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Rev. Recog - 2
DEFINITIONS Revenues
Inflows of assets or settlements of liabilities during a period from delivering or producing goods or services.
ExpensesOutflows of assets or incurrence of liabilities during
a period from delivering or producing goods or services.
○ Incurred in an attempt to produce revenues
Revenue and ExpensesThe price for goods sold and services rendered during a given accounting period.
Increases owner’s equity.
The costs of goods and services used up in the process of earning revenue.
Decreases owner’s equity.
Debits and Credits for Revenue and Expense
EQUITIES
Debit for
Decrease
Credit for
Increase
REVENUES
Debit for
Decrease
Credit for
Increase
EXPENSES
Credit for
Decrease
Debit for
Increase
Expenses decrease owner’s equity.
Revenues increase owner’s equity.
Rev. Recog - 5
REVENUE PRINCIPLE
Revenue should be recognized in the financial statement when . . .
It is earned, and
It is realized or realizable
(Measurable)
Rev. Recog - 6
REVENUE PRINCIPLE Revenue is earned when the earnings
process is completed or virtually completed.
Revenue is realized when cash is received.
Revenue is realizable when claims to cash are received that can be converted into a known amount of cash.
Rev. Recog - 7
REVENUE PRINCIPLE
Revenue is typically recognized:
○ At delivery (point of sale)
○ After delivery○ Before delivery
of product or service
Rev. Recog - 8
REVENUE RECOGNITION POINTS
Design and production,construction in progress,minerals discovered
Goods completedand ready for sale,contract complete
Delivery ofproduct or
service
Cash collectedfor goods or
services
Right ofreturn expires
Recognition before delivery
Recognition after delivery
Recognitionat delivery
Percentage-ofcompletion method
Productionmethod
Completedcontractmethod
Pointof salemethod
Installment method
Costrecovery method
Right ofreturn
expiration method
RELEVANCE RELIABILITY
Rev. Recog - 9
Revenue is earned and realized at the point of sale.
The product or service has been delivered to the customer and cash has been received or is receivable.
This method is sometimes called the “sales method,” or “delivery method.”
REVENUE RECOGNITION Point of Sale
Rev. Recog - 10
Uncertainties about collectibility or future performance by seller.
Sale with right of return.
Product-financing arrangements.
REVENUE RECOGNITION After Delivery
Rev. Recog - 11
INSTALLMENT SALES When we are uncertain about the
collectibility of the sales revenue or the ability of the seller to deliver futures services, we should defer revenue recognition.
Two commonly used accounting methods are the . . .Installment sales method.Cost recovery method.
Rev. Recog - 12
INSTALLMENT SALES
Installment Sales MethodSale and cost of sale recorded as usual.Compute gross margin rate on the installment
sales.Recognize gross margin as cash is received.Gross margin not realized is deferred until a
future period.
Rev. Recog - 13
INSTALLMENT SALESExample
Sam’s Appliances made sales of $200,000 in 20xx that qualified for the installment sales method of
accounting. The items sold have a cost to Sam’s of $130,000. During 20xx, Sam’s
collected cash from installment customers of $90,000. The remaining amount will be
collected in 20xx.
Prepare the journal entries to record the installment sales transactions during 20xx.
Rev. Recog - 14
INSTALLMENT SALES
Sam's AppliancesInstallment Sales
Dollars PercentInstallment sales revenue 200,000$ 100%Cost of goods sold 130,000 65%Gross margin 70,000$ 35%
Rev. Recog - 15
INSTALLMENT SALES
GENERAL JOURNAL Page 34
Date DescriptionPost. Ref. Debit Credit
Installment Accounts Receivable 200,000
Installment Revenue 200,000
Rev. Recog - 16
INSTALLMENT SALES
GENERAL JOURNAL Page 34
Date DescriptionPost. Ref. Debit Credit
Installment Accounts Receivable 200,000
Installment Revenue 200,000
Cost of Installment Sales 130,000
Inventory 130,000
Rev. Recog - 17
INSTALLMENT SALESExample
GENERAL JOURNAL Page 34
Date DescriptionPost. Ref. Debit Credit
Cash 90,000
Installment Accounts Receivable 90,000
Rev. Recog - 18
INSTALLMENT SALESExample
GENERAL JOURNAL Page 34
Date DescriptionPost. Ref. Debit Credit
Installment Revenue 200,000
Cost of Installment Sales 130,000
Deferred Gross Margin 70,000
Rev. Recog - 19
INSTALLMENT SALESExample
GENERAL JOURNAL Page 34
Date DescriptionPost. Ref. Debit Credit
Installment Revenue 200,000
Cost of Installment Sales 130,000
Deferred Gross Margin 70,000
Deferred Gross Margin 31,500
Realized Gross Margin 31,500
Rev. Recog - 20
GENERAL JOURNAL Page 34
Date DescriptionPost. Ref. Debit Credit
Installment Revenue 200,000
Cost of Installment Sales 130,000
Deferred Gross Margin 70,000
Deferred Gross Margin 31,500
Realized Gross Margin 31,500
INSTALLMENT SALESExample
Cash collection in 20xx $90,000Gross margin percentage 35%Gross profit to recognize $31,500
Rev. Recog - 21
INSTALLMENT SALES
Installment accounts receivable 110,000$Less: Deferred gross margin 38,500 Net Installment accounts receivable 71,500$
Balance Sheet
Rev. Recog - 22
INSTALLMENT SALES
Installment accounts receivable 110,000$Less: Deferred gross margin 38,500 Net Installment accounts receivable 71,500$
Installment accounts receivable 200,000$Less: Cash collections (90,000) Installment accounts receivable 110,000$
Deferred gross margin 70,000$ Less: Gross margin recognized (31,500) Deferred gross margin 38,500$
Balance Sheet
Rev. Recog - 23
COST RECOVERY METHOD
Like the installment sales method, cost recovery is used when we are uncertain about the collectibility of the sales revenue or the ability of the seller to complete future performance.
UNCERTAINTY IS GREATER!
No profit is recognized until cost of item sold is fully recovered.
Rev. Recog - 24
COST RECOVERY
Sam’s Appliances made sales of $200,000 in 20xx that qualified for the cost recovery
method of accounting. The items sold have a cost to Sam’s of $130,000. During 20xx,
Sam’s collected cash from installment customers of $90,000. The remaining
amount will be collected in 20xx.
Prepare the journal entries to record the installment sales transactions during 20xx.
Rev. Recog - 25
COST RECOVERY
GENERAL JOURNAL Page 34
Date DescriptionPost. Ref. Debit Credit
Installment Accounts Receivable 200,000
Installment Revenue 200,000
Rev. Recog - 26
COST RECOVERY
GENERAL JOURNAL Page 34
Date DescriptionPost. Ref. Debit Credit
Installment Accounts Receivable 200,000
Installment Revenue 200,000
Cost of Installment Sales 130,000
Inventory 130,000
Rev. Recog - 27
COST RECOVERY
GENERAL JOURNAL Page 34
Date DescriptionPost. Ref. Debit Credit
Installment Revenue 200,000
Cost of Installment Sales 130,000
Deferred Gross Margin 70,000
Rev. Recog - 28
COST RECOVERY
GENERAL JOURNAL Page 34
Date DescriptionPost. Ref. Debit Credit
Cash 90,000
Installment Accounts Receivable 90,000
No profit is recognized in 20xx because the cost of theitem sold ($130,000) has not been recovered in theform of cash receipts. Once we collect $130,000 in
cash, profit recognition begins.
Rev. Recog - 29
COST RECOVERY
All gross profit has been deferred until we recover the$130,000 cost of the item sold.
Installment accounts receivable 110,000$Less: Deferred gross margin (70,000) Net Installment accounts receivable 40,000$
Balance Sheet
Rev. Recog - 30
RIGHT OF RETURN
In some industries it is common practice that the sales terms allow customers the
right to return goods under specified conditions and over long periods of time.
Book Publishing Equipment Manufacturing
Rev. Recog - 31
RIGHT OF RETURNRecognize revenue at point of sale if,
Selling price is fixed or determinable. Buyer is obligated to pay the seller and payment is not
contingent upon resale of the product. Buyer is obligated even in case of theft or physical
destruction. Buyer has economic substance apart from that
provided by the seller. Seller has no obligation for future performance. Future returns can be estimated.
Rev. Recog - 32
PRODUCT-FINANCING ARRANGEMENTS
An agreement in which a sponsoring company sells a product to another company and in a related transaction agrees to repurchase the product.
The sponsoring companyRecords a liability when the proceeds are
received.No sale is recorded and inventory is not
adjusted. Wait for a sale to outside party.
Rev. Recog - 33
REVENUE RECOGNITION Before Delivery
Accounting for long-term construction contractsCompleted-Contract MethodPercentage-of-Completion Method
Rev. Recog - 34
REVENUE RECOGNITION Before Delivery
Percentage-of-completion method is appropriate when . . . Contract specifies the amount of consideration
to be exchanged and the terms of settlement.Buyer is expected to satisfy the obligation.Contractor can perform according to the terms
of the contract.
Rev. Recog - 35
MEASURING PROGRESS TOWARD COMPLETION
Input MeasuresEffort devoted to project compared to total
effort expected (cost incurred to date compared to total estimated costs)
Output MeasuresResults to date compared to total results
Rev. Recog - 36
MEASURING PROGRESS TOWARD COMPLETION
Cost-to-Cost Method Total costs incurred to date Percent complete = Most recent estimate of total costs of the project
Rev. Recog - 37
MEASURING PROGRESS TOWARD COMPLETION
Cost-to-Cost Method
Current Period Revenue
Total Revenue from Contract× Percent CompleteTotal Revenue to Recognize- Revenue Recognized in Prior Periods= Revenue Recognized in Current Period
Rev. Recog - 38
LONG-TERM CONTRACTSExample
During 20xx, West, Inc. enters into a contract with Putnam County to build a bridge over
Cane River. The project will take 3 years to complete and has a fixed price of
$4,500,000. West’s engineers estimate the total cost of the bridge to be $3,000,000. At the end of 20xx, the information on the next page was gathered by West’s accountant.
Rev. Recog - 39
LONG-TERM CONTRACTSExample
Project costs incurred during 20xx 750 000$ Estimated cost to complete the bridge 2 250 000 Amounts billed to Putnam Co. in 20xx 800 000 Cash collections from Putnam Co. 790 000
West uses the percentage-of-completionmethod to account for all long-term
construction projects.
Prepare the necessary 20xx journal entries for this project.
Rev. Recog - 40
LONG-TERM CONTRACTSExample
GENERAL JOURNAL Page 34
Date DescriptionPost. Ref. Debit Credit
Construction-In-Process 750,000
Cash, Payables, etc. 750,000
Rev. Recog - 41
LONG-TERM CONTRACTSExample
GENERAL JOURNAL Page 34
Date DescriptionPost. Ref. Debit Credit
Construction-In-Process 750,000
Cash, Payables, etc. 750,000
Accounts Receivable 800,000
Billings on Contracts 800,000
Rev. Recog - 42
LONG-TERM CONTRACTSExample
GENERAL JOURNAL Page 34
Date DescriptionPost. Ref. Debit Credit
Construction-In-Process 750,000
Cash, Payables, etc. 750,000
Accounts Receivable 800,000
Billings on Contracts 800,000
Cash 790,000
Accounts Receivable 790,000
Rev. Recog - 43
LONG-TERM CONTRACTSExample
GENERAL JOURNAL Page 34
Date DescriptionPost. Ref. Debit Credit
Construction-In-Process 375,000
Cost of Construction 750,000
Construction Revenue 1,125,000
750,000$ ÷ 3,000,000$ = 25% complete4,500,000$ × 25% = 1,125,000$ revenue1,500,000$ × 25% = 375,000$ profit
Rev. Recog - 44
LONG-TERM CONTRACTSExample
GENERAL JOURNAL Page 34
Date DescriptionPost. Ref. Debit Credit
Construction-In-Process 375,000
Cost of Construction 750,000
Construction Revenue 1,125,000
If West uses the Completed-Contract method, norevenue is recognized during 19X6. Allrevenue and profit is recognized at the
end of the contract when delivery of the bridge toPutnam County is made.
Rev. Recog - 45
REVENUE RECOGNITION Before Delivery Completion of Production
Accretion Basis
Discovery Basis
Rev. Recog - 46
REVENUE RECOGNITION Service Sales
Specific Performance Method
Proportional Performance Method
Completed Performance Method
Collection
Rev. Recog - 47
SPECIFIC PERFORMANCE
Used to account for revenue that is earned by performing a single act.Franchise revenue (SFAS No. 45)
Bob’sBurgers
Rev. Recog - 48
PROPORTIONAL PERFORMANCE
Used to recognize service revenue that is earned by more than a single act and when the service is rendered in more than one accounting period.Similar performance acts - equal amount for
each actDissimilar performance acts - in proportion to
direct costs of each actSimilar acts with a fixed period for
performance
Rev. Recog - 49
COMPLETED PERFORMANCE
Used when revenue is earned by performing a series of acts, and the last act is so important that revenue is only considered earned if it is performed.
Rev. Recog - 50
COLLECTION Used to account for service revenue when
the uncertainty of collection is very high. Revenue recognized when cash is
received.
Rev. Recog - 51
EXPENSE RECOGNITION
Expenses are outflows of assets or incurrences of liabilities during a period
from delivery or producing goods or rendering services.
Rev. Recog - 52
MATCHING Once revenues are determined, the
expenses incurred in generating the revenue should be recognized.
As revenues are earned, certain assets are consumed and services are used.
53
What is expenses? The costs associated with
producing revenue. What impact do expenses have
on equity? Expenses represent a decrease in
equity resulting from the cost of producing revenue.
Examples????
Expenses
55
A company pays wages of $250. Before using expense accounts:
Expenses
Dr. Owner’s Equity $250 Cr. Cash $250
Using expense accounts: Dr. Wages Expense $250 Cr. Cash $250
Rev. Recog - 56
GAINS AND LOSSES Gains and losses result from peripheral or
incidental transactions, events, or circumstances.
Most gains and losses are recognized when the transaction is completed.
Estimated losses are recognized before
realization if they are probable and can be
reasonably estimated.
TIME PERIOD ASSUMPTIONTIME PERIOD ASSUMPTION
The time period (or periodicity) assumption assumes that the economic life of a business can be divided into artificial time periods — generally a month, a quarter, or a year.
Periods of less than one year are called interim periods.
The accounting time period of one year in length is usually known as a fiscal year.
REVENUE RECOGNITION PRINCIPLEREVENUE RECOGNITION PRINCIPLE
The revenue recognition principle states that revenue should be recognized in the accounting period in which it is earned.
In a service business, revenue is usually considered to be earned at the time the service is performed.
In a merchandising business, revenue is usually earned at the time the goods are delivered.
THE MATCHING PRINCIPLETHE MATCHING PRINCIPLE
The practice of expense recognition is referred to as the matching principle.
The matching principle dictates that efforts (expenses) be matched with accomplishments (revenues).
Revenues earned
this month
are offset against....
expensesincurred inearning the
revenue
ACCRUAL BASIS OF ACCOUNTINGACCRUAL BASIS OF ACCOUNTING
Adheres to theRevenue recognition principleMatching principle
Revenue recorded when earned, not only when cash received.
Expense recorded when services or goods are used or consumed in the generation of revenue, not only when cash paid.
GA
AP
Revenue recorded only when cash received.
Expense recorded only when cash paid.
NO
T GA
AP
CASH BASIS OF ACCOUNTINGCASH BASIS OF ACCOUNTING
Adjusting entries make the revenue recognition and matching principles
HAPPEN!
ADJUSTING ENTRIESADJUSTING ENTRIES
TRIAL BALANCE
Debit CreditCash 15,200$ Advertising Supplies 2,500 Prepaid Insurance 600 Office Equipment 5,000 Notes Payable 5,000$ Accounts Payable 2,500 Unearned Revenue 1,200 C.R. Byrd, Capital 10,000 C.R. Byrd, Drawings 500 Service Revenue 10,000 Salaries Expense 4,000 Rent Expense 900
28,700$ 28,700$
Pioneer Advertising AgencyTrial Balance
October 31, 2002
The Trial Balance is
analysed to determine the
need for adjusting entries.
The Trial Balance is
analysed to determine the
need for adjusting entries.
Adjusting entries are required each time financial statements are prepared.
Adjusting entries can be classified as1. prepayments (prepaid expenses or
unearned revenues), 2. accruals (accrued revenues or
accrued expenses), or3. estimates (amortization).
ADJUSTING ENTRIESADJUSTING ENTRIES
TYPES OF ADJUSTING ENTRIESTYPES OF ADJUSTING ENTRIES
Prepayments
1. Prepaid Expenses — Expenses paid in cash and recorded as assets before they are used or consumed.
2. Unearned Revenues — Revenues received in cash and recorded as liabilities before they are earned.
TYPES OF ADJUSTING ENTRIESTYPES OF ADJUSTING ENTRIES
Accruals
1. Accrued Revenues — Revenues earned but not yet received in cash or recorded.
2. Accrued Expenses — Expenses incurred but not yet paid in cash or recorded.
TYPES OF ADJUSTING ENTRIES
Estimates
1. Amortization — Allocation of the cost of capital assets to expense over their useful lives.
PREPAYMENTSPREPAYMENTS
Prepayments are either prepaid expenses or unearned revenues.
Adjusting entries for prepayments are required to record the portion of the prepayment that represents1. the expense incurred or,2. the revenue earned in the current
accounting period.
Prepaid expenses are expenses paid in cash and recorded as assets before they are used or consumed.
Prepaid expenses expire with the passage of time or through use and consumption.
An asset-expense account relationship exists with prepaid expenses.
PREPAID EXPENSESPREPAID EXPENSES
Prior to adjustment, assets are overstated and expenses are understated.
The adjusting entry results in a debit to an expense account and a credit to an asset account.
Examples of prepaid expenses include supplies, rent, insurance, and property tax.
PREPAID EXPENSESPREPAID EXPENSES
Unearned revenues are revenues received and recorded as liabilities before they are earned.
Unearned revenues are subsequently earned by performing a service or providing a good to a customer.
A liability-revenue account relationship exists with unearned revenues.
UNEARNED REVENUESUNEARNED REVENUES
Prior to adjustment, liabilities are overstated and revenues are understated.
The adjusting entry results in a debit to a liability account and a credit to a revenue account.
Examples of unearned revenues include rent, magazine subscriptions, airplane tickets, and tuition.
UNEARNED REVENUESUNEARNED REVENUES
ADJUSTING ENTRIES FOR PREPAYMENTS
Adjusting Entries
Asset
Unadjusted Balance
Credit Adjusting Entry (-)
Expense
Debit Adjusting Entry (+)
Prepaid Expenses
Liability
Unadjusted Balance
Debit Adjusting Entry (-)
Revenue
Credit Adjusting Entry (+)
Unearned Revenues
ACCRUALSACCRUALS
A different type of adjusting entry is accruals.
Adjusting entries for accruals are required to record revenues earned and expenses incurred in the current period.
The adjusting entry for accruals will increase both a balance sheet and an income statement account.
Accrued revenues may accumulate with the passing of time or through services performed but not billed or collected.
An asset-revenue account relationship exists with accrued revenues.
Prior to adjustment, assets and revenues are understated.
The adjusting entry requires a debit to an asset account and a credit to a revenue account.
Examples of accrued revenues include accounts receivable, rent receivable, and interest receivable.
ACCRUED REVENUESACCRUED REVENUES
Accrued expenses are expenses incurred but not yet paid.
A liability-expense account relationship exists.
Prior to adjustment, liabilities and expenses are understated.
The adjusting entry results in a debit to an expense account and a credit to a liability account.
Examples of accrued expenses include accounts payable, rent payable, salaries payable, and interest payable.
ACCRUED EXPENSESACCRUED EXPENSES
FORMULA TO CALCULATE INTEREST
Face Value of
Note
Annual Interest
Rate
Time (in Terms of
One Year) x x Interest
$5,000 x 6% x 1/12 = $25
=
Adjusting Entries
Asset
Debit Adjusting Entry (+)
Accrued Revenues
Revenue
Credit Adjusting Entry (+)
Accrued Expenses
Expense
Debit Adjusting Entry (+)
Liability
Credit Adjusting Entry (+)
ADJUSTING ENTRIES FOR ACCRUALS
Amortization is the process of allocating the cost of certain capital assets to expense over their useful life in a rational and systematic manner.
Amortization attempts to match the cost of a long-term, capital asset to the revenue it generates each period.
AMORTIZATIONAMORTIZATION
AMORTIZATIONAMORTIZATION
Amortization is an estimate rather than a factual measurement of the cost that has expired.
We’re not attempting to reflect the
actual change in value of an asset!
Accumulated AmortizationAmortization Expense
AMORTIZATIONAMORTIZATION In recording amortization, Amortization
Expense is debited and a contra asset account, Accumulated Amortization, is credited.
The difference between the cost of the asset and its related accumulated amortization is referred to as the net book value of the asset.
xxx xxx
AMORTIZATION
Balance Sheet Presentation
Office equipment $5,000
Less: Accumulated amortization 83
Net book value $4,917
SUMMARY OF ADJUSTING ENTRIES
1.Prepaid Assets and Assets overstated Dr. Expenses expenses expenses
Expenses understated Cr. Assets2.Unearned Liabilities and Liabilities overstated Dr. Liabilities
revenues revenues Revenues understatedCr. Revenues
3.Accrued Assets and Assets understated Dr. Assets revenues revenuesRevenues understated Cr. Revenues4.Accrued Expenses and Expenses understated Dr. Expenses expenses liabilitiesLiabilities understated Cr. Liabilities5.Amortization Expense and Expenses understated Dr. Amort. Exp contra asset Assets overstated Cr. Accum. Amortization
1.Prepaid Assets and Assets overstated Dr. Expenses expenses expenses
Expenses understated Cr. Assets2.Unearned Liabilities and Liabilities overstated Dr. Liabilities
revenues revenues Revenues understatedCr. Revenues
3.Accrued Assets and Assets understated Dr. Assets revenues revenuesRevenues understated Cr. Revenues4.Accrued Expenses and Expenses understated Dr. Expenses expenses liabilitiesLiabilities understated Cr. Liabilities5.Amortization Expense and Expenses understated Dr. Amort. Exp contra asset Assets overstated Cr. Accum. Amortization
Type of Account Accounts before AdjustingAdjustment Relationship Adjustment Entry
ADJUSTED TRIAL BALANCEADJUSTED TRIAL BALANCE An Adjusted Trial Balance is prepared after all
adjusting entries have been journalized and posted.
It shows the balances of all accounts at the end of the accounting period and the effects of all financial events that have occurred during the period.
It proves the equality of the total debit and credit balances in the ledger after all adjustments have been made.
Financial statements can be prepared directly from the adjusted trial balance.
Debit Credit Debit CreditCash 15,200$ 15,200$ Accounts Receivable 200 Advertising Supplies 2,500 1,000 Prepaid Insurance 600 550 Office Equipment 5,000 5,000 Accumulated Amort'n. 83$ Notes Payable 5,000$ 5,000 Accounts Payable 2,500 2,500 Unearned Revenue 1,200 800 Salaries Payable 1,200 Interest Payable 25 C.R. Byrd, Capital 10,000 10,000 C.R. Byrd, Drawings 500 500 Service Revenue 10,000 10,600 Adv. Supplies Expense 1,500 Amortization Expense 83 Insurance Expense 50 Salaries Expense 4,000 5,200 Rent Expense 900 900 Interest Expense 25
28,700$ 28,700$ 30,208$ 30,208$
Pioneer Advertising AgencyTrial Balance
October 31, 2002Before Adjustment After Adjustment
TRIAL BALANCE AND ADJUSTED TRIAL BALANCE COMPARED
PREPARING FINANCIAL STATEMENTSPREPARING FINANCIAL STATEMENTS
Financial statements can be prepared directly from an adjusted trial balance.1. The income statement is prepared from the revenue and expense accounts.2. The statement of owner’s equity is derived from the owner’s capital and drawings accounts and the net income (or net loss) shown in the income statement.3. The balance sheet is then prepared from the asset and liability accounts and the ending owner’s capital balance as reported in the statement of owner’s equity.
PREPARATION OF THE INCOME STATEMENT AND THE STATEMENT OF OWNER’S EQUITY FROM THE ADJUSTED TRIAL BALANCE
RevenuesService Revenue 10,600$
ExpensesAdv. Supplies Expense 1,500$ Amortization Expense 83 Insurance Expense 50 Salaries Expense 5,200 Rent Expense 900 Interest Expense 25 Total Expenses 7,758
Net Income 2,842$
Pioneer Advertising AgencyIncome Statement
For the Month Ended October 31, 2002
C.R. Byrd, Capital, October 1 -$ Add: Investments 10,000 Net income 2,842
12,842 Less: Drawings 500 C.R. Byrd, Capital, October 31 12,342$
Statement of Owner's EquityFor the Month Ended October 31, 2002
Pioneer Advertising Agency
Debit CreditCash 15,200$ Accounts Receivable 200 Advertising Supplies 1,000 Prepaid Insurance 550 Office Equipment 5,000 Accumulated Amort'n. 83$ Notes Payable 5,000 Accounts Payable 2,500 Unearned Revenue 800 Salaries Payable 1,200 Interest Payable 25 C.R. Byrd, Capital 10,000 C.R. Byrd, Drawings 500 Service Revenue 10,600 Adv. Supplies Expense 1,500 Amortization Expense 83 Insurance Expense 50 Salaries Expense 5,200 Rent Expense 900 Interest Expense 25
30,208$ 30,208$
Pioneer Advertising AgencyAdjusted Trial Balance
October 31, 2002
Debit CreditCash 15,200$ Accounts Receivable 200 Advertising Supplies 1,000 Prepaid Insurance 550 Office Equipment 5,000 Accumulated Amort'n. 83$ Notes Payable 5,000 Accounts Payable 2,500 Unearned Revenue 800 Salaries Payable 1,200 Interest Payable 25 C.R. Byrd, Capital 10,000 C.R. Byrd, Drawings 500 Service Revenue 10,600 Adv. Supplies Expense 1,500 Amortization Expense 83 Insurance Expense 50 Salaries Expense 5,200 Rent Expense 900 Interest Expense 25
30,208$ 30,208$
Pioneer Advertising AgencyAdjusted Trial Balance
October 31, 2002
Cash 15,200$ Accounts Receivable 200 Advertising Supplies 1,000 Prepaid Insurance 550 Office Equipment 5,000$ Less: Accumulated Amortization 83 4,917
Total Assets 21,867$
Liabilities and Owner's EquityLiabilities Notes Payable 5,000$ Accounts Payable 2,500 Unearned Revenue 800 Salaries Payable 1,200 Interest Payable 25
Total Liabilities 9,525$ Owner's EquityC.R. Byrd, Capital 12,342 Total Liabilities and Owner's Equity 21,867$
October 31, 2002Assets
Pioneer Advertising AgencyBalance Sheet
PREPARATION OF THE BALANCE SHEET FROM THE ADJUSTED TRIAL BALANCE
From Statement of Owner’s
Equity
1. Analyse transactions 2. Journalize the
transactions
3. Post to ledger accounts
4. Prepare a trial balance
5. Journalize and post adjusting entries
6. Prepare adjusted trial
balance
7. Prepare financial
statements
8. Coming next chapter
9. Coming next chapter
STEPS IN THE ACCOUNTING CYCLESTEPS IN THE ACCOUNTING CYCLE