ACCTG 211 1st Edition Lecture 5Outline of Last Lecture I. Short Term VS Long Term Accounting II. Cash Basis Accounting III. Accrual Accounting IV. Accrual AccountsV. Revenue Recognition PrincipleVI. Expense Recognition PrincipleVII. Matching Principle VIII. There are 5 types of adjustmentsIX. Examples of the 5 types of Adjustments X. INTEREST EXPENSEXI. DEPRECIATIONOutline of Current Lecture I. EX of a problem summarizing Unit 2II. 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 sheetVII. How to calculate Statement of cash flows:Current LectureVIII. EX of a problem summarizing Unit 2a. This will bring everything we have learned so far togetherb. We will be putting together all the different types of financial statements, accounting, and adjustments….IX. 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 inexchange for common stockb. The company purchased office equipment for $8,000 cash and also purchased land for $15,000 cashc. The company earned a total $22,000 of service revenue, of which $16,000 was collected in cashd. The company purchased $890 worth of supplies for cashThese 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.e. The company paid $6,000 in cash for operating expensesf. The company accepted payment of $2,000 from a customer in advance of performing services. The services in question were scheduled to be performed inFebruary 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 leftat the end of the month.j. FOR THIS PROBLEM FIND:i. Identify how each transaction affects the accounting equationii. Record any required adjustments at 01/31/12iii. Prepare an Income Statement, Statement of Stockholders’ Equity, BalanceSheet, and Statement of Cash Flows for the month of January 2012 (Balance Sheet Date: 01/31/12)X. 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?XI. Going Through each Transaction a. The owners started the business as a corporation by contributing $30,000 cash inexchange for common stocki. Cash up $30,000ii. Common stock up $30,000b. The company purchased office equipment for $8,000 cash and also purchased land for $15,000 cashi. Cash down $23,000ii. 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 cashi. $22,000 increase in earned revenueii. $16,000 increase in cashiii. $6,000 increase in accounts receivable (asset)d. The company purchased $890 worth of supplies for cashi. $890 decrease in cashii. $890 increase in suppliese. The company paid $6,000 in cash for operating expensesi. $6,000 decrease in cashii. $6,000 increase in operating expense1. 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 inFebruary 2012.i. $2000 increase in cashii. $2000 increase in unearned revenueiii. Once these services are performed in Feb, there will be a decrease in unearned revenue and an increase in earned revenueg. 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 performed1. This means you have accrued $10,000 in salary expense2. BUT you still have 2 days from the fifth week3. You owe your employees $500 per day that they worka. $2,500/54. You owe employees $1,000 for those two extra days a. $11,000 in totalii. $10,000 decrease in cash iii. $1,0000 increase in salaries payableiv. $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 1st1. $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 $3002. prepaid insurance decreases $3003. Insurance expense increases $300iii.i. A physical count of supplies on 01/31/12 revealed that $175 of supplies were leftat the end of the month. i. You started with $890 in supplies and are now left with $175 in supplies1. Do the math! You used $715 in supplies 2. $715 decrease in supplies3. $715 increase in supplies expenseXII. How to create an income statement a. CONT. from example aboveb. Find the revenuesi. Service Revenue: 22,000c. Find the expensesi. Operating Expense: 6,000ii. Salaries Expense: 11,000iii. Supplies: Expense: 715iv. Insurance Expense: 300v. Total Expenses: 18,015d. Revenues-Expenses = Net Income = $3,985XIII. How to find Statement of Changes in Stockholder’s Equity a. Beginning CC + Issue of CS = Ending CCi. Issue of CS = 30,000ii. Ending CC = 30,000b. Beginning R/E + Net Income – Dividends = Ending R/Ei. Net income= 3,985ii. Ending R/E= 3,985c. Ending CC + Ending R/E = Statement of Changes in Stockholder’s Equity i. $30,000+$3,985= $33,985XIV. How to calculate a balance sheeta. Keep the accounting equation balanced!i. Assets= Liabilities + Stockholder’s Equity 1. Stockholder’s Equity = Common Stock + Earned Revenueb. Assets:i. Cash: 6,310ii. Accounts Receivable: 6,000iii. Supplies: 175iv. Office Equipment: 8000v. Prepaid Insurance: 1,500vi. Land: 15,000vii. Total Assets: $36,985c. Liabilitiesi. Unearned Revenue: 2,000ii. Salaries payable: 1,000iii. Total Liabilities: $3,000d. Equityi. Contributed Capital: $30,000ii. Retained Earnings: 3,985iii. Total Equity: $33,985e. Total Liabilities and Equity: $36,985f. Liabilities