Sept. 23, 2013
Makes a $900 on account.
Accounts receivable 900
accounts Receivable 900
Make sale of inventory item for cash $800. Item sold originally cost me $500.
Cost of goods sold 500
Employees work for 2 weeks. Then payday, we pay them $5000.
Salaries or Wages expense 5000
Electricity bill comes in $700 (pay us in 30 days)
Utilities expense 700
Accounts payable 700
Chapter 3 accrual accounting
Transactions that impact the statement of income
statement of financial position accounts are permanent accounts in that their balances
carry over from one fiscal year to the next
income statement accounts are temporary because they get reset to zero at the beginning
of each fiscal year
Cash vs. Accrual Accounting
cash basis of accounting revenues and expenses are recorded only when cash is received
accrual basis of accounting revenues are recognized when earned (regardless of when
the cash is received) and expenses are recognized when incurred (regardless of when the
case is paid Adjusting Entrie Summary:
Prepayments – Accruals –
Cash is paid or received before the event Event has occurred, but the cash has not yet been
paid or received
Expenses Prepaid expenses: Accrued Expenses
Dr. Asset / Cr. Cash Dr. Expense orAsset /
Revenues Unearned Revenues Accrued Revenues
Dr. Cash / Cr. Liabilities Dr. Receivable; Cr. Revenues
Adjusting entries prepaid expenses
costs are initially recorded as assets and allocated to expenses of future periods
– prepaid rent and insurance
– office supplies
– plant and equipment
Transaction: you start the year with $3,500 of office supplies. During the year you
purchase $7,000 of supplies. At the end of the year, the inventory count reveals that there
are $2,700 of supplies on hand.
SEE WRITTEN WORK TACCOUNTS
Transaction: you purchased equipment at a cost of $75,000 at the beginning of the year.