First Exam ACCT 2110

The chronological order record of transactions

General journal

Post to a ledger

Journalize things into general journal

what happens to the accounting equation when the adjustment is recorded to recognize earned revenue previously recorded as unearned revenue

Liabilities decreases, SE increase

steps 1-7

1.starts with balance sheet- snapshot of assets and liabilities Jan 1, 2015 2.middle with period of time statements Income state, statements of retained earnings cashflow statement 3.ends with balance sheet Dec 31, 2015

C. service revenue of 4900 was earned in Dec but unbilled+ unpaid as of year end

12/31 account receivable D (4900) service revenue C (4900)

B) owed wages to employees of 3250 that were earned in december but unrecorded and unpaid of the end of the year

12/31 wages expense D (3250) wages payable C (3250)

A) electricity used during December was estimated at $320. this amount will be paid in January

12/31 debit makes expenses go up utilities expense D (320) utilities payable C (320)

how much in accrued expenses should plains report as of 2/28/14

2/28 electricity $500 3/25 water $750 3/2 telephone $375 you add all of them to have accrued expenses that should be reported as of 02/28/14, because you take the expense

statement effects of adjusting entries

???

issuing common stock to investors

A=Liabilities + SE assets and contributed capital increase contributed capital is SE

Petty cash

Accounting for petty cash; when you use yo petty cash; need to go back And re establish funds

types of adjusting entries

Accruals -accrued revenue; previously unrecorded revenue that have been earned but for which no cash has yet been received -accrued expenses: previously unrecorded expenses that have been incurred but not yet paid in cash

revenue recognition principle

determined when revenue is recorded and reported under the pricinple, revenue is recognized, or recorded, in the period in which both of the following conditions are met; -the revenue has been earned -the collection of cash is reasonably assured if your a hairdresser you earn revenue when your done with the haircut if you earned the money then it counts as revenues, i.e. when you finished cutting the hair, or when you finished the tax return

segregation of duties

don't have people doing all the same things, because then they can control and cover up shit when they steal money

payable with ___________ receivable goes with__________

expense, revenue

service charge

fees charged by the bank for checking account service

under accrual accounting, expenses are recognized

following the expense recognition (matching) principle, which requires that expenses be recorded and reported in the same period as the revenue that it helped generate

paying salaries for employees

assets and RE go down

providing services to customers for cash

assets and RE go up, same as if we did a service for credit

accumulated depreciation goes against asset, (opposed assets)

assets are Debit, if it opposes then it is Credit accumulated depreciation, as the negative number grows then the account has a regular credit balance

post closing trial balance

assets, liabilities, SE, proves that assets are equal to the rest

deferrals, prepayments

cash exchange happens before revenue/ expenses s recognized, prepaid i.e. buying insurance that begins later in the year unearned get paid to cut lawns before we cut lawns

accounting and reporting cash

cash is reported on both balances sheet and the statement of cash flows cash equivalents, include all liquid investments with an original maturity of 3 months or less at date of inception

deferred (unearned) revenue (continued)

cash out ahead of time is always an expense cash in ahead of time is always a revenue

deferral adjustments

cash transaction happens, but it's not time to recognize revenue or expense, every adjustment will involve a revenue or expense

NSF non sufficient funds,

check that has been returned to the depositor

steps for closing entries

close revenues and expenses, close in income summary -because revenue and expenses related to period of time between period of time you must reset revenue and expenses before accounting period ends -temporary accounts (revenue, expense, dividend acct, income summary) ^^^^goes zero at end of acting period -real acct balances, don't change, liabilities, SE accts

C) collected $1200 of rent for the period dec 1, 2013 to march 30, 201. the amount was credited to unearned service revenue when recorded

dec 31st is when we earned the 1 month of rent $300 adjustment for dec 31st unearned revenue D300 rent revenue C300 $900 lef tin liability account left for the last months of rent

deferred expenses

decreasing assets, and recording an expense when we use it up expense paid in cash, record as assets until used/consumed Prepaid insurance $1200 cash $1200 they expire over time rent, insurance, or are consumed (supplies) adjusting entry insurance expenses D$600 prepaid insurance C$600

deposits in transit

deposits that are in limbo before bank gets it

closing entries close revenues, but if it has a credit balance, then you have to debit the acct, so you debit the temp acct called income summary

income summary acct ___________________________________ 1,485,000 2,174,000 _________________________________ 689,000 this goes into retained earnings beginning retained earnings + dividends - expenses credit dividends and debit retained earnigns, the only changes to retained earnings are these entries

accrued revenue -revenue earned but not yet received in cash or recorded -adjusting entry results in a debit to an asset account and credit to a revenue account accounts receivable D$2000 service revenue C$2000

increasing asset, increasing revenue will make income go up on income statement make assets go up on balance sheet retained earnings goes up balance sheet, assets go up in the form of account recievable

sarbanes-oxely act (2002)

legislation that stressed the fact internal controls are important, and responsibility of internal controls relies on management, and they have to certify that

a debit memo

might result if the bank makes

summary of the accounting cycle

period of time you want to produce financial statements,

control activities

policies and procedures top management establishes to help insure that its objectives are met

B)paid 2400 for a 2 year insurance policy on 7/1/13 the amount was debited to prepaid insurance when it war paid 12/31/13 Insurance expense $600 prepaid insurance $600

prepaid insurance 2400 600 1800

deferred expense- depreciation allocating cost of an asset to expenses over its useful life

purchase of long lived asset -property plant 100,000 (equipment) - cash 100,000 adjusting entry _________________D_____C__ -depreciation 10,000 expenses -accumulated depreciation 10,000 balance sheet presentation property plant equip $100,000 less; accumulated depreciation (20,000) ____________________________ =book value of assets 80,000

accruals need to happen at end of acctting period

recognizing revenue or expense and acknowledging that we have a revenue or expense and we have to pay for it later

checks on recorded amounts

recorded amounts should be checked by an independent person to determine that amounts are correct and that they correspond to properly authorized activities

safeguarding assets

requires physical protection of the assets through, for example, fireproof vaults, locked storage facilities, keycard access, and antitheft tags on merchandise

adjusting accounts

results of timing differences between when an expense or revenue is recognized can cash is received or paid all adjusting entries will affect at least one income -not that cash is never affected by adjustment

revenue has credit balance when it is related to

retained earnings

ivy publishing has the following info what is the effect of closing entries on R/E

revenue 275,000 expenses 162,000 dividends 50,000 113 050 63,000

accrual introduction

revenue/expense recognition before $$$ is exchanged -2categories -accrued revenue, collect revenue in cash later -accrued expense, you use something up but you haven't paid for it adjusting accruals

deferred (unearned revenue

revenues are received in cash recorded as liabilities until earned cash $2000 unearned revenue $2000 unearned revenue is a liability and it goes on balance statement adjusting entry unearned revenue $2000 revenue $2000

ex of accrued expense

salarries expense D (2500) salaries payable C (2500)

purchasing insurance

same as a building, just trading one kind of capital for another

revenue 589,900 expenses cost of good sold 277,000 wages expense 98,250 rent expense 50,000 depreciation expense 29,000 interest expense 2,700 income expense 39,095

statement of retained earnings beginning retained earnings balance, 45,635 add net income 88,865 deduct dividends 50,000 ending retained earnings 139500

risk assessment

strategic risk, possible threats to organization success business process risk, arise out of the internal processes of the company

On jan 1st office supplies totaled 1800 dollars. in the past 6 months, an additional 2700 in supplies were purchased, and a count revealed 2150 or supplies still on hand at june 30/2012. what is the amount of adjusting entry needed to record supplies expense for jan 1 - june 30?

supplies account (asset) so debit balance _____________________________________ beg balance (1800) +purchases(2700) =4500 used supplies (adj) ____2350 supplies expense_______ amt on hand (2150)

expense recognition rule expense recognition (or matching) principle

the process of identifying an expense with a particular time period

internal controls

the system of policies and procedures that a company puts in place to provide reasonable assurance that -operations are effective and efficient -compliance with laws and reg -financial reporting is reliable

clearly defined authority and responsibility

then you can hold someone accountable,

purchasing a building with cash

two assets are effected but no net effect, just rating cash for a different asset

6 months of interest of 8% on the note, payed dec 31st N/P 50,000 8% interest recognizing interest expense and interest payable 50,000 x 0.08 x 3/12 of year = $1000

wages payable _______________ C 3450 interest expense __________________ 4500 D 1000 income tax expense __________________ D 55,539 income tax payable ________________ C 55, 539

accrual vs. cash basis of acountancy

-cash basis accounting, revenues is recorded when cash is received, regardless tf when it is actually earned, (CHRONOLOGICAL ORDER) cash in -revenue cash out- expense )this isn't correct, it's a skewed view -accrued basis- (also called accrual accounting) is an alternative to cash-basis accounting that is required by general accepted accounting principles ACCRUAL ACCOUNTING is superior to cash-basis because it links income measurement to selling, the principle activity of the company

accrual basis overciew

-follows revenue recognition and matching principles -transaction are recorded in the time period of invents -GAAP requires accrual basis -makes financial statement more useful -requires adjusting entries

what isn't true of the sarbanes-oxley act D. is wrong

-it requires internal report -did it com about after failures in reporting -does it require that someone audit internal control D. it sought to restore managements confidence over financial reporting

step 7 closing accounts

-permanent (real) accounts- balances need to be carried forward into future accounting periods -temporary (nominal) accounts- those related only to a given time period -close the balances of the temporary accounts to retained earnings -transfer net income or loss and dividends to retained earnings -produce a zero balance in temporary accounts

Cash basis overview

-revenue is recorded when cash is received -expenses recognized when cash is paid Net income is easier to manipulate departure from GAAP because it violates the revenue recognition and matching principle

internal controls, why do we have them

-safeguard assets -accurate information -compliance with las and regulation

reconciliation or accountingg records to bank statement

-the use of a bank is one of the most important controls over cash -since the bank's accounting records and companies accounting records often disagree due to timing differences,

other type

Deferrals unearned revenues: liabilities arising from the receipt of cash for which revenue has not yet been earned prepaid expenses:: assets arising from the payment of cash which have not been used or consumed by the end of the period

List of active accounts and their balances at a particular date, used to prove equality

Trial balance

outstanding check

a check you wrote, but hasn't been presented to bank

exercise 3-32 adjusting entries- deferrals tindel company had the following items that required adjustment a) purchased equip in Jan 1, for $40,000. estimated depreciation for the year was $3100

a) depreciation expense 3,100 accumulated depreciation 3100 Jan 1st equip 40,000 minus _____________________ 40,000 Dec 31st equip 40,000 less a/d 3100 ____________________

know the kinds of things you adjust bank for,

and kinds of things you adjust for

relationship between control activities and accounting systems

accounting system consists of the methods and records used to identify, measure

ex of accrued revenues

accounts receivable D (2000) service revenue C (2000)

the key idea is that

an expense is recorded when it is incurred, regardless of when cash is paid

face x rate x time (%year) percent of the year, 8,9,10,11,12 5/12 x 100 equals = percent of year

beckham is going to be paid over the course of 9% note from customer, for a sale of 100,000 on 7/1/13. the note is due march 31,2014 if beck hams accounting period end on dec 31st 2013 how much interest revenue should beckham recognize in 2013? 2014? 100,000 x 9% x (percent of year interest receivable (D)4500 interest receivable (c) 4500 ^^^^^^ in 2013 $2250 in 2014

accruals , adjusting entrees always increase

both a balance sheet and income statement account

cash _____________ 3100 A/R ______________ 15900 supplies ______________ 4200 prepaid rent _____________ 9500 equip ____________ 625,000 accum dep ____________ 104,000 other assets ____________ 60,900 A/P ______________ 9400 Unearned service revenue ___________________ C 11,200 N/P ________________ C 50,000 C/s __________________ C 279,500 R/E ______________ C 37000 service revenue __________________ C 598,000 Wages expenses _________________ 137,000 Rent expense _________________ 229,000 interest expense _______________ 4500

cash _____________ 3100 A/R ______________ 15900 we have $650 of supplies onhand supplies credit supplies, debit supplies expenses, because we're using up an asset. ______________ 4200 C 3550* 650 supplies expense ___________________ D 3550* prepaid rent act has 9500, but it should be 2300, credit prepaid rent prepaid rent _____________ D 9500 C 7200 = 2300 equip ____________ 625,000 depreciation expense 35250, debit to dep expense, credit to accum dep accum dep (contra asset) ____________ C 104,000 summ total of all depreciation expense C 35259 = C 139,250 Depreciation expense ___________________ D 35250 other assets ____________ 60,900 A/P ______________ 9400 should be 3120, real amt of UR must debit (decreases UES R acct) Unearned service revenue ___________________ C 11,200 D 8,080 3120 swapped something from being a liabilities to revenue N/P ________________ C 50,000 C/s __________________ C 279,500 R/E ______________ C 37000 service revenue __________________ C 598,000 C 8,080 Wages expenses _________________ 137,000 Rent expense _________________ 229,000 D 7200 interest expense _______________ 4500

financial statement service revenue 606,080 rent expenses 236,200 wages expenses 134,050 supplies 35,05 interest expense 5500 income tax 55539 rent expense 236,200 revenue minus expenses = net income statement of retained earnings 37,000 to 166,591 made 129,591 ending RE of one period becomes beginning RE for next period

cash acct 3100 acts receivable 15,900 acct receivable 650 supplies 2300 current assets= 21950 equip 625,000 accum dep -139,250 * enter as a neg net property plans and equipement 485,750 other assets 60,900 total assets 568,600 liabilities and equity acts pay 9400 unearned service Revenue 3120 wages payable 3450 interest payable 1000 income tax payable 55,539 total current liabilities 72500 notes payable 50,000 total liabilities 122,509 stockholders equity 279,500 common stock 166,591 retained earnings 446,091 total stockholders equity 568,600

PAGE 170, EXCERCISE 356-358

closing entries -given adjusted trial balance, new balances after we finished adjustments total edit and credits 1,299,335 assets, top down to and including accumulated depr account payable to bonds payable, liability common stock and retained earnings (SE) dividends revenues cost of goods cols through income taxes expense 1 close revenues debit sales revenue 583,900 income summary 583,900 2 close expenses credit all individual expenses 3 close income summary balance 583,900 - 495,085 = 88,665 income summary balance 88,865 debit that and credit it to retained earnings 4 close dividends debit balance on dividends so credit retained earnings for the same amount retained earnings was $45635 close income summary, debit income to RE expect ending RE $84,500