Acct 310 Accounting Review
Part II
Rick Hayes, Ph.D., CPA
California State University L.A.
2
Sierra Corporation
Trial Balance
October 31, 2007
Cash
Advertising Supplies
Prepaid Insurance
Office Equipment
Notes Payable
Accounts Payable
Unearned Service Revenue
Common Stock
Dividends
Service Revenue
Salaries Expense
Rent Expense
Debit Credit
$15,200
2,500
600
5,000
$ 5,000
2,500
1,200
10,000
500
10,000
4,000
900
$28,700 $28,700
Prepaid Expenses
Amount equals cost of goods or services used
up or expired
If not adjusted, expenses would be
understated and assets overstated
4
Supplies
On October 5 the company paid $2,500 for
advertising supplies.
Advertising
Supplies
Advertising
Expense
Cash
Supplies
Oct 5 2,500
Oct 5
2,500
GENERAL JOURNAL
Oct 5
Supplies
Cash
Purchased advertising supplies
Debit Credit
2,500
2,500
Supplies
An inventory on October 31 reveals that $1,000 of supplies rema
on hand; therefore $1,500 of supplies have been used. ($2,500
$1,000) =$ 1,500
Advertising
Advertising
Supplies
Cash
Expense
Supplies
Oct 5 2,500
Oct 5 2,500 Oct 31 1,500
Oct 31 1,500
Bal. 1,000
GENERAL JOURNAL
Oct 5
Supplies Expense
Supplies
To record advertising supplies consumed
Debit Credit
1,500
1,500
Supplies Expense
Oct
$1,500
Nov
$1,800
Dec
$1,410
Jan
$1,425
Feb
$1,601
Mar
$1,435
Apr
$1,510
May
$1,592
June
$1,652
July
$1,621
Aug
$1,427
Sept
$1,555
Supplies expense is based on usage... so
different amounts appear each month
7
Prepaid Expenses
On October 1 the company paid $600 for a 1-year insurance
policy. Coverage began October 1.
Cash
Oct 1
Insurance
Expense
Prepaid
Insurance
600 Oct 1
600
GENERAL JOURNAL
Debit Credit
Oct 1
600
Prepaid Insurance
Cash
Purchased one-year policy effective October 1
600
Insurance Policy
Oct
$50
Nov
$50
Dec
$50
Jan
$50
Feb
$50
Mar
$50
Apr
$50
May
$50
June
$50
July
$50
Aug
$50
Sept
$50
1 Year $ 600
9
Prepaid Expenses
On October 31st, $50 ($600/12 months) of the
insurance was used-up or expired.
Prepaid
Insurance
Cash
Oct 1
600 Oct 1
600 Oct 31 50
Insurance
Expense
Oct 31
50
550
GENERAL JOURNAL
Oct 31
Insurance Expense
Prepaid Insurance
Record insurance expense for the month
Debit Credit
50
50
Depreciation
How do you apply the Matching
Principle to the cost of a long lived asset
?
11
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!
12
Office Equipment
Oct
$40
Nov
$40
Dec
$40
Jan
$40
Feb
$40
Mar
$40
Apr
$40
May
$40
June
$40
July
$40
Aug
$40
Sept
$40
Depreciation= $480/year
13
Office Equipment
Accumulated
DepreciationOffice Equipment
Oct 2 5,000
Oct 31
40
GENERAL JOURNAL
Oct 31 Depreciation Expense
Depreciation
Expense
Oct 31
Debit
40
Credit
40
Accumulated Depreciation-Office Equip
40
To record monthly depreciation
Accumulated depreciation is a contra
asset account - an offset against the
fixed asset account.
14
Balance Sheet Presentation
Office equipment
Less : accumulated depreciation
$ 5,000
40
$4,960
Book Value or
Carrying Value
15
11
5
Unearned Revenues
Received on Oct. 2 $1,200 for advertising services
expected to be completed by Dec 31.
Unearned Service
Service
Revenue
Revenue
Cash
Oct 2 1,200
Oct 2
1,200
GENERAL JOURNAL
Debit
Oct 2
1,200
Cash
Unearned Service Revenue
Collected money for work to be
performed by Dec 31.
Credit
1,200
Unearned Revenues
During October $400 of the revenue was earned.
Service
Revenue
Unearned Service
Revenue
Cash
Oct 2 1,200
Oct. 31 400 Oct 2
1,200
Bal
800
GENERAL JOURNAL
Oct 31 Unearned Service Revenue
Service Revenue
To record revenue earned
Oct. 31 400
Debit
Credit
400
400
11
5
Accruals
•Revenue has been earned, but not
collected.
•Expenses have been incurred, but not yet
paid.
18
Accrued Revenues
Revenues earned but not yet received in
cash or recorded at the statement date.
19
Accrued Revenues
Earned $200 for advertising services to clients in
October, but they were not billed until after October
31st.
Accounts
Receivable
Oct 31
200
GENERAL JOURNAL
Oct 31 Accounts Receivable
Service Revenue
Service
Revenue
Oct 31
Debit
200
Credit
200
200
Accrued Expenses
Expenses incurred but not yet paid or
recorded at the statement date.
21
11
6
Adjusted Trial Balance
The adjusted trial balance is used to prove the
equity of total debit balances and 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.
22
23
11
7
Closing the Books
Closing entries transfer the temporary
account balances to the stockholders’
equity account...
and reduce the balances in the temporary
accounts to zero.
26
Temporary
Permanent
All revenues accounts
All asset accounts
All expense accounts
All liability accounts
Dividends
Stockholders’ equity
accounts
Close Temporary Accounts Only
Zero balance
after closing
entries!
Do not close!
28
The Closing Process
11
8
The Accounting Cycle
33
Required
Steps in the
Accounting
Cycle
34