Prepared by Ling-Ching Chan
Review
1. Accounting Equation
2. The accounting cycle
3. The recording process
(1) Double-entry accounting system(雙式簿記)
(2) Each transaction must affect two or more accounts to keep the basic accounting equation
in balance.
(3) Recording done by debiting at least one account and crediting another.
(4) DEBITS(借方) must equal CREDITS(貸方)
4. Accrual-basis accounting (應計基礎): Revenues and expenses are recorded as they are earned
and incurred (not necessarily when cash is received or paid).
(1) The need for adjusting entries (調整分錄): Entries required at the end of each accounting
period to adjust the accounts to their proper amounts, on an accrual basis.
(2) Accrued Revenues, Accrued Expenses, Prepaid Expenses, Unearned Revenues
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Prepared by Ling-Ching Chan
5. Matching principle: Match expenses with revenues in the period when the company makes
efforts to generate those revenues.
6. Completing the accounting cycle: closing entries
(1) Close all revenue and expense accounts
(2) Close dividends:
7. How financial statements tie together?
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Prepared by Ling-Ching Chan
Questions
1. P&P Associates is a professional corporation providing management consulting services. The company
initially debits assets in recording prepaid expenses and credits liabilities in recording unearned revenues.
Give the entry that P&P would use to record each of the following transactions on the date it occurred.
Prepare the adjusting entries needed on December 31, 2022.
(1) On July 1, 2022, the company paid a three-year premium of $5,400 on an insurance policy that is
effective July 1, 2022, and expires June 30, 2025.
(2) On February 1, 2022, P&P paid its property taxes for the year February 1, 2022, to January 31, 2023.
The tax bill was $2,400.
(3)
On May 1, 2022, the company paid $360 for a three-year subscription to an advertising journal. The
subscription starts May 1, 2022, and expires April 30, 2025.
(4) P&P received $3,600 on September 15, 2022, in return for which the company agreed to provide
consulting services for 18 months beginning immediately.
(5) P&P rented part of its office space to Davis Realty. Davis paid $900 on November 1, 2022, for the next
six months’ rent.
2.
P&P Co. has the following adjusted trial balance:
P&P Co.
Adjusted Trial Balance
December 31, 2022
Cash
Accounts Receivable
Supplies
Buildings
Machinery and Equipment
Land
Accounts Payable
Notes Payable
Capital Stock (100,000 shares outstanding as of 12/31/22)
Retained Earnings (1/1/22)
Service Revenue
Salaries Expense
Insurance Expense
Dividends
Utilities Expense
Income Tax Expense
Debit
$ 50,000
40,500
4,000
174,580
30,000
20,000
Credit
$ 37,400
49,180
150,000
76,000
189,850
125,000
6,000
20,000
12,000
20,350
_______
$502,430
$502,430
Prepare a statement of comprehensive income and a balance sheet in good form for P&P Co.
(Assume that other comprehensive income is $0)
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