3-1 3 the accounting information system. 3-2 the accounting cycle transactions 1. journalization 6....
TRANSCRIPT
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3-1
3The Accounting
Information System
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3-2
The Accounting CycleThe Accounting CycleThe Accounting CycleThe Accounting Cycle
TransactionsTransactions
1. Journalization1. Journalization
6. Financial Statements6. Financial Statements
7. Closing entries7. Closing entries
8. Post-closing trail balance8. Post-closing trail balance
9. Reversing entries9. Reversing entries
3. Trial balance3. Trial balance
2. Posting2. Posting
5. Adjusted trial balance5. Adjusted trial balance
4. Adjustments4. AdjustmentsWork SheetWork Sheet
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3-3
Account Name
Debit / Dr. Credit / Cr.
Debits and CreditsDebits and CreditsDebits and CreditsDebits and Credits
An arrangement that shows the effect of transactions on an account.
Debit = “Left”
Credit = “Right”
AccountAccount
An Account can An Account can be illustrated in a be illustrated in a T-Account form.T-Account form.
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3-4
Chapter 3-23
AssetsAssets
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 3-27
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
ExpenseExpense
Chapter 3-24
LiabilitiesLiabilities
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 3-25
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
EquityEquity
Chapter 3-26
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
RevenueRevenue
Normal Balance Credit
Normal Balance Credit
Normal Balance
Debit
Normal Balance
Debit
Debits and Credits SummaryDebits and Credits SummaryDebits and Credits SummaryDebits and Credits Summary
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3-5
Account Name
Debit / Dr. Credit / Cr.
Debits and CreditsDebits and CreditsDebits and CreditsDebits and Credits
$10,000 Transaction #2$3,000
$15,000$15,000
8,000
Balance
Transaction #1
Transaction #3
If Debit entries are greater than Credit entries, the account will have a debit balance.
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3-6
Account Name
Debit / Dr. Credit / Cr.
Debits and CreditsDebits and CreditsDebits and CreditsDebits and Credits
If Credit entries are greater than Debit entries, the account will have a credit balance.
$10,000 Transaction #2$3,000
$1,000$1,000
8,000 Transaction #3
Balance
Transaction #1
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3-7
Accounting Information SystemAccounting Information SystemAccounting Information SystemAccounting Information System
An Account shows the effect of transactions on a
given asset, liability, equity, revenue, or expense
account.
Double-entry accounting system (two-sided effect).
Recording done by debiting at least one account and
crediting another.
DEBITS must equal CREDITS.
Debits and Credits
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3-8
General Journal – a chronological record of transactions. Journal Entries are recorded in the journal.
1. Journalizing1. Journalizing1. Journalizing1. Journalizing
September 1: Stockholders invested $15,000 cash in the corporation in exchange for shares of stock.
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3-9
Posting – Transferring amounts from journal to ledger.
2. Posting2. Posting2. Posting2. Posting
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3-10
October 1: Pioneer Advertising purchases office equipment costing $50,000 by signing a 3-month, 12%, $50,000 note payable.
Notes payable 50,000
Equipment 50,000Oct. 1
Debit Credit
Equipment
50,00050,000 50,00050,000
Debit Credit
Notes Payable
2. Posting2. Posting2. Posting2. Posting
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3-11
October 2: Pioneer Advertising receives a $12,000 cash advance from KC, a client, for advertising services that are expected to be completed by December 31.
Unearned service revenue 12,000
Cash 12,000Oct. 2
Debit Credit
Cash
12,00012,000
Debit Credit
Unearned Service Revenue
2. Posting2. Posting2. Posting2. Posting
12,00012,000
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3-12
October 3: Pioneer Advertising pays $9,000 office rent, in cash, for October.
Cash 9,000
Rent expense 9,000Oct. 3
Debit Credit
Cash
9,0009,000
Debit Credit
Rent Expense
2. Posting2. Posting2. Posting2. Posting
9,0009,000
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3-13
October 4: Pioneer Advertising pays $6,000 for a one-year insurance policy that will expire next year on September 30.
Cash 6,000
Prepaid insurance 6,000Oct. 4
Debit Credit
Cash
6,0006,000
Debit Credit
Prepaid Insurance
2. Posting2. Posting2. Posting2. Posting
6,0006,000
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October 9: Pioneer Advertising signs a contract with a local newspaper for advertising inserts (flyers) to be distributed starting the last Sunday in November. Pioneer will start work on the content of the flyers in November. Payment of $7,000 is due following delivery of the Sunday papers containing the flyers.
2. Posting2. Posting2. Posting2. Posting
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3-15
October 31: Pioneer Advertising receives $28,000 in cash and bills Copa Company $72,000 for advertising services of $100,000 provided in October.
Accounts receivable 72,000Cash 28,000Oct. 31
Debit Credit
Cash
28,00028,000 72,00072,000
Debit Credit
Accounts Receivable
2. Posting2. Posting2. Posting2. Posting
Service revenue 100,000
100,000100,000
Debit Credit
Service Revenue
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3-16
Trial BalanceTrial Balance – A list of each account and its balance; used to prove equality of debit and credit balances.
3. Trial Balance3. Trial Balance3. Trial Balance3. Trial Balance
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3-17
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.
Prepayments/Deferrals
3. 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
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3-18
Insurance. On Oct. 4th, Pioneer paid $6,000 for a one-year fire insurance policy, beginning October 1. Show the entry to record the purchase of the insurance.
Cash 6,000
Prepaid insurance 6,000Oct. 4
Debit Credit
Prepaid Insurance
6,0006,000 6,0006,000
Debit Credit
Cash
Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”
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3-19
Insurance. An analysis of the policy reveals that $500 ($6,000 / 12) of insurance expires each month. Thus, Pioneer makes the following adjusting entry.
Prepaid insurance 500
Insurance expense 500Oct. 31
Debit Credit
Prepaid Insurance
6,0006,000 500500
Debit Credit
Insurance Expense
Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”
500500
5,5005,500
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3-20
Supplies.Supplies. Pioneer purchased advertising supplies costing$25,000 on October 5. Prepare the journal entry to record the purchase of the supplies.
Cash 25,000
Supplies 25,000Oct. 5
Debit Credit
Supplies
25,00025,000 25,00025,000
Debit Credit
Cash
Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”
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3-21
Supplies. An inventory count at the close of business on October 31 reveals that $10,000 of the advertising supplies are still on hand.
Supplies 15,000
Supplies expense 15,000Oct. 31
Debit Credit
Supplies
25,00025,000 15,00015,000
Debit Credit
Supplies Expense
15,00015,000
Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”
10,00010,000
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3-22
Depreciation. Pioneer Advertising estimates depreciation on its office equipment to be $400 per month. Accordingly, Pioneer recognizes depreciation for October by the following adjusting entry.
Accumulated depreciation 400
Depreciation expense 400Oct. 31
Debit Credit
Depreciation Expense
400400 400400
Debit Credit
Accumulated Depreciation
Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”Adjusting Entries for “Prepaid Expenses”
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3-23
Unearned Revenue. Pioneer Advertising received $12,000 on October 2 from KC for advertising services expected to be completed by December 31. Show the journal entry to record the receipt on Oct. 2nd.
Unearned advertising revenue 12,000
Cash 12,000Oct. 2
Debit Credit
Cash
12,00012,000 12,00012,000
Debit Credit
Unearned Rent Revenue
Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”
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3-24
Debit Credit
Service Revenue
12,00012,000
Debit Credit
Unearned Service Revenue
4,0004,000
8,0008,000
Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”Adjusting Entries for “Unearned Revenues”
Unearned Revenues. Analysis reveals that Pioneer earned $4,000 of the advertising services in October. Thus, Pioneer makes the following adjusting entry.
Service revenue 4,000
Unearned service revenue 4,000Oct. 31
4,0004,000
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3-25
Accrued Revenues. In October Pioneer earned $2,000 for
advertising services that it did not bill to clients before October
31. Thus, Pioneer makes the following adjusting entry.
Service revenue 2,000
Accounts receivable 2,000Oct. 31
Debit Credit
Accounts Receivable
Adjusting Entries for “Accrued Revenues”Adjusting Entries for “Accrued Revenues”Adjusting Entries for “Accrued Revenues”Adjusting Entries for “Accrued Revenues”
Debit Credit
Service Revenue
2,0002,0002,0002,000
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Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”
Accrued Interest. Pioneer signed a three-month, 12%, note payable in the amount of $50,000 on October 1. The note requires interest at an annual rate of 12 percent. Three factors determine the amount of the interest accumulation:
1 2 3
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Interest payable 500
Interest expense 500Oct. 31
Debit Credit
Interest Expense
500500 500500
Debit Credit
Interest Payable
Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”Adjusting Entries for “Accrued Expenses”
Accrued Interest. Pioneer signed a three-month, 12%, note payable in the amount of $50,000 on October 1. Prepare the adjusting entry on Oct. 31 to record the accrual of interest.
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Shows the
balance of all
accounts, after
adjusting entries,
at the end of the
accounting period.
5. Adjusted Trial Balance5. Adjusted Trial Balance5. Adjusted Trial Balance5. Adjusted Trial Balance
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Worksheet
USING A WORKSHEET: THE ACCOUNTING CYCLE REVISITED
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6. Preparing Financial Statements6. Preparing Financial Statements6. Preparing Financial Statements6. Preparing Financial Statements
Financial Statements are prepared directly from the Adjusted Trial Balance.
Financial Statements are prepared directly from the Adjusted Trial Balance.
Balance Sheet
Income Statement
Retained Earnings
Statement
Owner’s Equity
Statement
Proprietorship/Partnership Corporation
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7. Closing Entries7. Closing Entries7. Closing Entries7. Closing Entries
To reduce the balance of the income statement (revenue and expense) accounts to zero.
To transfer net income or net loss to owner’s equity.
Balance sheet (asset, liability, and equity) accounts are not closed.
Dividends are closed directly to the Retained Earnings account. Owner’s drawings are closed directly to owner’s equity.
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8. Post-Closing Trial Balance8. Post-Closing Trial Balance8. Post-Closing Trial Balance8. Post-Closing Trial Balance