Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 1 Accruals and Deferrals Extra Solutions to Monday’s Handout

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 2 ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? You should try the exercises in the handout but not covered in class. The first one is about Prepaid Insurance and begins in the middle of page 6 on the handout. Turn there.

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 3 Insurance ExpensePrepaid Insurance Bal. 1,000 $600 of premiums have expired You try to make the adjusting entry before seeing the solution here. ? ? ? ? ? ? ?

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 4 Insurance ExpensePrepaid Insurance Bal. 1,000 $600 of premiums have expired You try to make the adjusting entry before seeing the solution here: Insurance Expense 600 Prepaid Insurance600 ? ? ? ? ? ? ?

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 5 Which method is being used? Should the AJE be reversed? Why or why not? ? ? ? ? ? ? ?

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 6 Which method is being used? ASSET ? ? ? ? ? ? ? Insurance ExpensePrepaid Insurance Bal. 1,000 (the balance was in Prepaid Insurance before adjustment)

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 7 Should the AJE be reversed? NO ? ? ? ? ? ? ? Insurance ExpensePrepaid Insurance Bal. 1,000AJE 600 C2 600 Following ASSET method, therefore, balance already in ASSET account. See also decision tree.

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 8 Insurance ExpensePrepaid Insurance Bal. 1,000 $600 of premiums have expired You try to make the adjusting entry before seeing the solution here. ? ? ? ? ? ? ?

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 9 Insurance ExpensePrepaid Insurance Bal. 1,000 $600 of premiums have expired You try to make the entry before seeing the solution here. Prepaid Insurance 400 Insurance Expense400 ? ? ? ? ? ? ?

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 10 Which method is being used? Should the AJE be reversed? Why or why not? ? ? ? ? ? ? ?

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 11 Which method is being used? EXPENSE ? ? ? ? ? ? ? Insurance ExpensePrepaid Insurance Bal. 1,000 (the balance was in Insurance Expense before adjustment)

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 12 Should the AJE be reversed? YES ? ? ? ? ? ? ? Insurance ExpensePrepaid Insurance Bal. 1,000AJE 400 Following EXPENSE method; the AJE created a balance in a balance sheet account, PPI, and, therefore, SHOULD BE reversed. See also decision tree. Further, following the expense method, the beginning balance next year should be in the EXPENSE account. The reversing entry gets it there.

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 13 AJE 400 Should the AJE be reversed? YES ? ? ? ? ? ? ? Insurance ExpensePrepaid Insurance Bal. 1,000AJE 400 C2 600 Following EXPENSE method; the AJE created a balance in a balance sheet account, PPI, and, therefore, SHOULD BE reversed. See also decision tree. Further, following the expense method, the beginning balance next year should be in the EXPENSE account. The reversing entry gets it there. R 400

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 14 ? ? ? ? ? ? ? ? ? ? ? ? ? Now turn to page 8 in the handout. Work the two examples and check your work.

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 15 ? ? ? ? ? ? ? ? ? ? ? ? ? Assume a prominent midwestern university collected $4,000 in tuition on September 1. When cash was debited, the university credited...

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 16 Tuition EarnedUnearned Tuition 9/1 4,000 At November 30, how much has been earned? ? ? ? ? ? ? ? $4,000 3 mo1 mo $3,000$1,000

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 17 Tuition EarnedUnearned Tuition 9/1 4,000 At November 30, how much has been earned? ? ? ? ? ? ? ? $4,000 3 mo1 mo $3,000$1,000 earned unearned You try to make the adjusting entry before seeing the solution.

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 18 Tuition EarnedUnearned Tuition 9/1 4,000 ? ? ? ? ? ? ? Did you try to make the entry before seeing the solution here? 11/30 Unearned Tuition 3,000 Tuition Earned3,000 AJE 3,000

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 19 Which method is being used? Should the AJE be reversed? Why or why not? ? ? ? ? ? ? ?

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 20 Which method is being used? LIABILITY ? ? ? ? ? ? ? (the balance was in Unearned Tuition, a liability account, before adjustment) Tuition EarnedUnearned Tuition 9/1 4,000

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 21 Should the AJE be reversed? NO ? ? ? ? ? ? ? Following LIABILITY method, therefore, balance already in LIABILITY account. See also decision tree. Tuition EarnedUnearned Tuition 9/1 4,000AJE 3,000

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 22 ? ? ? ? ? ? ? ? ? ? ? ? ? Assume a prominent midwestern university collected $4,000 in tuition on September 1. When cash was debited, the university credited...

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 23 Tuition EarnedUnearned Tuition 9/1 4,000 At November 30, how much has been earned? ? ? ? ? ? ? ? $4,000 3 mo1 mo $3,000$1,000 You try to make the adjusting entry before seeing the solution.

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 24 Tuition EarnedUnearned Tuition 9/1 4,000 At November 30, how much has been earned? ? ? ? ? ? ? ? $4,000 3 mo1 mo $3,000$1,000 earnedunearned

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 25 Tuition EarnedUnearned Tuition 9/1 4,000 ? ? ? ? ? ? ? Did you try to make the entry before seeing the solution here? 11/30 Tuition Earned 1,000 Unearned Tuition1,000 AJE 1,000

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 26 Which method is being used? Should the AJE be reversed? Why or why not? ? ? ? ? ? ? ?

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 27 Which method is being used? REVENUE ? ? ? ? ? ? ? (the balance was in the REVENUE account, Tuition Earned, before adjustment) Tuition EarnedUnearned Tuition 9/1 4,000

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 28 Should the AJE be reversed? YES ? ? ? ? ? ? ? Following REVENUE method; the AJE created a balance in a balance sheet account, Unearned Tuition, and, therefore, SHOULD BE reversed. See also decision tree. Further, following the REVENUE method, the beginning balance next year should be in the REVENUE account. The reversing entry gets it there. Tuition EarnedUnearned Tuition 9/1 4,000AJE 1,000

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 29 Should the AJE be reversed? YES ? ? ? ? ? ? ? Tuition EarnedUnearned Tuition 9/1 4,000AJE 1,000 C1 3,000 R 1,000 Following REVENUE method; the AJE created a balance in a balance sheet account, Unearned Tuition, and, therefore, SHOULD BE reversed. See also decision tree. Further, following the REVENUE method, the beginning balance next year should be in the REVENUE account. The reversing entry gets it there.

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 30 IV. Plant Assets (a form of deferrals) A. Desire to maintain “cost” of account B. “Decline in Usefulness” = DEPRECIATION Depreciation Expenseused Accumulated Depreciation used C. “Nature” of Accumulated Depreciation is CONTRA ASSET Represents TOTAL depreciation taken since asset was acquired.

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 31 IV. Plant Assets (a form of deferrals) D. Result of “main” account and “contra” account worth naming: Equipment - Accumulated Depreciation =BOOK VALUE (You would do well to remember it all semester!)

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 32 Thanks for taking the time to complete your accrual and deferral handout. Hopefully, the time you invested will pay off. Remember to use the decision tree as a study tool!

Copyright © 1999 by M. Ray Gregg. All Rights Reserved. 33