Chapter 4 Condensed (Day 1 and 2)
I. Completing the Recording Process
1. Analyze business transactions
2. Journalize the transaction
3. Post to ledger accounts (T-accounts)
4. Prepare a trial balance
5. Journalize and post adjusting entries
6. Prepare an adjusted trial balance
7. Prepare financial statements
8. Journalize and post closing entries
9. Prepare a post-closing trial balance
II. Net Profit Margin
I. Completing the Recording Process
1. Analyze business transactions
2. Journalize the transaction
3. Post to ledger accounts (T-accounts)
4. Prepare a trial balance
A. Trial Balance - a list of all accounts with their debit or credit balances indicated in the
appropriate column to provide a check on the equality of the debits and credits.
The trial balance is basically just aggregating everything you put together in T-accounts.
Jones Corporation
Trial Balance
June 30, 2007
Account Description Debit Credit
89,700
Supplies 5,000
Prepaid Insurance 1,000
Building 45,000
Land 25,000
Equipment
1,100
Accounts Payable 5,000
Notes Payable 60,000
Common Stock (Contributed Capital) 100,000
Retained Earnings
Service Revenue 3,000
Advertising Expense 1,200
Totals 168,000 168,000
1 5. Journalize and post adjusting entries
A. Deferred (Unearned) Revenues – Ex. 1. B. Accrued Revenues – Ex. 2. Interest
Unearned Rent Revenue, Unearned Receivable, 3.Rent Receivable, Royalties
Franchise Fees Receivable, Franchise Fee Receivable
C. Deferred (Prepaid) Expense – Ex. 4. D. Accrued Expenses – Ex. 6. Wage Payable,
Supplies, 5.Prepaid Rent, Prepaid 7.Interest Payable, 8.Income Tax Payable,
Insurance, Prepaid Advertising Rent Payable
E. Depreciation Expense – Ex. 9. Accumulated Depreciation
A. Deferred (Unearned) Revenues – Ex. Unearned Rent Revenue, Unearned Franchise Fees
Ex. 1 – Unearned Rent (similar to unearned franchise fees)
Be careful of which company’s perspective you are booking the journals for.
Inception (9/1/01) – Grubb Ellis receives $90,000 rent in advance for one year lease from Dillbean
Corp. The entries for Grubb Ellis are:
Dr. Cash 90,000
Cr. Unearned rent revenue 90,000
Adjusting Entry (12/31/01, four months) to recognize Rent Revenue Earned
90,000 * (4 ÷ 12) = 30,000
Dr. Unearned rent revenue 30,000
Cr. Rent revenue 30,000
Conclusion (8/31/02) – The rental period ends and Grubb Ellis recognizes the rest of the revenue
Dr. Unearned revenue 60,000
Cr. Rent revenue 60,000
B. Accrued Revenues – Ex. Interest Receivable, Rent Receivable, Royalties Receivable, Franchise Fee
Receivable
Ex. 2 – Rent Receivable
Inception (9/1/01) – Dillbean Corp signs a one-year rental agreement and agrees to pay Grubb Ellis
rent of $90,000 at the end of the lease period (8/31/02). The entries for Grubb Ellis are:
No transaction / no entry
2 Adjusting Entry (12/31/01) to recognize Rent Revenue Earned
Dr. Rent receivable 30,000
Cr. Rent revenue 30,000
Conclusion (8/31/02) – The rental period ends and Grubb Ellis receives $90,000
Dr. Cash 90,000
Cr. Rent revenue 60,000
Cr. Rent receivable 30,000
Ex. 3 – Interest Receivable
Inception (7/1/01) – MySpace Inc borrowed $60,000 and signed a note to Facebook Corp. The stated
interest rate on the note is 10%. Both the principal and the interest are due on 6/31/02. The entries
for Facebook are:
Dr. Note receivable 60,000
Cr. Cash 60,000
Adjusting Entry (12/31/01) to recognize Interest Revenue Earned
Interest Revenue = Principle * Interest Rate * Time Period
3,000 = 60,000 * 10% * 6/12 (6 months/12 months)
Dr. Interest receivable 3,000
Cr. Interest revenue 3,000
Conclusion (6/31/02) – MySpace pays the interest and principle on the loan. Facebook’s entries are:
Dr. Cash 60,000
Cr. Notes receivable 60,000
Dr. Cash 6,000
Cr. Interest revenue 3,000
Cr. Interest receivable 3,000
OR combine Cash debits (66,000) and put the three credit entries below it.
C. Deferred (Prepaid) Expense – Ex. Supplies, Prepaid Rent, Prepaid Insurance, Prepaid Advertising
Ex. 4 – Supplies
Speaner Corp:
1/1/01 Supplies – $2,500 Beginning Balance
9/1/01 Purchase – $5,000 of additional Supplies
Dr. Supplies 5,000
Cr. Cash 5,000
3 12/31/01 – Supplies Counted – $1,700 remaining
Adjusting Entry (12/31/01) to recognize supplies used (ALWAYS MAKE T-ACCOUNT!)
Supplies
Beg Bal 2,500
Purchase 5,000 plug
5,800
End Bal 1,700
Dr. Supplies expense 5,800
Cr. Supplies 5,800
Ex. 5 – Prepaid Rent
Inception (9/1/01) – Grubb Ellis receives $90,000 rent in advance for one year lease from Dillbean
Corp. The entries for Dillbean are:
Dr. Prepaid rent expense 90,000
Cr. Cash 90,000
Adjusting Entry (12/31/01) to recognize Rent Expense Incurred
Dr. Rent expense 30,000
Cr. Prepaid rent expense 30,000
Conclusion (8/31/02) – The rental period ends and Dillbean incurs the rest of the rent expense
Dr. Rent expense 60,000
Cr. Prepaid rent expense 60,000
4 D. Accrued Expenses – Ex. Wage Payable, Interest Payable, Income Tax Payable, Rent Payable
Ex. 6 – Wage Payable
Hired (11/10/01) – Beatstick Corp hires Hugh Jamstein and agrees to pay him a $12,000 salary every
month on the 10 starting on December 10 2001.
11/10/01 No transaction
12/10/01 – First Paycheck
Dr. Salary expense 12,000
Cr. Cash 12,000
Adjusting Entry (12/30/01) to recognize Wage Expense Incurred (12,000 * 2/3)
Dr. Salary expense 8,000
Cr. Salary payable 8,000
1/10/02 – Second Paycheck
Dr. Salary payable `8,000
Dr. Salary expense 4,000
Cr. Cash 12,000
Ex. 7 – Interest Payable
Inception (7/1/01) – MySpace Inc borrowed $60,000 and signed a note to Facebook Corp. The stated
interest rate on the note is 10%. Both the principal and the interest are due on 6/31/02. The entries
for MySpace are:
Dr. Cash 60,000
Cr. Note payable 60,000
Adjusting Entry (12/31/01) to recognize Interest Expense Incurred
Interest Expense =
Dr. Interest expense 3,000
Cr. Interest payable 3,00
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