Accounting Records and Systems Part One Financial Accounting

Accounting Records and Systems Part One: Financial Accounting Irwin/Mc. Graw-Hill 4 © The Mc. Graw-Hill Companies, Inc. , 1999

The Account Slide 4 -1 Cash (increase) Beginning balance -05, 000 4, 000 200 12, 000 21, 200 New balance 5, 450 Irwin/Mc. Graw-Hill (decrease) 750 7, 200 4, 800 3, 000 15, 750 © The Mc. Graw-Hill Companies, Inc. , 1999

Debits and Credits Assets Debit Credit + - Irwin/Mc. Graw-Hill Slide 4 -2 Liabilities Debit Credit + - Owners’ Equity Debit Credit + - © The Mc. Graw-Hill Companies, Inc. , 1999

The Accounting Process Slide 4 -3 1. Analyze transactions 2. Journalize original entries 3. Post journal entries to ledger 4. Identify, journalize, and post adjusting entries 5. Journalize and post closing entries 6. Prepare financial statements Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

Transaction Analysis Slide 4 -4 On August 1, Snelson invested $5, 000 in the business as owner. Cash 5, 000 Irwin/Mc. Graw-Hill Paid-in Capital 5, 000 © The Mc. Graw-Hill Companies, Inc. , 1999

Transaction Analysis Slide 4 -5 On August 1, the firm paid $750 rent for the month of August. Cash 5, 000 Irwin/Mc. Graw-Hill Prepaid Expenses 750 © The Mc. Graw-Hill Companies, Inc. , 1999

Transaction Analysis Slide 4 -6 The firm borrowed $4, 000 from a bank on a 9 percent note payable, with interest payable quarterly and the principal due in full at the end of two years. Cash 5, 000 4, 000 Irwin/Mc. Graw-Hill Notes Payable 750 4, 000 © The Mc. Graw-Hill Companies, Inc. , 1999

Transaction Analysis Slide 4 -7 Equipment costing $7, 200 was purchased for cash. The expected life of the equipment was 10 years. Cash 5, 000 4, 000 Equipment, at Cost 750 7, 200 Refer to pages 94 through 96 for the remaining entries for the month of August. Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

Balancing an Account Balance Slide 4 -8 Cash -05, 000 4, 000 200 12, 000 Balance Irwin/Mc. Graw-Hill 21, 200 5, 450 750 To Balance 7, 200 4, 800 3, 000 5, 450 21, 200 © The Mc. Graw-Hill Companies, Inc. , 1999

The Trial Balance Slide 4 -9 CAMPUS PIZZERIA, INC. Trial Balance As of August 31 Cash…………………………. Accounts receivable…………………. Inventory………………………. . Prepaid expenses……………………. . Equipment, at cost…………………… Accounts payable……………………. Notes payable……………………. . Paid-in capital……………………. . Sales revenue……………………. . . Cost of sales………………………. Wage expense……………………. . Utilities expense……………………. . Totals………………………. . Irwin/Mc. Graw-Hill Balance Debit Credit $ 5, 450 -0550 7, 200 $ 2, 200 4, 000 5, 000 12, 200 6, 000 3, 000 450 $23, 400 © The Mc. Graw-Hill Companies, Inc. , 1999

Adjusting Entries Slide 4 -10 Fuel oil was purchased for $1, 000. Fuel Oil Inventory 1, 000 Irwin/Mc. Graw-Hill Accounts Payable 1, 000 © The Mc. Graw-Hill Companies, Inc. , 1999

Adjusting Entries Slide 4 -11 By the end of the accounting period, $600 of the fuel had been consumed. Fuel Oil Inventory 1, 000 600 Irwin/Mc. Graw-Hill Fuel Expense 600 © The Mc. Graw-Hill Companies, Inc. , 1999

Adjusting Entries Slide 4 -12 Paid an insurance premium on company car, $1, 200. Prepaid Insurance 1, 200 Irwin/Mc. Graw-Hill Cash 1, 200 © The Mc. Graw-Hill Companies, Inc. , 1999

Adjusting Entries Slide 4 -13 At year-end, $800 of this is an expense. Prepaid Insurance 1, 200 Irwin/Mc. Graw-Hill 800 Insurance Expense 800 © The Mc. Graw-Hill Companies, Inc. , 1999

Adjusting Entries Slide 4 -14 Employees earned $150 of wages during the period. These wages have not been paid. Wages Expense 150 Irwin/Mc. Graw-Hill Accrued Wages 150 © The Mc. Graw-Hill Companies, Inc. , 1999

Adjusting Entries Slide 4 -15 Annual depreciation on equipment totaled $2, 000. Depreciation Expense Accumulated Depreciation 2, 000 Additional adjusting entries are explained on pages 99 through 101 of the textbook. Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

Closing Entries Slide 4 -16 Closing the Sales Revenues account Sales Revenues 12, 400 Irwin/Mc. Graw-Hill 12, 200 Income Summary 12, 400 © The Mc. Graw-Hill Companies, Inc. , 1999

Closing Entries Slide 4 -17 Closing the Cost of Sales account Cost of Sales 6, 000 Irwin/Mc. Graw-Hill Income Summary 6, 000 12, 400 © The Mc. Graw-Hill Companies, Inc. , 1999

Closing Entries Slide 4 -18 Closing the Income Summary account (B) (C) (D) (E) (F) (G) (17) (H) Irwin/Mc. Graw-Hill Income Summary 6, 000 (A) 3, 000 450 750 60 30 10, 290 382 1, 528 12, 400 Credit Income Tax Liability © The Mc. Graw-Hill Companies, Inc. , 1999

Financial Statements Slide 4 -19 CAMPUS PIZZERIA, INC. Balance Sheet As of August 31 Assets Cash $ 5, 450 Accounts receivable 200 Inventory 550 Prepaid expenses 0 Total current assets 6, 200 Equipment, at cost 7, 200 Less: Accum. Depr. 60 Equipment, net 7, 140 Total assets $13, 340 Irwin/Mc. Graw-Hill Liabilities and Owners’ Equity Accounts payable $ 2, 200 Notes payable 4, 000 Accrued expenses 30 Income tax liability 382 Total liabilities 6, 612 Paid-in capital 5, 000 Retained earnings 1, 728 Total owners’ equity 6, 728 Total liab. and own. eq. $13, 340 © The Mc. Graw-Hill Companies, Inc. , 1999

Financial Statements Slide 4 -20 CAMPUS PIZZERIA, INC. Income Statement For the Month of August Sales revenues Cost of sales Gross margin Operating expenses: Wages Rent Utilities Depreciation Interest Income before income taxes Income tax expense Net income Irwin/Mc. Graw-Hill $12, 400 6, 000 6, 400 $3, 000 750 450 60 30 4, 290 2, 110 382 $ 1, 728 © The Mc. Graw-Hill Companies, Inc. , 1999

Chapter 4 The End Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999