Accrual-Basis Accounting and Examples (4 pages)

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Accrual-Basis Accounting and Examples



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Accrual-Basis Accounting and Examples

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Lecture number:
6
Pages:
4
Type:
Lecture Note
School:
University of Arizona
Course:
Acct 200 - Introduction to Financial Accounting
Edition:
1

Unformatted text preview:

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



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