ACCT 240 004 9 10 The Matching Principle Resources expenses consumed in order to generate revenue is recognized in the accounting period that the resources were consumed not when they were paid If a resource is paid for before using the benefit of the recourse you would Prepaid Expense A Debit Credit A Cash Then when the expense is incurred Expense E Debit Prepaid Expense A Credit If cash paid when expense incurred Expense E Debit Cash A Credit Cash paid for Supplies Supplies Expense Prepaid insurance Insurance Expense Buildings and equipment Depreciation Expense pg 112 Self Study Quiz a Beginning of month Prepaid Rent 3000 Cash 3000 End of month Debit Rent Expense 1000 Credit Prepaid rent 1000 b In December Debit Supplies Credit Accounts Payable In January Debit Accounts Payable Credit Cash c Based on b s start Debit Supplies Expense Credit Supplies d January Utilities Expense 400 Accounts Payable 400 February Accounts Payable 400 Cash 400 Revenues increase with debits decrease with debits Expenses Debit for increase credit for decrease Retained earnings decrease for expenses dividends increase with income Expenses negative retained earnings Supplies Assets Papa Johns sold new franchises for 400 cash earning 100 now and the next 300 earned over following months Cash A 400 Franchise fee revenue R SE 100 Unearned Franchise Fee L 300 Later when earned Unearned FF 300 FF Revenue 300 In Class Activity M3 4 f In June Utilities Expense 1900 Accounts payable 1900 Today Accounts payable 1900 Cash 1900 g Debit Wage Expense 4700 Cash h At first Prepaid Insurance Expense 1800 Cash 1800 When used Debit Insurance Expense Credit Prepaid Expense i Debit Repair expense 1400 Credit Cash 1400 j Debiting Utility Expense 2600 Credit Accounts payable 2600
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