ACCTG 211 1st Edition Lecture 5 Outline of Last Lecture I Short Term VS Long Term Accounting II Cash Basis Accounting III Accrual Accounting IV Accrual Accounts V Revenue Recognition Principle VI Expense Recognition Principle VII Matching Principle VIII There are 5 types of adjustments IX Examples of the 5 types of Adjustments X INTEREST EXPENSE XI DEPRECIATION Outline of Current Lecture I EX of a problem summarizing Unit 2 II How to solve changes in the Accounting Equation III Going Through each Transaction IV How to create an income statement V How to find Statement of Changes in Stockholder s Equity VI How to calculate a balance sheet VII How to calculate Statement of cash flows Current Lecture VIII IX EX of a problem summarizing Unit 2 a This will bring everything we have learned so far together b We will be putting together all the different types of financial statements accounting and adjustments EXAMPLE Heath Bar Company began operations on 01 01 12 Transactions affecting Heath Bar Company during January 2012 follow a The owners started the business as a corporation by contributing 30 000 cash in exchange for common stock b The company purchased office equipment for 8 000 cash and also purchased land for 15 000 cash c The company earned a total 22 000 of service revenue of which 16 000 was collected in cash d The company purchased 890 worth of supplies for cash These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute X XI e The company paid 6 000 in cash for operating expenses f The company accepted payment of 2 000 from a customer in advance of performing services The services in question were scheduled to be performed in February 2012 g Salaries of 2 500 are paid each Friday for work performed Monday through Friday Four full weeks of salaries were paid in January 2012 For the fifth week 01 31 12 was a Tuesday h A 6 month insurance policy was purchased by the company on 01 01 12 for 1 800 i A physical count of supplies on 01 31 12 revealed that 175 of supplies were left at the end of the month j FOR THIS PROBLEM FIND i Identify how each transaction affects the accounting equation ii Record any required adjustments at 01 31 12 iii Prepare an Income Statement Statement of Stockholders Equity Balance Sheet and Statement of Cash Flows for the month of January 2012 Balance Sheet Date 01 31 12 How to solve changes in the Accounting Equation a First consider these 3 items i 1 Which accounts are affected ii Question 2 Which category is each account iii Question 3 Is each account increasing or decreasing Going Through each Transaction a The owners started the business as a corporation by contributing 30 000 cash in exchange for common stock i Cash up 30 000 ii Common stock up 30 000 b The company purchased office equipment for 8 000 cash and also purchased land for 15 000 cash i Cash down 23 000 ii Equipment up 8 000 asset iii Land increase 15 000 asset c The company earned a total 22 000 of service revenue of which 16 000 was collected in cash i 22 000 increase in earned revenue ii 16 000 increase in cash iii 6 000 increase in accounts receivable asset d The company purchased 890 worth of supplies for cash i 890 decrease in cash ii 890 increase in supplies e The company paid 6 000 in cash for operating expenses i 6 000 decrease in cash XII ii 6 000 increase in operating expense 1 Remember and increase in an expense is a decrease in stockholder s equity f The company accepted payment of 2 000 from a customer in advance of performing services The services in question were scheduled to be performed in February 2012 i 2000 increase in cash ii 2000 increase in unearned revenue iii Once these services are performed in Feb there will be a decrease in unearned revenue and an increase in earned revenue g Salaries of 2 500 are paid each Friday for work performed Monday through Friday Four full weeks of salaries were paid in January 2012 For the fifth week 01 31 12 was a Tuesday i You have 4 full weeks of pay your employees have performed 1 This means you have accrued 10 000 in salary expense 2 BUT you still have 2 days from the fifth week 3 You owe your employees 500 per day that they work a 2 500 5 4 You owe employees 1 000 for those two extra days a 11 000 in total ii 10 000 decrease in cash iii 1 0000 increase in salaries payable iv 11 000 increase in salary expense h A 6 month insurance policy was purchased by the company on 01 01 12 for 1 800 i First deal with the transaction that occurs on the 1st 1 1 800 increase In prepaid insurance asset 2 1 800 decrease in cash ii Now deal with the amount of insurance you have actually used 1 Each month of insurance is 300 2 prepaid insurance decreases 300 3 Insurance expense increases 300 iii i A physical count of supplies on 01 31 12 revealed that 175 of supplies were left at the end of the month i You started with 890 in supplies and are now left with 175 in supplies 1 Do the math You used 715 in supplies 2 715 decrease in supplies 3 715 increase in supplies expense How to create an income statement a CONT from example above b Find the revenues i Service Revenue 22 000 XIII XIV XV c Find the expenses i Operating Expense 6 000 ii Salaries Expense 11 000 iii Supplies Expense 715 iv Insurance Expense 300 v Total Expenses 18 015 d Revenues Expenses Net Income 3 985 How to find Statement of Changes in Stockholder s Equity a Beginning CC Issue of CS Ending CC i Issue of CS 30 000 ii Ending CC 30 000 b Beginning R E Net Income Dividends Ending R E i Net income 3 985 ii Ending R E 3 985 c Ending CC Ending R E Statement of Changes in Stockholder s Equity i 30 000 3 985 33 985 How to calculate a balance sheet a Keep the accounting equation balanced i Assets Liabilities Stockholder s Equity 1 Stockholder s Equity Common Stock Earned Revenue b Assets i Cash 6 310 ii Accounts Receivable 6 000 iii Supplies 175 iv Office Equipment 8000 v Prepaid Insurance 1 500 vi Land 15 000 vii Total Assets 36 985 c Liabilities i Unearned Revenue 2 000 ii Salaries payable 1 000 iii Total Liabilities 3 000 d Equity i Contributed Capital 30 000 ii Retained Earnings 3 985 iii Total Equity 33 985 e Total Liabilities and Equity 36 985 f Liabilities and Equity Assets How to calculate Statement of cash flows a Operating Activates Financing Activities Investing Activities Total Cash b Operating …