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Adjusting Entries cont Horngren’s Accounting Lecture Seven Lisa, Li 1

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Learning Objectives – Chapter 3Cash Basis vs Accrual Basis AccountingApply the time period concept, revenue recognition, and matching principlesExplain the purpose of and journalize and post adjusting entriesPrepare an adjusted trial

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Слайд 1Adjusting Entries cont
Horngren’s Accounting

Lecture Seven
Lisa, Li

Adjusting Entries contHorngren’s Accounting Lecture Seven Lisa, Li

Слайд 2Learning Objectives – Chapter 3
Cash Basis vs Accrual Basis Accounting
Apply

the time period concept, revenue recognition, and matching principles
Explain the

purpose of and journalize and post adjusting entries
Prepare an adjusted trial balance
Identify the impact of adjusting entries on the financial statements
use a worksheet to prepare the adjusted trial balance


Accounting

Learning Objectives – Chapter 3Cash Basis vs Accrual Basis AccountingApply the time period concept, revenue recognition, and

Слайд 3Part of the Accounting Process
Analyze & journalize transactions
Post journal entries

to ledger accounts
Prepare unadjusted trial balance
Journalize and post adjusting entries
Start

with beginning account balances

Prepare the worksheet (optional)

Part of the Accounting ProcessAnalyze & journalize transactionsPost journal entries to ledger accountsPrepare unadjusted trial balanceJournalize and

Слайд 4 An adjusting entry is the entry made at

the end of accounting period that is used to record

revenues to the period in which they are earned and expenses to the period in which they occur. Adjusting entry also update the asset and liability accounts.

Review: Adjusting Journal Entries (AJE’s)

*including depreciation

Adjustments

Accounting

An adjusting entry is the entry made at the end of accounting period that is

Слайд 5Review: Prepaid Expenses
1. Prepaid Expenses – A
deferred expenses are advance

payments of future expenses.
They are assets rather than E until

they are used up.
2. Unearned Revenue – L
When the company is received cash before it does all the work to
3. Accrued Expenses – L
Incurred costs which haven't been paid for yet
4. Accrued Revenues – A
Earned revenue for which cash hasn't been collected for yet
Review: Prepaid Expenses1. Prepaid Expenses – Adeferred expenses are advance payments of future expenses.They are assets rather

Слайд 6Prepaids: common Prepaid Expenses
Prepaid Insurance
Prepaid rent
Depreciation
(plant Assets)
Office supplies used

Prepaids: common Prepaid ExpensesPrepaid Insurance Prepaid rentDepreciation(plant Assets)Office supplies used

Слайд 7S3-7 Question

p194
S3-7 Question

Слайд 8S3-7 Solutions

p194

Supplies used = begin bal. of office supplies + purchase - end bal.

S3-7 Solutions

Слайд 9Plant Assets (Depreciation)
plant assets are long-lived, tangible assets used in

the operation of a business. As a business uses these

assets, their value and usefulness decline.
Plant Assets need to depreciates, such as buildings equipment, furniture, and automobiles. The contra asset account used is Accumulated Depreciation—(asset’s name)
Land has an infinite life; Under Generally Accepted Accounting Principles, we never depreciate Land. (p163)
Plant assets, with the exception of land, are depreciated over their useful lives.

Accounting

Plant Assets (Depreciation)plant assets are long-lived, tangible assets used in the operation of a business. As a

Слайд 10 Prepaid Expense (Depreciation)
Long-lived, tangible assets used to generate revenue

are referred to as plant assets.
Plant assets act like Prepaid

Expenses

Paid for when acquired

Used to produce revenues

Used up over time

Prepaid Expense (Depreciation)Long-lived, tangible assets used to generate revenue are referred to as plant assets.Plant assets

Слайд 11Depreciation (plant Assets)
Depreciation is the process of allocating the cost

of a plant asset over its useful life in a

systematic and rational manner.
Straight-line Method: a depreciation method that allocates an equal amount of depreciation each year.





Accounting

The accounts used are:
Depreciation Expense(E)-I/S
Accumulated Depreciation(-A, contra-asset account )-B/S

Depreciation (plant Assets)Depreciation is the process of allocating the cost of a plant asset over its useful

Слайд 12Accounting Theory – Contra account
contra account：
It is used in

a general ledger to reduce the value of a related account when

the two are netted together. A contra account's natural balance is the opposite of the associated account. 

Sale (original)– sale return (contra)
Plant Asset (original)– accumulated depreciation-asset (contra)

Two main characteristics for contra account
It is paired with and is listed immediately after its related account in the chart of accounts and associated financial statement.
Its normal balance (debit or credit) is the opposite of the normal balance of related account.

Accounting Theory – Contra account contra account：It is used in a general ledger to reduce the value of a

Слайд 13Accumulated Depreciation Account
Definition: the sum of all the depreciation expense

recorded to date for a depreciable asset(plant asset).
Accumulated Depreciation is

a contra asset, which means that is an asset account with a normal credit balance.(contra means opposite)
Business has a separate Accumulated Depreciation account for each depreciable asset.
Eg. ‘Accumulated Depreciation- Furniture’ is the contra account that follow the asset ‘Furniture’ account on Balance Sheet.
Accumulated Depreciation AccountDefinition: the sum of all the depreciation expense recorded to date for a depreciable asset(plant

Слайд 141. Prepaid Expense: Depreciation
Assume that, on December 2, Smart Touch

Learning received a contribution of furniture with a market value

of $18,000 from Sheena Bright. At the end of December, Smart Touch Learning will need to record depreciation for the use of the furniture, assuming it has a 5 year useful life.

3-

© 2k015 Pearson Education, Limited.

1. Prepaid Expense: DepreciationAssume that, on December 2, Smart Touch Learning received a contribution of furniture with

Слайд 151. Prepaid Expense: Depreciation
Using the straight-line method of computing depreciation,

Smart Touch Learning will need to record $300 of depreciation

for December.

3-

© 2k015 Pearson Education, Limited.

1. Prepaid Expense: DepreciationUsing the straight-line method of computing depreciation, Smart Touch Learning will need to record

Слайд 161. Prepaid Expense: Depreciation
Recording the entry requires the use of

two accounts: Depreciation Expense - Furniture
Accumulated Depreciation. - Furniture

1. Prepaid Expense: DepreciationRecording the entry requires the use of two accounts: Depreciation Expense - FurnitureAccumulated Depreciation.

Слайд 17Book value of plant asset
The resulting net amount (cost minus

accumulated deprecation) of plant asset is called its book value.


The book value represents the cost invested in the asset that the business has not yet expensed.
Another name : carrying amount of the asset
Book value of plant assetThe resulting net amount (cost minus accumulated deprecation) of plant asset is called

Слайд 18Depreciation – building

Depreciation – building

Слайд 20Try it !
NetSolutions estimates the depreciation on its office

equipment to be $50 for the month of December.

Try it ! NetSolutions estimates the depreciation on its office equipment to be $50 for the month

Слайд 21NetSolutions estimates the depreciation on its office equipment to be

$50 for the month of December.
16
17
18
19
Accumulated Depreciation—
Office Equipment 50 00
Dec.

31 50

119

Depreciation Expense

Dec. 31 50

Accumulated Depreciation—Office Equipment

119

553

553

Accounting

NetSolutions estimates the depreciation on its office equipment to be $50 for the month of December.16171819Accumulated Depreciation—

Слайд 22NetSolutions’ balance sheet would show the office equipment at cost,

less the accumulated depreciation.
Office equipment $1,800
Less accumulated

depreciation-equip 50 $1,750

Book value

Accounting

NetSolutions’ balance sheet would show the office equipment at cost, less the accumulated depreciation. Office equipment $1,800

Слайд 23Prepaids: common Prepaid Expenses
Prepaid Insurance
Prepaid rent
Depreciation
(plant Assets)
Office supplies used

Prepaids: common Prepaid ExpensesPrepaid Insurance Prepaid rentDepreciation(plant Assets)Office supplies used

Слайд 24Fitness First has a new client who prepays $600 for

a package of six training sessions. Fitness First had provided

four training sessions as of year end. Which of the following amounts should Fitness First report on its income statement?
Service Revenue of $400
Service Revenue of $600
Unearned service revenue of $400
Unearned service revenue of $600

Multiple Choices 2mins

Fitness First has a new client who prepays $600 for a package of six training sessions. Fitness

Слайд 25Try it Question
Journalizing and posting the adjusting entries of Smart

Touch Learning.
a. Prepaid rent expired, $1000
b. Supplies used, $400
c. Depreciation

on furniture, $300
d. on July 1, purchased a building with $180,000. At the end of December, record depreciation for the use of the building, assuming it has a 60 years useful life, and no residual value at the end of its life…

Accounting

Try it QuestionJournalizing and posting the adjusting entries of Smart Touch Learning.a. Prepaid rent expired, $1000b. Supplies

Слайд 26a. Prepaid rent expired, $1,000
Answers

a. Prepaid rent expired, $1,000Answers

Слайд 27b. Supplies used, $400

Answers

b. Supplies used, $400Answers

Слайд 28c. Depreciation on furniture, $300
Answers

c. Depreciation on furniture, $300Answers

Слайд 29d. On July 1, purchased a building with $180,000. At

the end of this year, record depreciation for the use

of the building, assuming it has a 60 years useful life, and no residual value at the end of its life…

Answers

Straight-Line Depreciation = ( Cost - Residual Value ) ÷Useful Life
= ( $180,000 - $0 ) ÷ 60 Years = 3,000
this year depreciation exp = 3,000 ÷ 6/12 = 1,500

d. On July 1, purchased a building with $180,000. At the end of this year, record depreciation

Слайд 30Prepaid Expenses(A) or Expense(E) ?
prepaid expenses, such as prepaid Insurance,

prepaid rent, depreciation, office supplies used, etc.

However, some prepaid

expenses are both paid for and fully used up within a single period.

Eg. pay monthly rent on the first day of each quarter. This payment creates a prepaid expense on the first day of each quarter that fully expires by the end of the quarter.
In these special cases, we can record the cash paid with a debit to the expense account instead of an asset account.

Accounting

Prepaid Expenses(A) or Expense(E) ?prepaid expenses, such as prepaid Insurance, prepaid rent, depreciation, office supplies used, etc.

Слайд 31Adjusting Journal Entries
Adjusting Journal Entries (AJE’s) can be divided into


two basic categories:
Prepaids
Prepaid Expenses
Unearned Revenues
Accruals
Accrued revenues
Accrued expenses

Adjusting Journal EntriesAdjusting Journal Entries (AJE’s) can be divided into two basic categories:PrepaidsPrepaid ExpensesUnearned Revenues AccrualsAccrued revenuesAccrued

Слайд 32Prepaids: Unearned Revenue
1. Prepaid Expenses – A
Prepaid expenses are assets

until used
2. Unearned Revenue – L
When the company is received

cash before it does all the work to
an advance receipt of cash from a customer that obligates us to either deliver a product or perform a service for a customer in the future.
3. Accrued Expenses – L
Incurred costs which haven't been paid for yet
4. Accrued Revenues – A
Earned revenue for which cash hasn't been collected for yet
Prepaids: Unearned Revenue1. Prepaid Expenses – APrepaid expenses are assets until used2. Unearned Revenue – LWhen the

Слайд 332. Unearned Revenue
On December 21, a law firm engages Smart

Touch Learning to provide e-learning services for the next 30

days, paying $600 in advance.
2. Unearned RevenueOn December 21, a law firm engages Smart Touch Learning to provide e-learning services for

Слайд 342. Unearned Revenue
Business has been obligated to perform some services

during the last 10 days .1/3 of the services are

performed.
and then must be adjusted to recognize the portion of the payment that has subsequently been earned
2. Unearned RevenueBusiness has been obligated to perform some services during the last 10 days .1/3 of

Слайд 352. Unearned Revenues
On December 26, 2009, FastForward agrees to provide

consulting services to a client for a fixed fee of

$3,000 for 60 days. On this date, the client pays the entire consulting fee in advance. FastForward makes the following entry:

Accounting

2. Unearned RevenuesOn December 26, 2009, FastForward agrees to provide consulting services to a client for a

Слайд 362. Unearned Revenues
On December 26, 2009, FastForward agrees to provide

consulting services to a client for a fixed fee of

$3,000 for 60 days. On this date, the client pays the entire consulting fee in advance. FastForward makes the following entry:

Accounting

2. Unearned RevenuesOn December 26, 2009, FastForward agrees to provide consulting services to a client for a

Слайд 37Dec 31, earns some of the 5-days of consulting fees,

$ 250.
Each day that passes results in consulting fees

of $50
($3,000 ÷ 60).

2. Unearned Revenues

Accounting

Dec 31, earns some of the 5-days of consulting fees, $ 250. Each day that passes results

Слайд 38Unearned revenue is essentially a(n):

net income.
net loss.
liability.
asset.
Multiple Choices

2mins
Unearned revenue is essentially a(n):net income.net loss.liability.asset.Multiple Choices

Слайд 39S3-9 Question

p194

S3-9 Question

Слайд 40S3-9 solutions

p194
Journalizing

and posting an adjusting entry for unearned revenue
S3-9 solutions

Слайд 41Which of the following are the two basic categories of

adjusting entries?

Net income and net loss
Expenses and revenues
Prepaids and accruals
Cash

and noncash

Multiple Choices 2mins

Which of the following are the two basic categories of adjusting entries?Net income and net lossExpenses and

Слайд 42Accrual: Accrued Expenses
1. Prepaid Expenses – A
Prepaid expenses are assets

until used
2. Unearned Revenue – L
received cash before it does

the work
3. Accrued Expenses – L
Incurred expenses before paying for them. It always create a related liability.
Eg. Employee’s salaries, interest expense on note payable.
4. Accrued Revenues – A
Earned revenue for which cash hasn't been collected for yet
Accrual: Accrued Expenses1. Prepaid Expenses – APrepaid expenses are assets until used2. Unearned Revenue – Lreceived cash

Слайд 433. Accrued Expenses
Smart Touch Learning pays its employee a monthly

salary of $2,400, half on the 15th and half on

the first day of the next month.
3. Accrued ExpensesSmart Touch Learning pays its employee a monthly salary of $2,400, half on the 15th

Слайд 443. Accrued Expenses
On December 31, Smart Touch Learning still owes

the employee $1,200, which won’t be paid until January 1.

3. Accrued ExpensesOn December 31, Smart Touch Learning still owes the employee $1,200, which won’t be paid

Слайд 45FastForward’s employee earns $70 per day and is paid every

two weeks on Friday. Year-end, 12/31/09, falls on a Wednesday.

The last payday of 2009, is Friday, 12/26/09.
From 12/26 until year-end is three working days. The employee has earned salaries of $210 for Monday through Wednesday. They will not be paid until the next Friday.

3. Accrued Expenses

Accounting

FastForward’s employee earns $70 per day and is paid every two weeks on Friday. Year-end, 12/31/09, falls

Слайд 463. Accrued Expenses
FastForward’s employee earns $70 per day and is

paid every two weeks on Friday. Year-end, 12/31/09, the employee

has earned salaries of $210.

Accounting

3. Accrued ExpensesFastForward’s employee earns $70 per day and is paid every two weeks on Friday. Year-end,

Слайд 47NetSolutions
Trial Balance
December 31, 2005
Cash 2 065 00
Accounts Receivable 2 220 00
Supplies 2 000

00
Prepaid Insurance 2 400 00
Land 20 000 00
Office Equipment 1 800 00
Accounts Payable 900

00
Unearned Rent 360 00
Chris Clark, Capital 25 000 00
Chris Clark, Drawing 4 000 00
Fees Earned 16 340 00
Wages Expense 4 275 00
Rent Expense 1 600 00
Utilities Expense 985 00
Supplies Expense 800 00
Miscellaneous Expense 455 00
42 600 00 42 600 00

25

Accounting

NetSolutionsTrial BalanceDecember 31, 2005Cash 2 065 00 Accounts Receivable 2 220 00Supplies 2 000 00Prepaid Insurance 2 400 00Land 20 000 00Office Equipment 1

Слайд 48A business has accrued salaries of $300 on Dec 31.

What adjusting entry will the company make on Dec 31?
Salaries

Expense

Salaries Payable

300

300

a)

Salaries Payable

Salaries Expense

300

300

b)

Salaries Expense

Accounts Receivable

300

300

c)

Cash

Salaries Expense

300

300

d)

Multiple Choices 2mins

A business has accrued salaries of $300 on Dec 31. What adjusting entry will the company make

Слайд 49A business has accrued salaries of $300 on Dec 31.

What adjusting entry will the company make on Dec 31?
Salaries

Expense

Salaries Payable

300

300

a)

Salaries Payable

Salaries Expense

300

300

b)

Salaries Expense

Accounts Receivable

300

300

c)

Cash

Salaries Expense

300

300

d)

Multiple Choices 2mins

A business has accrued salaries of $300 on Dec 31. What adjusting entry will the company make

Слайд 50 An internal document that helps summarize data for the

preparation of financial statements is called a:
ledger.
journal.
worksheet.
chart of accounts.
Multiple Choices

2mins
An internal document that helps summarize data for the preparation of financial statements is called a:ledger.journal.worksheet.chart

Слайд 51 An internal document that helps summarize data for the

preparation of financial statements is called a:
ledger.
journal.
worksheet.
chart of accounts.
Multiple Choices

2mins
An internal document that helps summarize data for the preparation of financial statements is called a:ledger.journal.worksheet.chart

Слайд 52The adjusted trial balance shows:
amounts that are out of balance

and ways to rectify them.
amounts that are to be used

to prepare the financial statements.
amounts of assets and liabilities only.
amounts of revenues and expenses only.

Multiple Choices 2mins

The adjusted trial balance shows:amounts that are out of balance and ways to rectify them.amounts that are

Слайд 53Keep up the good work !
C U next Tuesday!

Keep up the good work !C U next Tuesday!

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