3-1 Intermediate Accounting 15th Edition 3 The Accounting
Information System Kieso, Weygandt, and Warfield Slide 2 3-2 The
Accounting Cycle LO 3 Identify steps in the accounting cycle.
Transactions 1. Journalization 6. Financial Statements 7. Closing
entries 8. Post-closing trail balance 9. Reversing entries 3. Trial
balance 2. Posting 5. Adjusted trial balance 4. Adjustments Work
Sheet Illustration 3-6 Slide 3 3-3 General Journal a chronological
record of transactions. Journal Entries are recorded in the
journal. 1. Journalizing LO 4 Record transactions in journals, post
to ledger accounts, and prepare a trial balance. September 1:
Stockholders invested $15,000 cash in the corporation in exchange
for shares of stock. Illustration 3-7 Slide 4 3-4 Posting
Transferring amounts from journal to ledger. 2. Posting LO 4
Illustration 3-8 Slide 5 3-5 1. October 1: Stockholders invest
$100,000 cash in an advertising venture to be known as Pioneer
Advertising Agency Inc. Common stock100,000 Cash100,000Oct. 1
DebitCredit Cash 100,000100,000 DebitCredit Common Stock 2. Posting
LO 4 Record transactions in journals, post to ledger accounts, and
prepare a trial balance. Slide 6 3-6 2. October 1: Pioneer
Advertising purchases office equipment costing $50,000 by signing a
3-month, 12%, $50,000 note payable. Notes payable50,000
Equipment50,000Oct. 1 DebitCredit Equipment 50,00050,000
DebitCredit Notes Payable 2. Posting LO 4 Record transactions in
journals, post to ledger accounts, and prepare a trial balance.
Slide 7 3-7 3. October 2: Pioneer Advertising receives a $12,000
cash advance from KC, a client, for advertising services that are
expected to be completed by December 31. Unearned service
revenue12,000 Cash12,000Oct. 2 DebitCredit Cash 100,00012,000
DebitCredit Unearned Service Revenue 2. Posting 12,000 LO 4 Record
transactions in journals, post to ledger accounts, and prepare a
trial balance. Slide 8 3-8 4. October 3: Pioneer Advertising pays
$9,000 office rent, in cash, for October. Cash9,000 Rent
expense9,000Oct. 3 DebitCredit Cash 100,0009,000 DebitCredit Rent
Expense 2. Posting 12,000 9,000 LO 4 Record transactions in
journals, post to ledger accounts, and prepare a trial balance.
Slide 9 3-9 5. October 4: Pioneer Advertising pays $6,000 for a
one-year insurance policy that will expire next year on September
30. Cash6,000 Prepaid insurance6,000Oct. 4 DebitCredit Cash
100,0006,000 DebitCredit Prepaid Insurance 2. Posting 12,000 9,000
6,000 LO 4 Record transactions in journals, post to ledger
accounts, and prepare a trial balance. Slide 10 3-10 6. October 5:
Pioneer Advertising purchases, for $25,000 on account, an estimated
3-month supply of advertising materials from Aero Supply. Accounts
payable25,000 Supplies25,000Oct. 5 DebitCredit Supplies
25,00025,000 DebitCredit Accounts Payable 2. Posting LO 4 Record
transactions in journals, post to ledger accounts, and prepare a
trial balance. Slide 11 3-11 8. October 20: Pioneer Advertisings
board of directors declares and pays a $5,000 cash dividend to
stockholders. Cash5,000 Dividends5,000Oct. 20 DebitCredit Cash
100,0005,000 DebitCredit Dividends 2. Posting 12,000 9,000 6,000
5,000 LO 4 Record transactions in journals, post to ledger
accounts, and prepare a trial balance. Slide 12 3-12 9. October 26:
Employees are paid every four weeks. The total payroll is $2,000
per day. The pay period ended on Friday, October 26, with salaries
of $40,000 being paid. Cash40,000 Salaries expense40,000Oct. 26
DebitCredit Cash 100,00040,000 DebitCredit Salaries Expense 2.
Posting 12,000 9,000 6,000 5,000 40,000 LO 4 Record transactions in
journals, post to ledger accounts, and prepare a trial balance.
Slide 13 3-13 10. October 31: Pioneer Advertising receives $28,000
in cash and bills Copa Company $72,000 for advertising services of
$100,000 provided in October. Accounts receivable72,000
Cash28,000Oct. 31 DebitCredit Cash 100,00072,000 DebitCredit
Accounts Receivable 2. Posting 12,000 9,000 6,000 5,000 40,000
Service revenue100,000 100,000 DebitCredit Service Revenue 28,000
80,000 Slide 14 3-14 Trial Balance Trial Balance A list of each
account and its balance; used to prove equality of debit and credit
balances. 3. Trial Balance LO 4 Illustration 3-19 Slide 15 3-15 4.
Adjusting Entries LO 5 Explain the reasons for preparing adjusting
entries. Makes it possible to: Report on the statement of financial
position the appropriate assets, liabilities, and equity at the
statement date. Report on the income statement the proper revenues
and expenses for the period. Revenues are recorded in the period in
which they are earned. Expenses are recognized in the period in
which they are incurred. Slide 16 3-16 Types of Adjusting Entries
1.Prepaid Expenses. Expenses paid in cash and recorded as assets
before they are used or consumed. Prepayments 3. Accrued Revenues.
Revenues earned but not yet received in cash or recorded. 4.
Accrued Expenses. Expenses incurred but not yet paid in cash or
recorded. 2. Unearned Revenues. Revenues received in cash and
recorded as liabilities before they are earned. Accruals LO 5
Explain the reasons for preparing adjusting entries. Illustration
3-20 Slide 17 3-17 Supplies. An inventory count at the close of
business on October 31 reveals that $10,000 of the advertising
supplies are still on hand. Supplies15,000 Supplies
expense15,000Oct. 31 DebitCredit Supplies 25,00015,000 DebitCredit
Supplies Expense 15,000 Adjusting Entries for Prepaid Expenses
10,000 LO 5 Explain the reasons for preparing adjusting entries.
Slide 18 3-18 Insurance. An analysis of the policy reveals that
$500 ($6,000 / 12) of insurance expires each month. Thus, Pioneer
makes the following adjusting entry. Prepaid insurance500 Insurance
expense500Oct. 31 DebitCredit Prepaid Insurance 6,000500
DebitCredit Insurance Expense Adjusting Entries for Prepaid
Expenses 500 5,500 LO 5 Explain the reasons for preparing adjusting
entries. Slide 19 3-19 Depreciation. Pioneer Advertising estimates
depreciation on its office equipment to be $400 per month.
Accordingly, Pioneer recognizes depreciation for October by the
following adjusting entry. Accumulated depreciation400 Depreciation
expense400Oct. 31 DebitCredit Depreciation Expense 400400
DebitCredit Accumulated Depreciation Adjusting Entries for Prepaid
Expenses LO 5 Explain the reasons for preparing adjusting entries.
Slide 20 3-20 DebitCredit Service Revenue 100,00012,000 DebitCredit
Unearned Service Revenue 4,000 8,000 Adjusting Entries for Unearned
Revenues Unearned Revenues. Analysis reveals that Pioneer earned
$4,000 of the advertising services in October. Thus, Pioneer makes
the following adjusting entry. Service revenue4,000 Unearned
service revenue4,000Oct. 31 4,000 LO 5 Explain the reasons for
preparing adjusting entries. Slide 21 3-21 Accrued Revenues. In
October Pioneer earned $2,000 for advertising services that it did
not bill to clients before October 31. Thus, Pioneer makes the
following adjusting entry. Service revenue2,000 Accounts
receivable2,000Oct. 31 DebitCredit Accounts Receivable 72,000
Adjusting Entries for Accrued Revenues DebitCredit Service Revenue
100,000 4,000 2,000 106,000 2,000 74,000 LO 5 Slide 22 3-22
Interest payable500 Interest expense500Oct. 31 DebitCredit Interest
Expense 500500 DebitCredit Interest Payable Adjusting Entries for
Accrued Expenses Accrued Interest. Pioneer signed a three-month,
12%, note payable in the amount of $50,000 on October 1. Prepare
the adjusting entry on Oct. 31 to record the accrual of interest.
LO 5 Explain the reasons for preparing adjusting entries. Slide 23
3-23 Salaries payable6,000 Salaries expense6,000Oct. 31 DebitCredit
Salaries Expense 40,0006,000 DebitCredit Salaries Payable Adjusting
Entries for Accrued Expenses Accrued Salaries. Employees receive
total salaries of $10,000 for a five-day work week, or $2,000 per
day. Prepare the adjusting entry on Oct. 31 to record accrual for
salaries. 6,000 46,000 LO 5 Explain the reasons for preparing
adjusting entries. Slide 24 3-24 Salaries expense34,000 Salaries
payable6,000Nov. 23 DebitCredit Salaries Expense 34,0006,000
DebitCredit Salaries Payable Adjusting Entries for Accrued Expenses
Accrued Salaries. On November 23, Pioneer will again pay total
salaries of $40,000. Prepare the entry to record the payment of
salaries on November 23. Cash40,000 6,000 LO 5 Explain the reasons
for preparing adjusting entries. Slide 25 3-25 6. Preparing
Financial Statements LO 6 Illustration 3-34 Slide 26 3-26 6.
Preparing Financial Statements Illustration 3-35 LO 6 Slide 27 3-27
7. Closing Entries LO 7 Prepare closing entries. To reduce the
balance of the income statement (revenue and expense) accounts to
zero. To transfer net income or net loss to owners equity. Balance
sheet (asset, liability, and equity) accounts are not closed.
Dividends are closed directly to the Retained Earnings account.
Slide 28 3-28 7. Closing Entries LO 7 Prepare closing entries.
Retained earnings 5,000 Dividends 5,000 Service revenue106,000
Salaries & wages expense46,000 Supplies expense15,000 Rent
expense9,000 Insurance expense500 Interest expense500 Depreciation
expense400 Bad debt expense1,600 Retained earnings33,000
Illustration 3-33 Closing Journal Entries: Slide 29 3-29 8.
Post-Closing Trial Balance LO 7 Illustration 3-38 Slide 30 3-30 9.
Reversing Entries LO 7 Prepare closing entries. After preparing the
financial statements and closing the books, a company may reverse
some of the adjusting entries before recording the regular
transactions of the next period.
