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Impact of Adjusted Entries by Group 1 PowerPoint Presentation
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Impact of Adjusted Entries by Group 1

Impact of Adjusted Entries by Group 1

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Impact of Adjusted Entries by Group 1

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  1. Impact of Adjusted Entriesby Group 1 Fernando Casco-Downing, Katie Fleming, Michael Kubik, Emily Stone, Fei Wang

  2. 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

  3. The Accounting 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 Debitthere must be a Credit.

  4. The Accounting Cycle Illustration 3-6 Transactions 9. Reversing entries 1. Journalization 8. Post-closing trail balance 2. Posting 7. Closing entries 3. Trial balance 6. Financial Statements Work Sheet 4. Adjustments 5. Adjusted trial balance

  5. Adjusting Entries • Revenues- recorded in the period in which they are earned. • Expenses - recognized in the period in which they are incurred. • Adjusting entries- needed to ensure that the revenue recognition and matching principles are followed.

  6. Types of Adjusting Entries Illustration 3-20 Prepayments Accruals 1.Prepaid Expenses.Expenses paid in cash and recorded as assets before they are used or consumed. 3. Accrued Revenues. Revenues earned but not yet received in cash or recorded. 2. Unearned Revenues. Revenues received in cash and recorded as liabilities before they are earned. 4. Accrued Expenses. Expenses incurred but not yet paid in cash or recorded.

  7. 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

  8. Expedient General 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. 1 Cash 45,000 Service revenue 45,000 Service Revenue Cash Debit Credit Debit Credit 45,000 45,000 45,000 45,000

  9. Adjusting Entries for “Unearned 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 33,750 Service Revenue Unearned Service Revenue Debit Credit Debit Credit 33,750 45,000 33,750 11,250 33,750

  10. 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) 33,750

  11. Standard Recording Method Standard Asset upon payment of cash Liability upon receipt of cash before goods or services are provided

  12. Standard General Entries Q1 : On December 1, 2011, 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 45,000 Unearned Service Revenue Cash Debit Credit Debit Credit 45,000 45,000 45,000 45,000

  13. Adjusting Entries for “Unearned 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 11,250 Service Revenue Unearned Service Revenue Debit Credit Debit Credit 11,250 11,250 45,000 11,250 33,750

  14. Expedient Vs. General Expedient General Service Revenue Unearned Service Revenue Debit Credit Debit Credit 33,750 45,000 33,750 11,250 33,750 Service Revenue Unearned Service Revenue Debit Credit Debit Credit 11,250 11,250 45,000 11,250 33,750

  15. Adjusting Entries for “Prepaid 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 Cash Debit Credit Debit Credit 16,000 16,000 16,000

  16. Adjusting Entries for “Accrued 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 8,400 Salaries Expense Salaries Payable Debit Credit Debit Credit 8,400 8,400 8,400

  17. Adjusting Entries for “Accrued 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) 8,400

  18. Adjusting Entries for “Accrued 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 900 Interest Expense Interest Payable Debit Credit Debit Credit 900 900

  19. Adjusting Entries for “Accrued 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) 900

  20. Adjusting Entries for “Accrued 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 8,000 Bad Debt Expense Allowance for Doubtful Accounts Debit Credit Debit Credit 8,000 8,000

  21. 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) 8,000

  22. Impact Without Adjusted Entries

  23. 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 without adjusted entries • Overstated A, L, SE, NI, RE • Understated A, L, SE, NI, RE

  24. Questions Questions?