1. BELL RINGER
Name the accounting principle that each of the following describes:
If $51,000 cash is paid to buy land, the land is reported on the buyer’s balance sheet as $51,000.
A person owns more than one company (A B and C). In preparing financial statements for A company, the owner makes sure that expense transactions for B & C companies are kept separate and not reported on A’s financial statements.
In December 2013, a company received an order for work that would be completed by March 31 of the following year. The company would record the revenue in March 2014, not December 2013.
A trial balance has total debits of $20,000 and total credits of $24,500. Which of the following errors would create this imbalance?
A $4,500 debit posting to Equipment was posted mistakenly as a debit to Cash.
A $4,500 debit to Salaries Expense in a journal entry is incorrectly posted to the ledger as a $4,500 credit.
A $2,250 debit to Utilities Expense in a journal entry is incorrectly posted to the ledger as a credit.
A $2,250 credit to Service Fees in a journal entry was incorrectly posted to the ledger as a $2,250 debit.

2. There are check figures available for Steps 4, 6, & 7.
Blue Raider –
Accounting Lab
Study Groups
Exam 1 Study Guide–
Available on D2L under “Contents”

3. CAT: “Increase” “Decrease” or “No Change”
Assets
Liabilities
Equity
Net Income
The owner invests cash into the company
The company buys supplies (with cash)
The company performs services on account
The company receives cash from a customer who was previously billed
The company pays for advertising
The owner withdrawals cash
The company buys supplies on account
The company performs services for cash
The company pays bill for supplies previously bought on account

4. CAT: “Increase” “Decrease” or “No Change”
Assets
Liabilities
Equity
Net Income
The owner invests cash into the company
increase
no change
The company buys supplies (with cash)
No change
The company performs services on account
The company receives cash from a customer who was previously billed
The company pays for advertising
decrease
The owner withdrawals cash
The company buys supplies on account
Increase
The company performs services for cash
The company pays bill for supplies previously bought on account.
Decrease

5. Chapter 3: Accrual Accounting
ACTG 2110
Sid C. Bundy

6. Accrual basis accounting is… …using the adjusting process to recognize revenues when earned and to match expenses with revenues when incurred. …required by GAAP. Cash basis of accounting is… …recognizes revenue when cash is received and expenses when cash is paid.
GOAL:
Accruals vs Deferrals
AJE Examples
ANNOUNCEMENTS:
EXAM 1 – Next Friday
Check due date/time for Homework #3
NABA Meeting Today

7. …2 types of adjusting entries:
…impact at least one account from the balance sheet and one account from the income statement. (this is important!!)
…2 types of adjusting entries:
Deferrals – Cash comes BEFORE
Prepaid expenses
Unearned revenues
Depreciation
Accruals – Cash comes AFTER
Accrued expenses (like salaries or interest)
Accrued revenue (unbilled, but work complete)
QUESTION: Think of two journal entries from Chapter 2 that do NOT impact both the income statement and the balance sheet.

8. DEFERRALS (cash before)
…prepaid expense …unearned revenues …depreciation expense

9. DEFERRALS
…prepaid expense …unearned revenues …depreciation expense

10. DEFERRALS
…prepaid expense …unearned revenues …depreciation expense

11. What is this depreciation stuff?
…expense created by allocating the cost of property or equipment to periods in which they are used
…represents the expense of using an asset
…this is COST ALLOCATION not MARKET PRICE VALUATION
The Adjusting Journal Entry will always debit the expense account and credit the contra-asset account, like so: a
Depreciation Expense - Equipment
100
Accumulated Depreciation*-Equipment

12. What is this depreciation stuff?
Office Equipment (Computer)
Equipment (Truck)
Bought a computer for $500. You expect to use the computer in your company for 4 years. Each year, you depreciate $125.
Bought a truck for $30,000 to be used for 6 years. Each year you depreciate $5,000. c
Depreciation Expense - Equipment
5,000
Accumulated Depreciation*-Equipment b
Depreciation Expense – Office Equipment
125
Accumulated Depreciation*- Office Equipment

13. Land
Does not depreciate since its usefulness and revenue producing ability generally remain intact, or increase.
A company doesn’t “use up” land.

14. WARNING:
The balance in Accumulated Depreciation is not a cash fund.
CASH

15. ACCRUALS (cash after)
…accrued expenses …accrued revenues

16. ACCRUALS Accounts Payable Wages/Salaries Payable Interest Payable
Accrued Expense
Accrued Revenues
Accounts Payable
Wages/Salaries Payable
Interest Payable
Accounts Receivable
Interest Receivable

17. On the Board Page 127-128 QS 3:5-6 QS 3:8 QS 3:10 QS 3:12 QS 3:14

18. Exercise 2-16 page 80 Algorithm
A sole proprietorship had the following assets and liabilities at the beginning and end of this year.
Assets
Liabilities
Beginning of the year $
85,000 $
35,000
End of the year
130,000
50,000
Determine the net income earned or net loss incurred by the business during the year for each of the
following separate cases:
a. Owner made no investments in the business and no withdrawals were made during the year.
b. Owner made no investments in the business but withdrew $2,000 cash per month for personal use.
c. Owner made no withdrawals during the year but did invest an additional $45,000 cash.
d. Owner withdrew $2,000 cash per month for personal use and invested an additional $35,000 cash. a. b. c. d.
Beginning of the year equity
$50,000
$50,000
$50,000
$50,000
Investments by owner
45,000
35,000
Withdrawals by owner
(24,000)
(24,000)
Net income (loss)
30,000
54,000
(15,000)
19,000
End of the year equity
$80,000
$80,000
$80,000
$80,000
EX02-16
2 - 18
Exercise 2-16 page 80 Algorithm

19. Exercise 2-16 page 80 Algorithm
A sole proprietorship had the following assets and liabilities at the beginning and end of this year.
Assets
Liabilities
Beginning of the year $
85,000 $
35,000
End of the year
130,000
50,000
Determine the net income earned or net loss incurred by the business during the year for each of the
following separate cases:
a. Owner made no investments in the business and no withdrawals were made during the year.
b. Owner made no investments in the business but withdrew $2,000 cash per month for personal use.
c. Owner made no withdrawals during the year but did invest an additional $45,000 cash.
d. Owner withdrew $2,000 cash per month for personal use and invested an additional $35,000 cash. a. b. c. d.
Beginning of the year equity
$50,000
$50,000
$50,000
$50,000
Investments by owner
45,000
35,000
Withdrawals by owner
(24,000)
(24,000)
Net income (loss)
30,000
54,000
(15,000)
19,000
End of the year equity
$80,000
$80,000
$80,000
$80,000
EX02-16
2 - 19
Exercise 2-16 page 80 Algorithm

20. ANNOUNCEMENTS:
Complete Steps 1-4 in the BRAP Packet and bring to the class before exam.
Remember the Review Session… check D2L for details.
Homework is due SOON to allow for studying with answer keys.
Review exam policies in your syllabus! Don’t forget your ID or room number!
** If you have made up a quiz, you have to submit written documentation of the excuse before it will be graded.**
GOALS
Finish QS Examples
Review AJE
How do AJE’s impact the financial statements? (What is wrong with leaving them out?) OR (Why do we record them?)
Finishing Steps 1-4 of the accounting cycle.
Quiz #4

21. Depreciation
P 1
On December 1, 2013, FastForward purchased equipment for $26,000 cash. The equipment has an estimated useful life of four years (48 months) and FastForward expects to sell the equipment at the end of its life for $8,000 cash.
(c) Let’s record depreciation expense for the month ended December 31, 2013.
On December 1, 2013, FastForward purchased equipment for $26,000 cash. The equipment has an estimated useful life of four years or 48-months, and an estimated salvage value of $8,000 at the end of the four-year period. Can you determine the depreciation expense for the month of December, 2013?
How did you do? The numerator of the equation is $26,000 cost, less $8,000 salvage value, or $18,000. The denominator is 48 months because we are calculating depreciation for one month, so our monthly depreciation expense is $375. Now, let’s record the adjusting journal entry.
Dec. 2013
Depreciation
Expense =
$26, $8,000
48 months
$375 per month

22. What adjustment is required?
Supplies
P 1
(b) During 2013, FastForward purchased $9,720 of supplies. FastForward recorded the expenditures in the asset account, “Supplies.” On December 31, 2013, a count of the supplies indicated $8,670 on hand, so $1,050 of supplies were used during December.
What adjustment is required?
In our second transaction, FastForward spent $9,720 on office supplies during December When the supplies were purchased, an entry was made to debit, or increase, the asset account (Supplies), and the cash account was decreased. On December 31, 2013, the balance in the supplies account was $9,720, when the company conducted an inventory of the office supplies and determined that $8,670 of supplies were on hand. FastForward used $1,050 of supplies during December Let’s make the adjusting entry required on December 31, 2013, to get the balance in the supplies account stated properly.
Debit, or increase, supplies expense $1,050, the amount of the supplies used, and credit, or reduce, the asset account, supplies, by the same amount. Now let’s post our adjusting entry. You can see that we now have the proper balance in the asset account, supplies, and we have fully recognized an expense for the supplies used during 2013.
126
652

24. The Accounting Cycle Analyze Transactions Journalize Post
Unadjusted Trial Balance
Adjusting Entries
Adjusted Trial Balance
Closing Entries
Post Closing Trial Balance
Statement of Cash Flows
Balance Sheet
Statement of Owner’s Equity
Income Statement
FINANCIAL STATEMENTS

26. 1. Prepare the Income Statement
You can see how we took the information directly from the worksheet and prepared the income statement for the month ended December 31, Net income reported by FastForward for the month is $3,785. We will see this amount again on the statement of Owner's Equity.

27. 2. Prepare the Statement of Owner’s Equity
The statement of owner’s equity adds together the net income and the owner’s investment of $30,000. The owner’s withdrawal of $200 reduces owner’s equity to $33,585. a

28. 3. Prepare The Balance Sheet
The next step in preparing the financial statements is the preparation of the Balance Sheet. After we have completed the Income Statement and the Statement of Owner’s Equity, we are ready to prepare our last financial statement, which is called the Balance Sheet. Asset and liability balances are transferred over from the adjusted trial balance to the Balance Sheet. The ending capital balance was determined on the Statement of Owner’s Equity shown. The ending balance is transferred from that statement to the Balance Sheet. The Balance Sheet proves that the fundamental accounting equation is in balance and you can see that the Total Assets of $42,745 is equivalent to the sum of the total liabilities and owner’s equity.
The final statement to be prepared is the Statement of Cash Flows. We will study this statement in detail later in the course.

29. END CHAPTER 3
DAY 6-8