Group 1 presentation1

Impact of Adjusted Entries by Group Fernando Casco-Downing, Katie Fleming, Michael Kubik, Emily Stone, Fei Wang Chapter 3-1 Introduction  Accounting Equation (A= L + SE)  Accounting Cycle  Accounting Concepts     Revenue Expense Revenue Recognition Matching Principle  Types of Adjusted Entries  Examples of Adjusted Entries  Impact without entries Chapter 3-2 The The Accounting Accounting Equation Equation Relationship among the assets, liabilities and stockholders’ equity of a business: Illustration 3-3 The equation must be in balance after every transaction For every Debit there must be a Credit Chapter 3-3 The The Accounting Accounting Cycle Cycle Illustration 3-6 Transactions Transactions 9 Reversing Reversing entries entries 1 Journalization Journalization 8 Post-closing Post-closing trail trail balance balance 2 Posting Posting 7 Closing Closing entries entries 3 Trial Trial balance balance 6 Financial Financial Statements Statements Work Work Sheet Sheet 5 Adjusted Adjusted trial trial balance balance Chapter 3-4 4 Adjustments Adjustments Adjusting Adjusting Entries Entries Revenues - recorded in the period in which they are earned earned Expenses - recognized in the period in which they are incurred incurred Adjusting entries - needed to ensure that the revenue recognition and matching principles are followed Chapter 3-5 Types Types of of Adjusting Adjusting Entries Entries Illustration 3-20 Prepayments Accruals Prepaid Expenses Expenses paid in cash and recorded as assets before they are used or consumed Accrued Revenues Revenues earned but not yet received in cash or recorded Unearned Revenues Revenues received in cash and recorded as liabilities before they are earned Accrued Expenses Expenses incurred but not yet paid in cash or recorded Chapter 3-6 Expedient Recording Method Expedient Records an expense upon payment of cash before goods or services are consumed Records revenue upon receipt of cash before goods or services are provided Chapter 3-7 Expedient Expedient General General Entries Entries Q1 : On December 1, 2011, Johnson received a $45,000 payment for services to be rendered equally over a four-month period Service revenue was credited Dec Cash 45,000 Service revenue 45,000 Service Revenue Debit Credit 45,000 45,000 Chapter 3-8 Cash Debit 45,000 45,000 Credit Adjusting Adjusting Entries Entries for for “Unearned “Unearned Revenues” Revenues” Q1 : On December 1, 2011, Johnson received a $45,000 payment for services to be rendered equally over a four-month period Service revenue was credited Dec 31 Service revenue 33,750 Unearned service revenue Service Revenue Debit 33,750 Credit 45,000 11,250 Chapter 3-9 (=45,000-45,000/4) 33,750 Unearned Service Revenue Debit Credit 33,750 33,750 Impact Without Adjusted Entries Q1 : On December 1, 2011, Johnson received a $45,000 payment for services to be rendered equally over a four-month period Service revenue was credited Dec 31 Service revenue (SE) 33,750 Unearned service revenue (L) Total Assets None Chapter 3-10 (=45,000-45,000/4) 33,750 Total Liab Stk Equity Net Income Retained Earning Understate 33750 Overstate 33750 Overstate 33750 Overstate 33750 Standard Recording Method Standard Asset upon payment of cash Liability upon receipt of cash before goods or services are provided Chapter 3-11 Standard Standard General General Entries Entries Q1 : On December 1, 2011, Johnson received a $45,000 payment for services to be rendered equally over a four-month period Dec Cash 45,000 Unearned service revenue Unearned Service Revenue Debit Credit 45,000 45,000 Chapter 3-12 45,000 Cash Debit 45,000 45,000 Credit Adjusting Adjusting Entries Entries for for “Unearned “Unearned Revenues” Revenues” Q1 : On December 1, 2011, Johnson received a $45,000 payment for services to be rendered equally over a four-month period Dec 31 Unearned service revenue 11,250 Service revenue Service Revenue Debit Credit 11,250 11,250 Chapter 3-13 11,250 Unearned Service Revenue Debit 11,250 Credit 45,000 33,750 Expedient Vs General Expedient Service Revenue Debit 33,750 Credit Unearned Service Revenue Debit 45,000 Credit 33,750 11,250 33,750 Unearned Service Revenue General Service Revenue Debit Credit 11,250 11,250 Chapter 3-14 Debit 11,250 Credit 45,000 33,750 Adjusting Adjusting Entries Entries for for “Prepaid “Prepaid Expenses” Expenses” Q2 On December 31, 2011, the company paid a local radio station $16,000 for 40 radio ads that were to be aired, 20 per month, throughout January and February of 2012 Prepaid advertising was debited Dec 31 Prepaid Advertising 16,000 Cash 16,000 Prepaid Advertising Debit 16,000 16,000 Chapter 3-15 Credit Cash Debit Credit 16,000 Adjusting Adjusting Entries Entries for for “Accrued “Accrued Expenses” Expenses” Q3 Employee salaries for the month of December 2011 totaling $8,400 will be paid on January 5, 2012 Dec 31 Salaries expense 8,400 Salaries payable Salaries Expense Debit 8,400 8,400 Chapter 3-16 Credit 8,400 Salaries Payable Debit Credit 8,400 Adjusting Adjusting Entries Entries for for “Accrued “Accrued Expenses” Expenses” Q3 Employee salaries for the month of December 2011 totaling $8,400 will be paid on January 5, 2012 Dec 31 Salaries expense(SE) 8,400 Salaries payable(L) Chapter 3-17 8,400 Total Assets Total Liab Stk Equity Net Income Retained Earning None Understate 8400 Overstate 8400 Overstate 8400 Overstate 8400 Adjusting Adjusting Entries Entries for for “Accrued “Accrued Expenses” Expenses” Q4 On September 31, 2011, Johnson Corp borrowed $60,000 from a local bank A note was signed with principal and 6% interest to be paid on September 1, 2012 (Interest = 60,000 * 6% /12 *3) Dec 31 Interest expense 900 Interest payable Interest Expense Debit 900 Chapter 3-18 Credit 900 Interest Payable Debit Credit 900 Adjusting Adjusting Entries Entries for for “Accrued “Accrued Expenses” Expenses” Q4 On September 31, 2011, Johnson Corp borrowed $60,000 from a local bank A note was signed with principal and 6% interest to be paid on September 1, 2012 (Interest = 60,000 * 6% /12 *3) Dec 31 Interest expense(SE) 900 Interest payable(L) Chapter 3-19 900 Total Assets Total Liab Stk Equity Net Income Retained Earning None Understate 900 Overstate 900 Overstate 900 Overstate 900 Adjusting Adjusting Entries Entries for for “Accrued “Accrued Expenses” Expenses” Q5 On December 31, 2011, it was determined that $8,000 of the recorded Accounts receivable would prove to be uncollectible Dec 31 Bad Debt Expense 8,000 Allowance for Doubtful Accounts Bad Debt Expense Debit 8,000 Chapter 3-20 Credit 8,000 Allowance for Doubtful Accounts Debit Credit 8,000 Impact Without Adjusted Entries Q5 On December 31, 2011, it was determined that $8,000 of the recorded Accounts receivable would prove to be uncollectible Dec 31 Bad Debt Expense (SE) 8,000 Allowance for Doubtful Account (A) Total Assets Overstated 8000 Chapter 3-21 8,000 Total Liab Stk Equity Net Income Retained Earning None Overstated 8000 Overstated 8000 Overstated 8000 Impact Without Adjusted Entries Total Assets Total Liab Stk Equity Net Income Retained Earning Q1 None Understat e 33750 Overstate 33750 Overstate 33750 Overstate 33750 Q2 None None None None None None Understat e 8400 Overstate 8400 Overstate 8400 Overstate 8400 Q4 None Understat e 900 Overstate 900 Overstate 900 Overstate 900 Q5 Overstated 8000 None Overstated 8000 Overstated 8000 Overstated 8000 Overstate 51050 Overstate 51050 Overstate 51050 Q3 Overstate Understat Total 8000 e 43050 Chapter 3-22 Conclusion  Accounting   Concepts Revenue and Expense Revenue Recognition and Matching Principle  Standard Vs Expedient Recording Method  Types of Adjusted Entries   Prepayments : Prepaid Expense and Unearned Revenue Accruals: Accrued Rev and Accrued Exp  Impact   Chapter 3-23 without adjusted entries Overstated A, L, SE, NI, RE Understated A, L, SE, NI, RE Questions Chapter 3-24 [...]... Entries Entries for for “Unearned “Unearned Revenues” Revenues” Q1 : On December 1, 2 011 , Johnson received a $45,000 payment for services to be rendered equally over a four-month period Dec 31 Unearned service revenue 11 ,250 Service revenue Service Revenue Debit Credit 11 ,250 11 ,250 Chapter 3 -13 11 ,250 Unearned Service Revenue Debit 11 ,250 Credit 45,000 33,750 Expedient Vs General Expedient Service... Credit 33,750 11 ,250 33,750 Unearned Service Revenue General Service Revenue Debit Credit 11 ,250 11 ,250 Chapter 3 -14 Debit 11 ,250 Credit 45,000 33,750 Adjusting Adjusting Entries Entries for for “Prepaid “Prepaid Expenses” Expenses” Q2 On December 31, 2 011 , the company paid a local radio station $16 ,000 for 40 radio ads that were to be aired, 20 per month, throughout January and February of 2 012 Prepaid... 31 Prepaid Advertising 16 ,000 Cash 16 ,000 Prepaid Advertising Debit 16 ,000 16 ,000 Chapter 3 -15 Credit Cash Debit Credit 16 ,000 Adjusting Adjusting Entries Entries for for “Accrued “Accrued Expenses” Expenses” Q3 Employee salaries for the month of December 2 011 totaling $8,400 will be paid on January 5, 2 012 Dec 31 Salaries expense 8,400 Salaries payable Salaries Expense Debit 8,400 8,400 Chapter 3 -16 ... September 1, 2 012 (Interest = 60,000 * 6% /12 *3) Dec 31 Interest expense 900 Interest payable Interest Expense Debit 900 Chapter 3 -18 Credit 900 Interest Payable Debit Credit 900 Adjusting Adjusting Entries Entries for for “Accrued “Accrued Expenses” Expenses” Q4 On September 31, 2 011 , Johnson Corp borrowed $60,000 from a local bank A note was signed with principal and 6% interest to be paid on September 1, ... the month of December 2 011 totaling $8,400 will be paid on January 5, 2 012 Dec 31 Salaries expense(SE) 8,400 Salaries payable(L) Chapter 3 -17 8,400 Total Assets Total Liab Stk Equity Net Income Retained Earning None Understate 8400 Overstate 8400 Overstate 8400 Overstate 8400 Adjusting Adjusting Entries Entries for for “Accrued “Accrued Expenses” Expenses” Q4 On September 31, 2 011 , Johnson Corp borrowed... receipt of cash before goods or services are provided Chapter 3 -11 Standard Standard General General Entries Entries Q1 : On December 1, 2 011 , Johnson received a $45,000 payment for services to be rendered equally over a four-month period Dec 1 Cash 45,000 Unearned service revenue Unearned Service Revenue Debit Credit 45,000 45,000 Chapter 3 -12 45,000 Cash Debit 45,000 45,000 Credit Adjusting Adjusting... interest to be paid on September 1, 2 012 (Interest = 60,000 * 6% /12 *3) Dec 31 Interest expense(SE) 900 Interest payable(L) Chapter 3 -19 900 Total Assets Total Liab Stk Equity Net Income Retained Earning None Understate 900 Overstate 900 Overstate 900 Overstate 900 Adjusting Adjusting Entries Entries for for “Accrued “Accrued Expenses” Expenses” Q5 On December 31, 2 011 , it was determined that $8,000 of... receivable would prove to be uncollectible Dec 31 Bad Debt Expense 8,000 Allowance for Doubtful Accounts Bad Debt Expense Debit 8,000 Chapter 3-20 Credit 8,000 Allowance for Doubtful Accounts Debit Credit 8,000 Impact Without Adjusted Entries Q5 On December 31, 2 011 , it was determined that $8,000 of the recorded Accounts receivable would prove to be uncollectible Dec 31 Bad Debt Expense (SE) 8,000 Allowance... 8400 Overstate 8400 Overstate 8400 Q4 None Understat e 900 Overstate 900 Overstate 900 Overstate 900 Q5 Overstated 8000 None Overstated 8000 Overstated 8000 Overstated 8000 Overstate 510 50 Overstate 510 50 Overstate 510 50 Q3 Overstate Understat Total 8000 e 43050 Chapter 3-22 Conclusion  Accounting   Concepts Revenue and Expense Revenue Recognition and Matching Principle  Standard Vs Expedient Recording... Debt Expense (SE) 8,000 Allowance for Doubtful Account (A) Total Assets Overstated 8000 Chapter 3- 21 8,000 Total Liab Stk Equity Net Income Retained Earning None Overstated 8000 Overstated 8000 Overstated 8000 Impact Without Adjusted Entries Total Assets Total Liab Stk Equity Net Income Retained Earning Q1 None Understat e 33750 Overstate 33750 Overstate 33750 Overstate 33750 Q2 None None None None None ... four-month period Dec 31 Unearned service revenue 11 ,250 Service revenue Service Revenue Debit Credit 11 ,250 11 ,250 Chapter 3 -13 11 ,250 Unearned Service Revenue Debit 11 ,250 Credit 45,000 33,750... Service Revenue Debit 45,000 Credit 33,750 11 ,250 33,750 Unearned Service Revenue General Service Revenue Debit Credit 11 ,250 11 ,250 Chapter 3 -14 Debit 11 ,250 Credit 45,000 33,750 Adjusting Adjusting... September 31, 2 011 , Johnson Corp borrowed $60,000 from a local bank A note was signed with principal and 6% interest to be paid on September 1, 2 012 (Interest = 60,000 * 6% /12 *3) Dec 31 Interest