Any percentage that increases (decreases) from the previous year is growing faster (slower) th


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The Accounting Cycle

During the Accounting Year End of the Accounting Year

GeneralJournal

GeneralLedger

Trial Balance AdjustedTrial Balance

FinancialStatements

AdjustingEntries


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Adjusting EntriesAccrual accounting requires adjustments at the end of the reporting period (primarily because ofmatchingand revenue realization).

1. Some items have not been recorded.2. Some items need to be updated.

Objective:To make sure that the proper amount of revenues and expenses have been recognized in the correctaccounting period.

Financial Statements affected1. Balance sheet primarily current asset and current liability accounts2. Income statement primarily revenue and expense accounts


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ExampleJune 1: purchased $500 of office suppliesJune 30: Supplies costing $425 are left at the end of the month.

How does this affect our June Income Statement and the June 30 Balance Sheet?

Balance Sheet Income Statement

(end of June) (for the month of June)

Supplies Supply Expense


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Five types of adjusting entries1. Prepaid items

2. Unearned or deferred revenues

3. Accrued expenses

4. Accrued revenues

5. Estimated items

Three Characteristics of Adjusting Entries

1.

2.

3.

Cash amountpreviously recorded

Cash amount NOTyet recorded

Non-Cash


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Listthe accounts that are likely to need adjustments.

InfoLogix IncBalance Sheet ($ thousands) December 31,

2009 2008 Change

ASSETS

Currents assets:

Cash and cash equivalents $1,018 $3,037Accounts receivables (net of uncollectible accounts) 14,158 22,610

Unbilled revenue 252 1,498Inventory, net 1,089 1,775

Prepaid expenses 674 1,228

Total current assets 17,191 30,148

Property and equipment, net 600 944

Intangible assets, net 7,343 8,709

Goodwill 10,337 10,540

Deferred financing costs 471 501

Total assets $35,942 $50,842


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LIABILITIES AND STOCKHOLDERS EQUITY

Accounts payable $7,591 $11,099

Line of credit 7,559 9,000Current portion of long-term debt 12,417 12,163

Sales tax payable 276 477

Accrued expenses payable 3,183 3,090

Accrued earn out payable 1,958 1,958Deferred revenue 1,690 276

Other liabilities 900

Total current liabilities 34,674 38,963

Long-term debt, net of current maturities 345 4,401

Warrant liabilities 3,467

Total liabilities 38,486 43,364

Stockholders (deficit) equity:

Common stock, issued and outstanding

3,722,156 shares and 1,024,091 shares

Additional paid in capital 38,132 25,766

Accumulated deficit (40,676) (18,288)

Total stockholders (deficit) equity (2,544) 7,478

Total liabilities and stockholders (deficit) equity $35,942 $50,842


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Deferrals: Cash transaction has occurred prior to year-end

1. Prepaid Expenses (allocate expired assets to expense)

January 1: Prepaid one-year rent on equipment, $1,500July1: Accounting year-end

Balance Sheet Asset Accounts Income statement account

Prepaid Expense (BS) Cash Rent ExpenseBB 01/1: 1,500 1/1: 1,500

EB

Jan. 1 Prepaid expense (BS) 1,500Cash 1,500

Adjust. 7/1


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2. Unearned or deferred revenue (allocate earned portion of unearned revenue to revenue)

January 1: Rented a building to a customer, two years in advance, $2,000July 1: Accounting year-end

Balance Sheet Accounts Income statement account

Deferred revenue (BS-liability) Cash Rent Revenue

BB 01/1: 2,000 1/1: 2,000

EB

Jan. 1 Cash 2,000Deferred Revenue (BS) 2,000

Adjust. 7/1


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3. Accrued expense (record expenses to reflect expenses, not paid, but incurred during the year)

Dec. 15 Dec. 31 Jan. 15

Year-end is December 31.

Wages are earned $3,000 a month, but are paid on the 15thof each month. At December 31, $1,500is owed the workers.


Accrued Payable (BS lia.) Cash Wage ExpenseBB 0

EB

12/31 Adjustment:

Jan 15, payment:


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4. Accrued revenue (record revenue to reflect revenue earned but not yet collected)

On November 1, you invested in a $10,000 1-year 6% CD. The accounting year ends on December31.


Accrued revenue (BS-asset) Cash Interest Income (IS)BB 0

EB

12/31 Adjustment:


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InfoLogixDeferrals: Cash transaction has occurred prior to year-end(Cash amount XX unknown, YY expense or revenue unknown)

1.Prepaid Expenses (allocate expired assets to expense)

Balance Sheet Asset Account

Prepaid Expense (BS)BB 1,228

Cash ExpensePaid Recognized

EB 674

Prepay: Prepaid expense (BS) XXCash XX

Adjustment: Expense (IS) YYPrepaid expense (BS) YY


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2. Unearned or deferred revenue (allocate earned portion of unearned revenue to revenue)

Balance Sheet liability Account

Deferred revenue (BS-liability)BB 276

Revenue Cash inRecognized advance

EB 1,690

In advance: Cash XXDeferred Revenue (BS) XX

Adjustment: Deferred Revenue (BS) YYRevenue (IS) YY


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InfoLogixAccruals: Cash transaction has not yet occurred prior to year-end

3.Accrued Expenses (record expenses to reflect expenses, not paid, but incurred during the year)

As of December 31, incurred $3,183 of expenses not yet paid.

Balance Sheet Liability Account

Accrued Expense Payable (BS)BB 3,090Expense recognized

Cash paid before cash paid

EB 3,183

12/31 Adjustment: Expense (IS) YYAccrued expense payable (BS) YY

Payments during yr: Accrued expense payable (BS) XXCash XX


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4. Accrued revenue (record revenue to reflect revenue earned but not yet collected)

Balance Sheet Asset Accounts

Unbilled revenue (BS-asset)BB 1,498

Revenue earned Cashnot collected collected .

EB 252

12/31 Adjustment: Unbilled Revenue (BS) YYRevenue (IS) YY

Collections during yr: Cash (BS) XXUnbilled Revenue (BS) XX


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The Impact of revenues on the financial statements:

Debit CreditCash (BS) XXXReceivable (BS) XXX

Unearned Revenue (BS-CL) XXXRevenue on IS XXX

Revenues result in a:Credit to the ISDebit to the BS


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Expenses: The Relationship between the Income Statement and the Balance Sheet Accounts

$XXX

$XXX

$XXX

$XXXCash Paid in:

Current period

Prior period (prepaid item)

Future period (paid in the future)

Prepaid item

Accrued Payable

Income Statement

Expense (is recognized)

Balance Sheet

Current Assets Current Liabilities

Cash

1

2

3

1

2

3


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The impact of expenses on the financial statements

Debit CreditExpense (IS) XXX

Cash (BS) XXX

Prepaid item (BS) XXXAccrued payable (BS-CL) XXX

Expenses result in a:Debit to the ISCredit to the BS

Documents

Adjusting Entry for accounting