Power Notes Chapter 3 Learning Objectives

Power Notes Chapter 3 Learning Objectives
The Matching Concept and the Adjusting Process Learning Objectives 1. The Matching Concept 2. Nature of the Adjusting Process 3. Recording Adjusting Entries 4. Summary of Adjustment Process 5. Financial Analysis and Interpretation C3

Power Notes Chapter 3 The Matching Concept and the Adjusting Process
Slide # Power Note Topics 3 6 9 20 36 41 Reporting Revenue and Expense The Matching Concept Trial Balance, Chart of Accounts Deferrals and Accruals Summary of Adjustments Vertical Analysis Note: To select a topic, type the slide # and press Enter.

Reporting Revenue and Expense
TWO METHODS Cash Basis of Accounting Accrual Basis of Accounting

Cash Basis of Accounting
Revenue reported when cash is received Expense reported when cash is paid Does not properly match revenues and expenses

Accrual Basis of Accounting
Revenue reported when earned Expense reported when incurred Properly matches revenues and expenses in determining net income Requires adjusting entries at end of period It just sounds mean – it really isn’t

The Matching Concept Liabilities Assets Owner’s Equity Expenses
Debits = Credits Liabilities Assets Owner’s Equity Expenses Revenues

The Matching Concept Liabilities Assets Owner’s Equity Expenses
Debits = Credits Liabilities Assets Owner’s Equity Net Income Expenses Revenues

Net income is determined by properly matching expenses and revenues.
The Matching Concept Debits = Credits Liabilities Assets Owner’s Equity Net Income Expenses Revenues matching Net income is determined by properly matching expenses and revenues.

Unadjusted Trial Balance
NetSolutions Unadjusted Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,220 14 Supplies 2,000 15 Prepaid Insurance 2,400 17 Land 20,000 18 Office Equipment 1,800 Assets

NetSolutions Unadjusted Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,220 14 Supplies 2,000 15 Prepaid Insurance 2,400 17 Land 20,000 18 Office Equipment 1,800 21 Accounts Payable 900 23 Unearned Rent 360 Liabilities

NetSolutions Unadjusted Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,220 14 Supplies 2,000 15 Prepaid Insurance 2,400 17 Land 20,000 18 Office Equipment 1,800 21 Accounts Payable 900 23 Unearned Rent 360 31 Chris Clark, Capital 25,000 32 Chris Clark, Drawing 4,000 Owner’s Equity

NetSolutions Unadjusted Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,220 14 Supplies 2,000 15 Prepaid Insurance 2,400 17 Land 20,000 18 Office Equipment 1,800 21 Accounts Payable 900 23 Unearned Rent 360 31 Chris Clark, Capital 25,000 32 Chris Clark, Drawing 4,000 41 Fees Earned 16,340 Revenue

NetSolutions Unadjusted Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,220 14 Supplies 2,000 15 Prepaid Insurance 2,400 17 Land 20,000 18 Office Equipment 1,800 21 Accounts Payable 900 23 Unearned Rent 360 31 Chris Clark, Capital 25,000 32 Chris Clark, Drawing 4,000 41 Fees Earned 16,340 51 Wages Expense 4,275 52 Rent Expense 1,600 54 Utilities Expense 985 55 Supplies Expense 800 59 Miscellaneous Expense 455 42,600 42,600 Expenses

NetSolutions Unadjusted Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,220 14 Supplies 2,000 15 Prepaid Insurance 2,400 17 Land 20,000 18 Office Equipment 1,800 21 Accounts Payable 900 23 Unearned Rent 360 31 Chris Clark, Capital 25,000 32 Chris Clark, Drawing 4,000 41 Fees Earned 16,340 51 Wages Expense 4,275 52 Rent Expense 1,600 54 Utilities Expense 985 55 Supplies Expense 800 59 Miscellaneous Expense 455 42,600 42,600

Expanded Chart of Accounts
NetSolutions Expanded Chart of Accounts Balance Sheet Income Statement 1. Assets 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 19 Accumulated Depreciation 2. Liabilities 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 3. Owner’s Equity 31 Chris Clark, Capital 32 Chris Clark, Drawing 4. Revenue 41 Fees Earned 42 Rent Revenue 5. Expenses 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Miscellaneous Expense

Adjustments – Deferrals and Accruals
Revenues Current Period Future Period Deferrals Cash Received Cash Received Revenue Recorded

Revenues Current Period Future Period Deferrals Cash Received Cash Received Revenue Recorded Accruals Revenue Recorded Cash Received

Revenues Current Period Future Period Deferrals Cash Received Cash Received Revenue Recorded Accruals Revenue Recorded Cash Received Expenses Current Period Future Period Deferrals Cash Paid Cash Paid Expense Recorded

Revenues Current Period Future Period Deferrals Cash Received Cash Received Revenue Recorded Accruals Revenue Recorded Cash Received Expenses Current Period Future Period Deferrals Cash Paid Cash Paid Expense Recorded Accruals Expense Recorded Cash Paid

Adjustments – Deferred Expense
On December 1, NetSolutions purchased insurance for 24 months at a cost of $2,400. Example P1 – Purchase initially recorded as an asset. Adjustment A1 – Record insurance used for December, $100. Cash P ,400 Prepaid Insurance Assets P ,400 Insurance Expense Expenses

On December 1, NetSolutions purchased insurance for 24 months at a cost of $2,400. Example P1 – Purchase initially recorded as an asset. Adjustment A1 – Record insurance used for December, $100. Cash P ,400 Prepaid Insurance Assets P ,400 A A1 Insurance Expense A1 A Expenses

On December 1, NetSolutions purchased insurance for 24 months at a cost of $2,400. Example P2 – Purchase initially recorded as an expense. Adjustment A2 – Record insurance unused as of December 31. Cash P ,400 Prepaid Insurance Assets Insurance Expense P ,400 Expenses

On December 1, NetSolutions purchased insurance for 24 months at a cost of $2,400. Example P2 – Purchase initially recorded as an expense. Adjustment A2 – Record insurance unused as of December 31. Cash P ,400 Prepaid Insurance Assets A ,300 A2 A2 Insurance Expense P ,400 A ,300 Expenses

Adjustments – Deferred Revenue
On December 1, NetSolutions received cash of $360 for three months’ rent beginning December 1. Example S1 – Sale initially recorded as a liability. Adjustment A3 – Record rent earned for December. Cash S Unearned Rent Liabilities S Rent Revenue Revenues

On December 1, NetSolutions received cash of $360 for three months’ rent beginning December 1. Example S1 – Sale initially recorded as a liability. Adjustment A3 – Record rent earned for December. Cash S Unearned Rent Liabilities A S A3 A3 Rent Revenue A Revenues

On December 1, NetSolutions received cash of $360 for three months’ rent beginning December 1. Example S2 – Sale initially recorded as revenue. Adjustment A4 – Record rent unearned as of December 31. Cash S Unearned Rent Liabilities Rent Revenue S Revenues

On December 1, NetSolutions received cash of $360 for three months’ rent beginning December 1. Example S2 – Sale initially recorded as revenue. Adjustment A4 – Record rent unearned as of December 31. Cash S Unearned Rent Liabilities A A4 A4 Rent Revenue A S Revenues

Adjustments – Accrued Expense
NetSolutions received employee services for the last two days of December amounting to $250, to be paid later. Adjustment A5 – Record accrued wages of $250. Wages Payable Liabilities Wages Expense Bal.....4,275 Expenses

Adjustments – Accrued Expense
NetSolutions received employee services for the last two days of December amounting to $250, to be paid later. Adjustment A5 – Record accrued wages of $250. Wages Payable Liabilities A A5 Wages Expense A5 Bal.....4,275 Expenses A

Adjustments – Accrued Revenue
As of December 31, NetSolutions provided 25 hours of services at $20 per hour to be billed next month. Adjustment A6 – Record accrued fees earned of $500. Accounts Receivable Assets Bal.....2,220 Fees Earned Bal....16,340 Revenues

Adjustments – Accrued Revenue
As of December 31, NetSolutions provided 25 hours of services at $20 per hour to be billed next month. Adjustment A6 – Record accrued fees earned of $500. Accounts Receivable Assets Bal.....2,220 A A6 Fees Earned A6 Bal....16,340 Revenues A

Summary of Adjustments
Buying Side Deferred Expenses Assets A1 A2 Expenses Rearranging the Debits

Buying Side Selling Side Deferred Expenses Deferred Revenues Assets Liabilities A1 A2 A3 A4 Expenses Revenues Rearranging the Debits Rearranging the Credits

Buying Side Selling Side Accrued Expenses Liabilities A5 Expenses Adding a New Transaction

Buying Side Selling Side Accrued Expenses Accrued Revenues Liabilities Assets A5 A6 Expenses Revenues Adding a New Transaction Adding a New Transaction

Buying Side Selling Side Deferred Expenses Accrued Expenses Deferred Revenues Accrued Revenues Assets Liabilities Liabilities Assets A1 A2 A5 A3 A4 A6 Expenses Expenses Revenues Revenues Rearranging the Debits Adding a New Transaction Rearranging the Credits Adding a New Transaction

Financial Analysis and Interpretation
Objective: Use vertical analysis to compare financial statement items with each other and with industry averages. Comparative Income Statements For the Years Ended December 31, 2003 and 2002 Amount Percent Amount Percent Fees earned $ 187, % $ 150, % Operating expenses: Wages expense $ 60, % $ 45, % Rent expense 15, Vertical Analysis: Wages expense $ 60,000 Fees earned $ 187,500 = 32.0%

Power Notes This is the last slide in Chapter 3. Chapter 3
The Matching Concept and the Adjusting Process This is the last slide in Chapter 3. Note: To see the topic slide, type 2 and press Enter.

Power Notes Chapter 3 Learning Objectives

Similar presentations

Presentation on theme: "Power Notes Chapter 3 Learning Objectives"— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

Power Notes Chapter 3 Learning Objectives

Similar presentations

Presentation on theme: "Power Notes Chapter 3 Learning Objectives"— Presentation transcript:

Similar presentations

About project

Feedback