Acct 310 Accounting Review Part II Prepaid Expenses Supplies Supplies Expense

Acct 310 Accounting Review Part II Prepaid Expenses Supplies Supplies Expense www.phwiki.com

Acct 310 Accounting Review Part II Prepaid Expenses Supplies Supplies Expense

Beans, Jon, News/Public Affairs Director has reference to this Academic Journal, PHwiki organized this Journal Acct 310 Accounting Review Part II Rick Hayes, Ph.D., CPA Cali as long as nia State University L.A. Sierra Corporation Trial Balance October 31, 2007 Debit Credit Cash $15,200 Advertising Supplies 2,500 Prepaid Insurance 600 Office Equipment 5,000 Notes Payable $ 5,000 Accounts Payable 2,500 Unearned Service Revenue 1,200 Common Stock 10,000 Dividends 500 Service Revenue 10,000 Salaries Expense 4,000 Rent Expense 900 $28,700 $28,700

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Prepaid Expenses Amount equals cost of goods or services used up or expired If not adjusted, expenses would be understated in addition to assets overstated An inventory on October 31 reveals that $1,000 of supplies remain on h in addition to ; there as long as e $1,500 of supplies have been used. ($2,500 – $1,000) =$ 1,500 GENERAL JOURNAL Debit Credit Oct 5 Supplies Expense 1,500 Supplies 1,500 To record advertising supplies consumed 2,500 Oct 5 Cash 2,500 Oct 5 Advertising Supplies Expense Supplies Advertising Supplies

Oct $1,500 Mar $1,435 Apr $1,510 May $1,592 Feb $1,601 Nov $1,800 Dec $1,410 Jan $1,425 June $1,652 July $1,621 Aug $1,427 Sept $1,555 Supplies expense is based on usage so different amounts appear each month Supplies Expense Prepaid Expenses On October 1 the company paid $600 as long as a 1-year insurance policy. Coverage began October 1. GENERAL JOURNAL Debit Credit Oct 1 Prepaid Insurance 600 Cash 600 Purchased one-year policy effective October 1 Oct $50 Mar $50 Apr $50 May $50 Feb $50 Nov $50 Dec $50 Jan $50 June $50 July $50 Aug $50 Sept $50

Prepaid Expenses On October 31st, $50 ($600/12 months) of the insurance was used-up or expired. GENERAL JOURNAL Debit Credit Oct 31 Insurance Expense 50 Prepaid Insurance 50 Record insurance expense as long as the month Prepaid Insurance 600 Oct 1 Cash 600 Oct 1 Insurance Expense How do you apply the Matching Principle to the cost of a long lived asset Depreciation Allocates the cost of an asset to expense over its useful life – MATCHING PRINCIPLE Is an estimate Depreciation is ALLOCATION of cost- not VALUATION(Current Replacement Cost) We’re not attempting to reflect the actual change in value of an asset! Depreciation

Oct $40 Mar $40 Apr $40 May $40 Feb $40 Nov $40 Dec $40 Jan $40 June $40 July $40 Aug $40 Sept $40 GENERAL JOURNAL Debit Credit Oct 31 Depreciation Expense 40 Accumulated Depreciation-Office Equip 40 To record monthly depreciation Accumulated depreciation is a contra asset account – an offset against the fixed asset account. Accumulated Depreciation-Office Equipment Office Equipment Depreciation Expense Office equipment $ 5,000 Less : accumulated depreciation 40 $4,960 Balance Sheet Presentation

Unearned Revenues Received on Oct. 2 $1,200 as long as advertising services expected to be completed by Dec 31. GENERAL JOURNAL Debit Credit Oct 2 Cash 1,200 Unearned Service Revenue 1,200 Collected money as long as work to be per as long as med by Dec 31. Unearned Revenues During October $400 of the revenue was earned. Unearned Service Revenue Cash Service Revenue GENERAL JOURNAL Debit Credit Oct 31 Unearned Service Revenue 400 Service Revenue 400 To record revenue earned Accruals Revenue has been earned, but not collected. Expenses have been incurred, but not yet paid.

Accrued Revenues Revenues earned but not yet received in cash or recorded at the statement date. Accrued Revenues Earned $200 as long as advertising services to clients in October, but they were not billed until after October 31st. GENERAL JOURNAL Debit Credit Oct 31 Accounts Receivable 200 Service Revenue 200 Accrued Expenses Expenses incurred but not yet paid or recorded at the statement date.

The adjusted trial balance is used to prove the equity of total debit balances in addition to total credit balances after the adjusting entries have been made. Financial statements (except Cash Flow Statement) can be easily prepared from the adjusted trial balance. Adjusted Trial Balance

Beans, Jon Alabama Public Television News/Public Affairs Director www.phwiki.com

Closing the Books Closing entries transfer the temporary account balances to the stockholders’ equity account in addition to reduce the balances in the temporary accounts to zero.

Close Temporary Accounts Only The Closing Process

Required Steps in the Accounting Cycle

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