ACCT 200 1st Edition Lecture 6Outline of Last Lecture I. Review II. T-AccountsIII. Trial BalanceIV. Exercise 2-3V. Brief Exercise 3-1Outline of Current Lecture I. Brief Exercise 3-3II. Chapter 3 NotesIII. Brief Exercise 3-6IV. Brief Exercise 3-10V. Brief Exercise 3-11VI. Brief Exercise 3-12VII. Brief Exercise 3-13VIII. Exercise 3-13Current LectureBrief Exercise 3-3Net income=revenues-expenses=15,000-11,000=$4000One 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 Credit6/25 Prepaid insurance 3000Cash 300012/31 Insurance expense 3000Prepaid insurance 3000Depending 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 4002300 x solve for x based on the ending balance to figure out how much supplies 200 were used that monthending balance (debit) 400+2300=2700; 2700-200=2500, so x=2500Journal entriesSupplies 2300Cash 2300Supplies expense 2500Supplies 2500Say a company makes a contract for a $1000 job and receives 20% ($200) up front. Journal entryCash 200Unearned rev. 200Brief Exercise 3-1011/1 Cash 4500Unearned rev. 450012/31 Unearned rev. 3000Service rev. 3000T-account Unearned Rev. 45003000 1500Ending balance (credit) - will beused in Jan.Brief Exercise 3-1112/28-1/11=3 days 2012, 11 days 2013Journal entry:12/31/12 Salaries expense 900Salaries payable 9001/11/13 Salaries payable 900Salaries expense 3300Cash 4200Brief Exercise 3-12Interest: (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 12Company is being lent money7/1/12 Cash 10,000Note payable 10,00012/31/12 Interest expense 600Interest payable 600Brief Exercise 3-13Same exercise but from viewpoint of lender7/1/12 Note receivable 10,000Cash 10,00012/31/12 Interest receivable 600Interest revenue 600Exercise 3-13a. 8000 x [8% x 3/12]=$16012/31 Interest receivable 160Interest revenue 160b. Used 2 months prepaid rent12/31 Rent expense 2000Prepaid rent 2000c. Earned 5 months’ rent12/31 Unearned revenue 5000Rental revenue 5000d. 12/31 Depreciation expense 4500Accumulated depreciation 4500e. Salaries earned but not paid12/31 Salaries expense 4000Salaries payable 4000f. ($3000 supplies were used this year)12/31 Supplies expense 3000Supplies
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