Chapter 3-1
Chapter 3-2
CHAPTER CHAPTER 33
ADJUSTING THE ADJUSTING THE ACCOUNTSACCOUNTS
Accounting Principles, Eighth Edition
Chapter 3-3
Generally a month, a quarter, or a year.Fiscal year vs. calendar yearAlso known as the “Periodicity Assumption”
Timing IssuesTiming IssuesTiming IssuesTiming Issues
Accountants divide the economic life of a business into artificial time periods (Time Period Assumption).
LO 1 Explain the time period assumption.LO 1 Explain the time period assumption.
Jan. Feb. Mar. Apr. Dec.. . . . .
Chapter 3-4
The time period assumption states that:The time period assumption states that:a.a. revenue should be recognized in the accounting
period in which it is earned.
b. expenses should be matched with revenues.
c. the economic life of a business can be divided into artificial time periods.
d. the fiscal year should correspond with the calendar year.
ReviewReview
Timing IssuesTiming IssuesTiming IssuesTiming Issues
LO 1 Explain the time period assumption.LO 1 Explain the time period assumption.
Chapter 3-5
Accrual-Basis Accounting
Transactions recorded in the periods in which the events occur
Revenues are recognized when earned, rather than when cash is received.
Expenses are recognized when incurred, rather than when paid.
Timing IssuesTiming IssuesTiming IssuesTiming Issues
Accrual- vs. Cash-Basis Accounting
LO 2 Explain the accrual basis of accounting.LO 2 Explain the accrual basis of accounting.
Chapter 3-6
Cash-Basis Accounting
Revenues are recognized when cash is received.
Expenses are recognized when cash is paid.
Cash-basis accounting is not in accordance with generally accepted accounting principles (GAAP).
Timing IssuesTiming IssuesTiming IssuesTiming Issues
Accrual- vs. Cash-Basis Accounting
LO 2 Explain the accrual basis of accounting.LO 2 Explain the accrual basis of accounting.
Chapter 3-7
Revenue Recognition Principle
Timing IssuesTiming IssuesTiming IssuesTiming Issues
Recognizing Revenues and Expenses
LO 2 Explain the accrual basis of accounting.LO 2 Explain the accrual basis of accounting.
Companies recognize revenue in the accounting period in which it is earned.
In a service enterprise, revenue is considered to be earned at the time the service is performed.
Chapter 3-8
Matching Principle
Timing IssuesTiming IssuesTiming IssuesTiming Issues
Recognizing Revenues and Expenses
LO 2 Explain the accrual basis of accounting.LO 2 Explain the accrual basis of accounting.
Match expenses with revenues in the period when the company makes efforts to generate those revenues.
“Let the expenses follow the revenues.”
Chapter 3-9
Timing IssuesTiming IssuesTiming IssuesTiming Issues
LO 2 Explain the accrual basis of accounting.LO 2 Explain the accrual basis of accounting.
GAAP relationships in revenue and expense recognition
GAAP relationships in revenue and expense recognition
Illustration 3-1Illustration 3-1
Chapter 3-10
One of the following statements about the accrual basis of accounting is false. That statement is:
a. Events that change a company’s financial statements are recorded in the periods in which the events occur.
b. Revenue is recognized in the period in which it is earned.
c. This basis is in accord with generally accepted accounting principles.
d. Revenue is recorded only when cash is received, and expense is recorded only when cash is paid.
ReviewReview
Timing IssuesTiming IssuesTiming IssuesTiming Issues
LO 2 Explain the accrual basis of accounting.LO 2 Explain the accrual basis of accounting.
Chapter 3-11
Adjusting entries make it possible to report correct amounts on the balance sheet and on the income statement.
A company must make adjusting entries every time it prepares financial statements.
The Basics of Adjusting EntriesThe Basics of Adjusting EntriesThe Basics of Adjusting EntriesThe Basics of Adjusting Entries
LO 3 Explain the reasons for adjusting entries.LO 3 Explain the reasons for adjusting entries.
Chapter 3-12
RevenuesRevenues - recorded in the period in which - recorded in the period in which they are earnedthey are earned.
Expenses Expenses - recognized in the period in which - recognized in the period in which they are incurredthey are incurred.
Adjusting entriesAdjusting entries - needed to ensure that - needed to ensure that the the revenue recognitionrevenue recognition and and matching matching principlesprinciples are followed. are followed.
The Basics of Adjusting EntriesThe Basics of Adjusting EntriesThe Basics of Adjusting EntriesThe Basics of Adjusting Entries
LO 3 Explain the reasons for adjusting entries.LO 3 Explain the reasons for adjusting entries.
Chapter 3-13
Adjusting entries are made to ensure that:a. expenses are recognized in the period in which
they are incurred.b. revenues are recorded in the period in which
they are earned.c. balance sheet and income statement accounts
have correct balances at the end of an accounting period.
d. all of the above.
ReviewReview
Timing IssuesTiming IssuesTiming IssuesTiming Issues
LO 3 Explain the reasons for adjusting entries.LO 3 Explain the reasons for adjusting entries.
Chapter 3-14
Types of Adjusting EntriesTypes of Adjusting EntriesTypes of Adjusting EntriesTypes of Adjusting Entries
1. Prepaid Expenses. Expenses paid in cash and recorded as assets before they are used or consumed.
Deferrals3. 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 4 Identify the major types of adjusting entries.LO 4 Identify the major types of adjusting entries.
Chapter 3-15
Trial BalanceTrial Balance – Each account is analyzed to determine whether it is complete and up-to-date.
Phoenix Consulting - Jan. 31st (before adjusting entries)Acct. No. Account Debit Credit
100 Cash 50,000$ 105 Accounts receivable 35,000 110 Prepaid insurance 12,000 120 Equipment 24,000 130 Investments 300,000 200 Accounts payable 20,000$ 210 Unearned revenue 24,000 220 Note payable 200,000 300 Austin, capital 40,000 400 Sales 137,000
421,000$ 421,000$
Trial BalanceTrial BalanceTrial BalanceTrial Balance
LO 4 Identify the major types of adjusting entries.LO 4 Identify the major types of adjusting entries.
Chapter 3-16
Deferrals are either:
Prepaid expenses or
Unearned revenues.
Adjusting Entries for DeferralsAdjusting Entries for DeferralsAdjusting Entries for DeferralsAdjusting Entries for Deferrals
LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.
Chapter 3-17
Payment of cash, that is recorded as an asset because Payment of cash, that is recorded as an asset because service or benefit will be received in the future. service or benefit will be received in the future.
Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”
insuranceinsurancesuppliessuppliesadvertisingadvertising
Cash PaymentCash Payment Expense RecordedExpense RecordedBEFORE
LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.
rentrentmaintenance on equipmentmaintenance on equipmentfixed assets (depreciation)fixed assets (depreciation)
Prepayments often occur in regard to:Prepayments often occur in regard to:
Chapter 3-18
Prepaid Expenses
Costs that expire either with the passage of time or through use.
Adjusting entries (1) to record the expenses that apply to the current accounting period, and (2) to show the unexpired costs in the asset accounts.
Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”
LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.
Chapter 3-19
Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”
LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.
Illustration 3-4Adjusting entries for prepaid expenses
Increases (debits) an expense account and
Decreases (credits) an asset account.
Chapter 3-20
Example Example (Insurance)(Insurance):: On Jan. 1On Jan. 1stst, Phoenix Consulting paid , Phoenix Consulting paid $12,000 for 12 months of insurance coverage. Show the $12,000 for 12 months of insurance coverage. Show the journal entry to record the payment on Jan. 1journal entry to record the payment on Jan. 1stst. .
Cash 12,000Prepaid insurance 12,000Jan. 1
Debit CreditPrepaid Insurance
12,00012,000 12,00012,000
Debit CreditCash
Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”
LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.
Chapter 3-21
Example Example (Insurance)(Insurance):: On Jan. 1On Jan. 1stst, Phoenix Consulting paid , Phoenix Consulting paid $12,000 for 12 months of insurance coverage. Show the $12,000 for 12 months of insurance coverage. Show the adjusting journal entryadjusting journal entry required at Jan. 31 required at Jan. 31stst. .
Prepaid insurance 1,000Insurance expense 1,000Jan. 31
Debit CreditPrepaid Insurance
12,00012,000 1,0001,000
Debit CreditInsurance expense
1,0001,000
11,00011,000
Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”
LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.
Chapter 3-22
DepreciationBuildings, equipment, and vehicles (long-lived assets) are recorded as assets, rather than an expense, in the year acquired.
Companies report a portion of the cost of a long-lived asset as an expense (depreciation) during each period of the asset’s useful life (Matching Principle).
Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”
LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.
Chapter 3-23
Example Example (Depreciation)(Depreciation):: On Jan. 1On Jan. 1stst, Phoenix Consulting , Phoenix Consulting paid $24,000 for equipment that has an estimated useful paid $24,000 for equipment that has an estimated useful life of 20 years. Show the journal entry to record the life of 20 years. Show the journal entry to record the purchase of the equipment on Jan. 1purchase of the equipment on Jan. 1stst. .
Cash 24,000Equipment 24,000Jan. 1
Debit CreditEquipment
24,00024,000 24,00024,000
Debit CreditCash
Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”
LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.
Chapter 3-24
Example Example (Depreciation)(Depreciation):: On Jan. 1On Jan. 1stst, Phoenix Consulting , Phoenix Consulting paid $24,000 for equipment that has an estimated useful paid $24,000 for equipment that has an estimated useful life of 20 years. Show the life of 20 years. Show the adjusting journal entryadjusting journal entry required required at Jan. 31at Jan. 31stst. . ($24,000 / 20 yrs. / 12 months = $100)($24,000 / 20 yrs. / 12 months = $100)
Accumulated depreciation 100Depreciation expense 100Jan. 31
Debit CreditDepreciation expense
100100 100100
Debit CreditAccumulated depreciation
100100
Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”
LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.
Chapter 3-25
Depreciation (Statement Presentation)Accumulated Depreciation—is a contra asset account.
Appears just after the account it offsets (Equipment) on the balance sheet.
Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”
LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.
Balance Sheet Jan. 31Assets
Equipment 24,000 Accumulated Depreciation (100) Net Equipment 23,900
Chapter 3-26
Receipt of cash that is recorded as a liability because Receipt of cash that is recorded as a liability because the revenue has not been earned.the revenue has not been earned.
Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”
rentrentairline ticketsairline ticketsschool tuitionschool tuition
Cash ReceiptCash Receipt Revenue RecordedRevenue RecordedBEFORE
magazine subscriptionsmagazine subscriptionscustomer depositscustomer deposits
Unearned revenues often occur in regard to:Unearned revenues often occur in regard to:
LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.
Chapter 3-27
Unearned Revenues
Company makes an adjusting entry to record the revenue that has been earned and to show the liability that remains.
The adjusting entry for unearned revenues results in a decrease (a debit) to a liability account and an increase (a credit) to a revenue account.
LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.
Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”
Chapter 3-28 LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.
Illustration 3-10Adjusting entries for unearned revenues
Decrease (a debit) to a liability account and
Increase (a credit) to a revenue account.
Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”
Chapter 3-29
Example:Example: On Jan. 1On Jan. 1stst, Phoenix Consulting received $24,000 , Phoenix Consulting received $24,000 from Arcadia High School for 3 months rent in advance. from Arcadia High School for 3 months rent in advance. Show the journal entry to record the receipt on Jan. 1Show the journal entry to record the receipt on Jan. 1stst. .
Unearned rent revenue 24,000Cash 24,000Jan. 1
Debit CreditCash
24,00024,000 24,00024,000
Debit CreditUnearned Rent Revenue
Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”
LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.
Chapter 3-30
Example:Example: On Jan. 1On Jan. 1stst, Phoenix Consulting received $24,000 , Phoenix Consulting received $24,000 from Arcadia High School for 3 months rent in advance. from Arcadia High School for 3 months rent in advance. Show the Show the adjusting journal entryadjusting journal entry required on Jan. 31 required on Jan. 31stst. .
Rent revenue 8,000Unearned rent revenue 8,000Jan. 31
Debit CreditRent Revenue
8,0008,000 24,00024,000
Debit CreditUnearned Rent Revenue
8,0008,000
16,00016,000
Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”
LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.
Chapter 3-31
Made to record:
Revenues earned and
Expenses incurred
in the current accounting period that have not been recognized through daily entries.
Adjusting Entries for AccrualsAdjusting Entries for AccrualsAdjusting Entries for AccrualsAdjusting Entries for Accruals
LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.
Chapter 3-32
Revenues earned but not yet received in cash or Revenues earned but not yet received in cash or recorded.recorded.
Adjusting Entries for “Accrued Revenues”Adjusting Entries for “Accrued Revenues”Adjusting Entries for “Accrued Revenues”Adjusting Entries for “Accrued Revenues”
rentrentinterestinterestservices performedservices performed
BEFORE
Accrued revenues often occur in regard to:Accrued revenues often occur in regard to:
Cash ReceiptCash ReceiptRevenue RecordedRevenue Recorded
Adjusting entry results in:Adjusting entry results in:
LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.
Chapter 3-33
Accrued Revenues
An adjusting entry serves two purposes:
(1) It shows the receivable that exists, and
(2) It records the revenues earned.
Adjusting Entries for “Accrued Revenues”Adjusting Entries for “Accrued Revenues”Adjusting Entries for “Accrued Revenues”Adjusting Entries for “Accrued Revenues”
LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.
Chapter 3-34
Illustration 3-13Adjusting entries for accrued revenues
Increases (debits) an asset account and
Increases (credits) a revenue account.
LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.
Adjusting Entries for “Accrued Revenues”Adjusting Entries for “Accrued Revenues”Adjusting Entries for “Accrued Revenues”Adjusting Entries for “Accrued Revenues”
Chapter 3-35
Example:Example: On Jan. 1On Jan. 1stst, Phoenix Consulting invested , Phoenix Consulting invested $300,000 in securities that return 5% interest per year. $300,000 in securities that return 5% interest per year. Show the journal entry to record the investment on Jan. 1Show the journal entry to record the investment on Jan. 1stst. .
Cash 300,000Investments 300,00
0Jan. 1
LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.
Debit CreditInvestments
300,000300,000 300,000300,000
Debit CreditCash
Adjusting Entries for “Accrued Revenues”Adjusting Entries for “Accrued Revenues”Adjusting Entries for “Accrued Revenues”Adjusting Entries for “Accrued Revenues”
Chapter 3-36
Example:Example: On Jan. 1On Jan. 1stst, Phoenix Consulting invested , Phoenix Consulting invested $300,000 in securities that return 5% interest per year. $300,000 in securities that return 5% interest per year. Show the Show the adjusting journal entryadjusting journal entry required on Jan. 31 required on Jan. 31stst. . ($300,000 x 5% / 12 months = $1,250)($300,000 x 5% / 12 months = $1,250)
Interest revenue 1,250Interest receivable 1,250Jan. 31
Debit CreditInterest Receivable
1,2501,250 1,2501,250
Debit CreditInterest Revenue
Adjusting Entries for “Accrued Revenues”Adjusting Entries for “Accrued Revenues”Adjusting Entries for “Accrued Revenues”Adjusting Entries for “Accrued Revenues”
LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.
Chapter 3-37
Expenses incurred but not yet paid in cash or Expenses incurred but not yet paid in cash or recorded.recorded.
Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”
rentrentinterestinterest
BEFORE
Accrued expenses often occur in regard to:Accrued expenses often occur in regard to:
Cash PaymentCash PaymentExpense RecordedExpense Recorded
taxestaxessalariessalaries
Adjusting entry results in:Adjusting entry results in:
LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.
Chapter 3-38
Accrued Expenses
An adjusting entry serves two purposes:
(1) It records the obligations, and
(2) It recognizes the expenses.
Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”
LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.
Chapter 3-39
Illustration 3-16Adjusting entries for accrued expenses
Increases (debits) an expense account and
Increases (credits) a liability account.
LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.
Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”
Chapter 3-40
Notes payable 200,000Cash 200,00
0Jan. 2
Debit CreditCash
200,000200,000 200,000200,000
Debit CreditNotes Payable
Example:Example: On Jan. 2On Jan. 2ndnd, Phoenix Consulting borrowed $200,000 , Phoenix Consulting borrowed $200,000 at a rate of 9% per year. Interest is due on first of each at a rate of 9% per year. Interest is due on first of each month. Show the journal entry to record the borrowing on Jan. month. Show the journal entry to record the borrowing on Jan. 22ndnd..
Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”
LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.
Chapter 3-41
Example:Example: On Jan. 2On Jan. 2ndnd, Phoenix Consulting borrowed $200,000 , Phoenix Consulting borrowed $200,000 at a rate of 9% per year. Interest is due on first of each at a rate of 9% per year. Interest is due on first of each month. Show the month. Show the adjusting journal entryadjusting journal entry required on Jan. 31 required on Jan. 31stst. . ($200,000 x 9% / 12 months = $1,500)($200,000 x 9% / 12 months = $1,500)
Interest payable 1,500Interest expense 1,500Jan. 31
Debit CreditInterest Expense
1,5001,500 1,5001,500
Debit CreditInterest Payable
Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”
LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.
Chapter 3-42
Accrued Expenses
An adjusting entry serves two purposes:
(1) It records the obligations, and
(2) it recognizes the expenses.
Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”
LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.
Chapter 3-43
After all adjusting entries are journalized and posted the company prepares another trial balance from the ledger accounts (Adjusted Trial Balance).
Its purpose is to prove the equality of debit balances and credit balances in the ledger.
The Adjusted Trial BalanceThe Adjusted Trial BalanceThe Adjusted Trial BalanceThe Adjusted Trial Balance
LO 7 LO 7 Describe the nature and purpose of an adjusted trial balance.Describe the nature and purpose of an adjusted trial balance.
Chapter 3-44
Which of the following statements is incorrect concerning the adjusted trial balance?
a. An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made.
b. The adjusted trial balance provides the primary basis for the preparation of financial statements.
c. The adjusted trial balance lists the account balances segregated by assets and liabilities.
d. The adjusted trial balance is prepared after the adjusting entries have been journalized and posted.
ReviewReview
Timing IssuesTiming IssuesTiming IssuesTiming Issues
LO 7 LO 7 Describe the nature and purpose of an adjusted trial balance.Describe the nature and purpose of an adjusted trial balance.
Chapter 3-45
Financial Statements are prepared directly from the Adjusted Trial Balance. Financial Statements are prepared directly from the Adjusted Trial Balance.
Balance Sheet
Income Statement
Statement of Cash Flows
Statement of
Retained Earnings
Preparing Financial StatementsPreparing Financial StatementsPreparing Financial StatementsPreparing Financial Statements
LO 7 LO 7 Describe the nature and purpose of an adjusted trial balance.Describe the nature and purpose of an adjusted trial balance.
Chapter 3-46
Income StatementFor the Month Ended Jan. 31,Revenues:
Sales 137,000$ Interest revenue 1,250 Rent revenue 8,000
Total revenue 146,250 Expenses:
Interest expense 1,500 Depreciation expense 100 Insurance expense 1,000
Total expenses 2,600 Net income 143,650$
Income Statement
Preparing Financial StatementsPreparing Financial StatementsPreparing Financial StatementsPreparing Financial Statements
LO 7 LO 7 Describe the nature and purpose of an adjusted trial balance.Describe the nature and purpose of an adjusted trial balance.
Adjusted Trial Balance Debit CreditCash 50,000$ Accounts receivable 35,000 Interest receivable 1,250 Prepaid insurance 11,000 Equipment 24,000 Accumulated depreciation 100$ Investments 300,000 Accounts payable 20,000 Interest payable 1,500 Unearned revenue 16,000 Note payable 200,000 Austin, capital 40,000 Sales 137,000 Interest revenue 1,250 Rent revenue 8,000 Interest expense 1,500 Depreciation expense 100 Insurance expense 1,000
423,850$ 423,850$
Chapter 3-47
Statement of Owners' EquityFor the Month Ended Jan. 31,
Austin, Capital, Jan. 1 40,000$ + Net income 143,650 - Drawings 0Austin, Capital, Jan. 31 183,650$
Statement of Owners’ Equity
Preparing Financial StatementsPreparing Financial StatementsPreparing Financial StatementsPreparing Financial Statements
LO 7 LO 7 Describe the nature and purpose of an adjusted trial balance.Describe the nature and purpose of an adjusted trial balance.
Adjusted Trial Balance Debit CreditCash 50,000$ Accounts receivable 35,000 Interest receivable 1,250 Prepaid insurance 11,000 Equipment 24,000 Accumulated depreciation 100$ Investments 300,000 Accounts payable 20,000 Interest payable 1,500 Unearned revenue 16,000 Note payable 200,000 Austin, capital 40,000 Sales 137,000 Interest revenue 1,250 Rent revenue 8,000 Interest expense 1,500 Depreciation expense 100 Insurance expense 1,000
423,850$ 423,850$
Chapter 3-48
Adjusted Trial Balance Debit CreditCash 50,000$ Accounts receivable 35,000 Interest receivable 1,250 Prepaid insurance 11,000 Equipment 24,000 Accumulated depreciation 100$ Investments 300,000 Accounts payable 20,000 Interest payable 1,500 Unearned revenue 16,000 Note payable 200,000 Austin, capital 40,000 Sales 137,000 Interest revenue 1,250 Rent revenue 8,000 Interest expense 1,500 Depreciation expense 100 Insurance expense 1,000
423,850$ 423,850$
Balance Sheet Jan. 31Assets
Cash 50,000$ Accounts receivable 35,000 Interest receivable 1,250 Prepaid insurance 11,000 Equipment 24,000 Accum. Depreciation (100) Investments 300,000
Total assets 421,150$ Liabilities & Owners' Equity
Accounts payable 20,000$ Interst payable 1,500 Unearned revenue 16,000 Note payable 200,000 Austin, capital 183,650
Total liab. & equity 421,150$
Preparing Financial StatementsPreparing Financial StatementsPreparing Financial StatementsPreparing Financial Statements
LO 7 LO 7 Describe the nature and purpose of an adjusted trial balance.Describe the nature and purpose of an adjusted trial balance.