Accrual versus CashBasis Accounting Cash basis Recognize revenues

Accrual- versus Cash-Basis Accounting Cash basis Recognize revenues when it is received in cash Recognize expenses when it is paid cash Accrual basis Recognize revenues when the service is performed whatever it is received in cash or not Recognize expenses when accrued whatever it is paid cash or not

The adjusting entries deferrals Prepaid expenses supplies depreciation Accruals Accrued expenses Ø Accrued salaries Ø Accrued interest Ø Accrued utilities Unearned service revenues Accrued revenues

deferrals • Prepaid expense Ø Prepaid insurance Insurance expense(Dr) prepaid insurance (Cr) Ø Prepaid rent Rent expense(Dr) prepaid rent(Cr)

deferrals • supplies expense(Dr) supplies (Cr) • depreciation Annual depreciation = cost - salvage value/ useful life Depreciation expense (Dr) Accummulated depreciation (Cr)

deferrals • Unearned service revenue(Dr) service revenue (Cr)

KRAUSE CONSULTING Trial Balance May 31, 2017 explanation debit credit Cash 4500 Accounts recivable 6000 supplies 1900 Prepaid insurance 3600 Equipment 11400 Accounts payable 4500 Unearned service revenue 2000 Owner’s capital 18700 Service revenue 9500 Salaries and wagws expense 6400 Rent expense 900 34700

1. $900 of supplies have been used during the month. date Mar 1 Explanation Supplies expense supplies Debit Credit 900

3. The insurance policy is for 2 years. The monthly insurance = 3600/24 = 150 date Explanation Mar 1 Insurance expense prepaid insurance Debit Credit 150

4. $400 of the balance in the unearned service revenue account remains unearned at the end of the month. • The earned revenues = 2000 -400 = 1600 date Explanation Debit Mar 1 Unearned service revenues 1600 service revenue Credit 1600

6. The office equipment has a 5 -year life with no salvage value. It is being depreciated at $190 per month for 60 months. date Explanation Mar 1 Depreciation expense accumulated depreciation Debit Credit 190

2. Utilities expense incurred but not paid on May 31, 2017, $250. date Mar 1 Explanation Utilities expense accounts payable Debit Credit 250

5. May 31 is a Wednesday, and employees are paid on Fridays. Krause Consulting has two employees, who are paid $920 each for a 5 -day work week. sun mon tues wed thrus fri may 31 The acrued salary = (920*2/5)*3= 1104 date Mar 1 Explanation Salaries expense salaries payable Debit Credit 1104

7. Invoices representing $1, 700 of services performed during the month have not been recorded as of May 31. date Mar 1 Explanation Accounts receivable service revenue Debit Credit 1700

ledger Insurance expense Supplies expense date exp debit may 31 adj 900 credit Balance exp debit credit adj debit may 31 adj 150 Balance 900 1000 date exp debit Balance 150 credit exp may 31 credit Balance 3600 150 adj 3450 Unarned Service Revenue Balance date 9500 Bal debit Bal Service revenue date credit Prepaid insurance 1900 Bal may 31 exp 900 Supplies date May 31 adj 1600 11100 May 31 adj 1700 12800 exp debit adj Balance 2000 Bal may 31 credit 1600 400

Depreciation expense date exp debit may 31 adj 190 credit Balance Salaries Expense date 190 exp debit credit Bal may 31 Adj Balance 6400 7504 1104 Accumulated depreciation date exp may 31 adj debit credit Balance 190 Salaries payable date exp may 31 adj debit credit Balance 1104 Utilities Expense date exp debit may 31 adj 250 credit Balance 250 Accounts receivable date exp debit credit May 31 adj Balance 4500 Bal 250 debit 4750 may 31 adj credit Balance 6000 Bal Accounts payable date exp 1700 7700

The adjusted Trial Balance May 31, 2017 Explanation Debit Cash 4500 Accounts receivable 7700 Supplies 1000 Prepaid insurance 3450 equipment 11400 Credit Accumulated depreciation - equipment 190 Accounts Payable 4750 Unearned Service Revenue 400 Salaries payable 1104 Owner’s Capital 18700 Service Revenue 12800 Salaries & Wages Expense 7504 Rent Expense 900 Supplies expense 900 Insurance expense 150 Depreciation expense 190 Utilities expense 250 37944