Expanding the Basic Accounting Equation and Bookkeeping Terms, Slide di Cost Accounting

Scarica Expanding the Basic Accounting Equation and Bookkeeping Terms e più Slide in PDF di Cost Accounting solo su Docsity! 4 - 1 The Balance Sheet Equation—A Mechanical Key Assets = Liabilities + Stockholder’s Equity A = L + PIC + REBEG + R - E The basic accounting equation can be expanded to include revenues and expenses. Another principal element of stockholders’ equity is the amount of capital invested by the owners/stockholders—that is, the PIC (paid-in capital) and RE (retained earnings) Learning Objective 4-1: Illustrate the expansion of the basic accounting equation to include revenues and expenses. 4 - 2 Transactions a. The stockholders invested $2,000. b. The company borrowed $6,000 from a bank. c. Equipment costing $10,000 was purchased for $2,000 cash and signing a note payable for $8,000. d. Equipment that cost $3,000 was sold for $3,000. The $3,000 will be received within 30 days. e. The company provided services for $8,000 and received cash. f. Wages of $2,000 were paid in cash. The Balance Sheet Equation Learning Objective 4-2: Describe how the expanded accounting equation stays in balance after every transaction. = Liabilities + Transaction Cash + Accounts Receivable + Equipment = Notes Payable + Paid-in Capital + Retained Earnings + Revenues - Expenses a 2,000 2,000 b 6,000 6,000 c (2,000) 10,000 8,000 d 3,000 (3,000) e 8,000 8,000 f (2,000) 2,000 Total 12,000 + 3,000 + 7,000 = 14,000 + 2,000 + 0 + 8,000 - 2,000 6,000 Assets Stockholders' Equity 4 - 5 T-Account A T-account is a tool used to represent an account. Account Name Left side Right side Learning Objective 4-4: Explain the meaning of the bookkeeping terms journal, ledger, T-account, account balance, debit, credit and closing the books. 4 - 6 T-Account The left side of the T-account is always the debit side. Account Name Left side Right side Debit The right side of the T-account is always the credit side. Credit Learning Objective 4-4: Explain the meaning of the bookkeeping terms journal, ledger, T-account, account balance, debit, credit and closing the books. 4 - 7 Debits and Credits ASSETS Debit for Increase Credit for Decrease EQUITIES Debit for Decrease Credit for Increase LIABILITIES Debit for Decrease Credit for Increase Debits and credits affect the accounting equation as follows: A = L + SE Learning Objective 4-4: Explain the meaning of the bookkeeping terms journal, ledger, T-account, account balance, debit, credit and closing the books. 4 - 10 Debits and Credits A = L + SE Learning Objective 4-5: Explain why the bookkeeping system is a mechanical adaptation of the expanded accounting equation. 4 - 11 Journal Entry Format Here is the journal entry that is recorded when a stockholder invests $2,000 in the business on June 30th Learning Objective 4-5: Explain why the bookkeeping system is a mechanical adaptation of the expanded accounting equation. A general journal is the book of original entry for recording a transaction. The typical journal has a column for the date, a description, a debit, and a credit. Date Debit Credit 6/30 Cash 2,000 Paid-in Capital 2,000 To record an investment by the stockholders. Description 4 - 12 Provide a reference date for each transaction. Debits are recorded first. Credits are indented and recorded after debits. Total debits must equal total credits. A brief description of the transaction to explain the entry. Journal Entry Format Learning Objective 4-5: Explain why the bookkeeping system is a mechanical adaptation of the expanded accounting equation. Date Debit Credit 6/30 Cash 2,000 Paid-in Capital 2,000 To record an investment by the stockholders. Description 4 - 15 The stockholders invested $2,000. Transaction Analysis Illustrated Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. (a) 2,000 2,000 Cash 2,000 (a) 2,000 Paid-in Capital Page 1 Debit Credit Jan 1 Cash 2,000 Paid-in Capital 2,000 Date Account Titles and Explanation GENERAL JOURNAL 4 - 16 The company borrowed $6,000 from a bank. Transaction Analysis Illustrated Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. 6,000 (b) 6,000 Notes Payable (a) 2,000 (b) 6,000 8,000 Cash Page 1 Debit Credit Jan 15 Cash 6,000 Notes Payable 6,000 Date Account Titles and Explanation GENERAL JOURNAL 4 - 17 Now, let’s see how to post this entry . . . Equipment costing $10,000 was purchased for $2,000 cash and signing a note payable for $8,000. Transaction Analysis Illustrated Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. Page 1 Debit Credit Feb. 1 Equipment 10,000 Cash 2,000 Notes Payable 8,000 Date Account Titles and Explanation GENERAL JOURNAL 4 - 20 The company provided services for $8,000 and received cash. Transaction Analysis Illustrated Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. Page 1 Debit Credit Feb. 20 Cash 8,000 Revenue 8,000 Date Account Titles and Explanation GENERAL JOURNAL 8,000 (e) 8,000 Revenue (a) 2,000 2,000 (c) (b) 6,000 (e) 8,000 14,000 Cash 4 - 21 Wages of $2,000 were paid in cash. Transaction Analysis Illustrated Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. Page 1 Debit Credit Feb. 25 Wages Expense 2,000 Cash 2,000 Date Account Titles and Explanation GENERAL JOURNAL (f) 2,000 2,000 Wages Expense (a) 2,000 2,000 (c) (b) 6,000 2,000 (f) (e) 8,000 12,000 Cash 4 - 22 Adjustments/Adjusting Entries At the end of the period, we need to make adjusting entries to bring the accounts up to date for the financial statements. Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. 4 - 25 Accruing Expenses Examples include: Wages and Salaries Interest Payable Property Taxes Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. Some company expenses haven’t been recorded yet. Let’s update our accounts! 4 - 26 $3,000 Wages Expense On May 31, Webb Co. owes wages of $3,000. Pay day is Friday, June 2. n ay 31, ebb o. o es ages of $3,000. ay day is Friday, June 2. Monday, May 29 Friday, June 2 Wednesday, May 31 Accruing Expenses Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. 4 - 27 Initially, an expense and a liability are recorded.Initially, an expense and a liability are recorded. May 29 $3,000 Wages Expense May 31 Accruing Expenses Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. GENERAL JOURNAL Date Account Titles and Explanation P R Debit Credit May 31 Wages Expense 3,000 Wages Payable 3,000 To accrue wages owed to employees. 4 - 30 The liability for May wages is reduced when the debt is paid. e lia ility f r ay a es is re ce t e e t is i . Accruing Expenses Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. GENERAL JOURNAL Date Account Titles and Explanation P R Debit Credit June 2 Wages Expense (for June) 2,000 Wages Payable (accrued in May) 3,000 Cash 5,000 Weekly payroll for May 29-June 2. 4 - 31 Accruing Revenues Examples Include: Interest Earned and Work Completed but not yet billed to the customer. Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. Some company revenues haven’t been recorded yet. Like what? 4 - 32 Saturday, Jan. 15 Tuesday, Feb. 15 $170 Interest Revenue On Jan. 31, the bank owes Webb Co. interest of $170. Interest is paid on the 15th day of each month. On Jan. 31, the bank o es ebb Co. interest of $170. Interest is paid on the 15th day of each onth. Monday, Jan. 31 Accruing Revenues Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. 4 - 35 Let’s look at the entry for February 15th. t’ l k at t e e try f r e r ary 15t . Saturday, Jan. 15 Tuesday, Feb. 15 $320 Monthly Interest $170 Interest Revenue Monday, Jan. 31 $150 Interest Revenue Accruing Revenues Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. 4 - 36 The receivable is collected in a future period. e receiv le i c llecte i a f t re eri . Accruing Revenues Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. GENERAL JOURNAL Date Account Titles and Explanation P R Debit Credit Feb. 15 Cash 320 Interest Revenue (for February) 150 Interest Receivable (accrued Jan. 31) 170 To record interest received. 4 - 37 Reclassifying Assets to Expenses Adjusting entries: Prepaid Insurance Insurance Expense Supplies Supplies Expense Assets Expenses End of month adjusting entries Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. 4 - 40 The costs are expensed as they are used to generate revenue. e c sts are ex e e as t ey re s t e erate reve e. Reclassifying Assets to Expenses Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. GENERAL JOURNAL Date Account Titles and Explanation P R Debit Credit (Monthly Adjusting Entry for Insurance) Jan. 31 Insurance Expense 200 Prepaid Insurance 200 Insurance expense for January. 4 - 41 Income Statement Cost of assets used this period to generate revenue. Inco e tate ent ost of assets used this period to generate revenue. Balance Sheet Cost of assets that benefit future periods. alance heet ost of assets that benefit future periods. Reclassifying Assets to Expenses Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. Insurance Expense 1/31 200 Prepaid Insurance 1/1 2,400 1/31 200 Bal. 2,200 4 - 42 Reclassify Liabilities to Revenues Unearned Revenue Revenue Unearned Rental Revenue Rental Revenue Airline Ticket Advanced Sales Ticket Revenue Liabilities Revenues End of month adjusting entries Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. 4 - 45 Over time, the revenue is recognized as it is earned. ver ti e, the revenue is recognized as it is earned. Reclassify Liabilities to Revenues Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. GENERAL JOURNAL Date Account Titles and Explanation P R Debit Credit (Monthly Adjusting Entry for Rent Revenue:) Jan. 31 Unearned Rental Revenue 500 Rental Revenue 500 Rental revenue for January. 4 - 46 Income Statement Revenue earned this period. Inco e tate ent evenue earned this period. Balance Sheet Liability for future periods. alance heet Liability for future periods. Reclassify Liabilities to Revenues Learning Objective 4-6: Analyze a transaction, prepare a journal entry, and determine the effects of the transaction on the financial statements. Rental Revenue 1/31 500 Unearned Rental Revenue 1/31 500 1/1 6,000 Bal. 5,500 4 - 47 Transaction Analysis Methodology Answer Five Questions: 1. What’s going on? 2. What accounts are affected? 3. How are they affected? 4. Does the balance sheet balance? (Do the debits equal the credits?) 5. Does my analysis make sense? Okay…I’m ready! Learning Objective 4-7: Apply the five questions of transaction analysis.