ACCT 200 1st Edition Lecture 6 Outline of Last Lecture I Review II T Accounts III Trial Balance IV Exercise 2 3 V Brief Exercise 3 1 Outline of Current Lecture I Brief Exercise 3 3 II Chapter 3 Notes III Brief Exercise 3 6 IV Brief Exercise 3 10 V Brief Exercise 3 11 VI Brief Exercise 3 12 VII Brief Exercise 3 13 VIII Exercise 3 13 Current Lecture Brief Exercise 3 3 Net income revenues expenses 15 000 11 000 4000 One problem with cash basis accounting is that the company can manipulate and ask their customers to pay later so that their financial statements look better However small businesses can sometimes use cash basis accounting Adjusting entries don t record cash transactions have balance sheet income statement Expires means was used up this month like when you prepay a year of rent for 6000 at the end of January 500 of prepaid rent has expired Matching principle matching expenses to the time period in which they were acquired accrued Accrued revenue earned revenue that won t be paid until later for example a company ships goods to a customer and sends them an invoice bill that must be paid within 30 days Sample journal entries for a 6 month insurance policy for 3000 paid on June 25 that covers July 1 Dec 31 Debit 6 25 Prepaid insurance 3000 Cash 12 31 Insurance expense Credit 3000 3000 Prepaid insurance 3000 Depending on the company you may have to make journal entries every month 500 of prepaid insurance expires at the end of each month July Dec Brief Exercise 3 6 Supplies 400 2300 x solve for x based on the ending balance to figure out how much supplies 200 were used that month ending balance debit 400 2300 2700 2700 200 2500 so x 2500 Journal entries Supplies 2300 Cash 2300 Supplies expense 2500 Supplies 2500 Say a company makes a contract for a 1000 job and receives 20 200 up front Journal entry Cash 200 Unearned rev 200 Brief Exercise 3 10 11 1 Cash 4500 Unearned rev 12 31 Unearned rev 3000 4500 Service rev 3000 T account Unearned Rev 4500 3000 1500 Ending balance credit will be used in Jan Brief Exercise 3 11 12 28 1 11 3 days 2012 11 days 2013 Journal entry 12 31 12 Salaries expense 900 Salaries payable 1 11 13 900 Salaries payable 900 Salaries expense 3300 Cash 4200 Brief Exercise 3 12 Interest annual rate x principle x number of months 12 Principle amount of money lent 12 x 10 000 x 6 12 6 12 because this example is for Jul Dec 6 months out of 12 Company is being lent money 7 1 12 Cash 10 000 Note payable 12 31 12 Interest expense 10 000 600 Interest payable 600 Brief Exercise 3 13 Same exercise but from viewpoint of lender 7 1 12 Note receivable 10 000 Cash 12 31 12 Interest receivable 10 000 600 Interest revenue 600 Exercise 3 13 a 8000 x 8 x 3 12 160 12 31 Interest receivable 160 Interest revenue b Used 2 months prepaid rent 12 31 Rent expense 2000 Prepaid rent c Earned 5 months rent 12 31 Unearned revenue 5000 Rental revenue d 12 31 Depreciation expense 4500 Accumulated depreciation e Salaries earned but not paid 12 31 Salaries expense 4000 Salaries payable f 3000 supplies were used this year 12 31 Supplies expense 3000 Supplies 160 2000 5000 4500 4000 3000
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