Ch03 wrd12e instructor_final
- 1. i ng ust s dj e A roces Th P r3 pt e ha C c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 2. Learning Objectives 1. 2. Describe the nature of the adjusting process. 3. 4. 5. Summarize the adjustment process. Journalize entries for accounts requiring adjustment. Prepare an adjusted trial balance. Describe and illustrate the use of vertical analysis in evaluating a company’s performance and financial condition.
- 3. Lear ning Obje Desc ctive r ibe the n ature e of t he a djus ting proc ess. 1 c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 4. Nature of the Adjusting Process o The accounting period concept requires that revenues and expenses be reported in the proper period. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 5. Nature of the Adjusting Process o Under the accrual basis of accounting, revenues are reported on the income statement in the period in which they are earned. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 6. Nature of the Adjusting Process o The accounting concept supporting the reporting of revenues when they are earned regardless of when cash is received is called the revenue recognition concept. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 7. Nature of the Adjusting Process o The accounting concept supporting reporting revenues and related expenses in the same period is called the matching concept, or matching principle. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 8. Nature of the Adjusting Process o Under the cash basis of accounting, revenues and expenses are reported on the income statement in the period in which cash is received or paid. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 9. The Adjusting Process o Under the accrual basis, some of the accounts need updating at the end of the accounting period for the following reasons: Some expenses are not recorded daily. Some revenues and expenses are incurred as time passes rather than as separate transactions. Some revenues and expenses may be unrecorded. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 10. The Adjusting Process o The analysis and updating of accounts at the end of the period before the financial statements are prepared is called the adjusting process. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 11. The Adjusting Process o The analysis and updating of accounts at the end of the period before the financial statements are prepared is called the adjusting process. o The journal entries that bring the accounts up to date at the end of the accounting period are called adjusting entries. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 12. Types of Accounts Requiring Adjustment o Prepaid expenses are the advance payment of future expenses and are recorded as assets when cash is paid. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 13. PREPAID EXPENSES
- 14. PREPAID EXPENSES
- 15. Types of Accounts Requiring Adjustment o Unearned revenues are the advance receipt of future revenues and are recorded as liabilities when cash is received. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 18. Types of Accounts Requiring Adjustment o Accrued revenues are unrecorded revenues that have been earned and for which cash has yet to be received. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 19. ACCRUED REVENUES
- 20. ACCRUED REVENUES
- 21. Types of Accounts Requiring Adjustment o Accrued expenses are unrecorded expenses that have been incurred and for which cash has yet to be paid. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 22. ACCRUED EXPENSES
- 23. ACCRUED EXPENSES
- 24. Lear ning Obje ctive Journ alize en t tr requ ies for a ccou i r i ng n adju stme ts nt. 2 c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 27. Prepaid Expenses o NetSolutions’ Supplies account has a balance of $2,000 on the unadjusted trial balance. Some of these supplies have been used. On December 31, a count reveals that the amount of supplies on hand is $760. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 28. PREPAID EXPENSES Accounting Equation Impact Assets = decrease Liabilities + Stockholders’ Equity (Expense) increase
- 29. Prepaid Insurance o The debit balance of $2,400 in NetSolutions’ Prepaid Insurance account represents the December 1 prepayment of insurance for 12 months. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 30. PREPAID INSURANCE Accounting Equation Impact Assets = Liabilities + Stockholders’ Equity (Expense) increase decrease
- 32. Unearned Revenues o The credit balance of $360 in NetSolutions’ Unearned Rent account represents the receipt of three months’ rent on December 1 for December, January, and February. At the end of December, one month’s rent has been earned. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 33. UNEARNED REVENUES Accounting Equation Impact Assets = Liabilities decrease + Stockholders’ Equity (Revenue) increase
- 35. Accrued Revenues o NetSolutions signed an agreement with Danker Co. on December 15 to provide services at a rate of $20 per hour. As of December 31, NetSolutions had provided 25 hours of services. The revenue will be billed on January 15. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 36. UNEARNED REVENUES Accounting Equation Impact Assets = Liabilities + Stockholders’ Equity (Revenue) increase increase
- 38. ACCRUED WAGES
- 39. Accrued Wages o NetSolutions pays its employees biweekly. During December, NetSolutions paid wages of $950 on December 13 and $1,200 on December 27. As of December 31, NetSolutions owes $250 of wages to employees for Monday and Tuesday, December 30 and 31. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 40. ACCRUED WAGES Accounting Equation Impact Assets = Liabilities + Stockholders’ Equity (Expense) increase increase
- 41. Accrued Wages o NetSolutions paid wages of $1,275 on January 10. This payment includes the $250 of accrued wages recorded on December 31. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 43. Depreciation Expense o Fixed assets, or plant assets, are physical resources that are owned and used by a business and are permanent or have a long life. o As time passes, a fixed asset loses its ability to provide useful services. This decrease in usefulness is called depreciation. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 44. Depreciation Expense o All fixed assets, except land, lose their usefulness and , thus, are said to depreciate. o As a fixed asset depreciates, a portion of its cost should be recorded as an expense. This periodic expense is called depreciation expense. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 45. Depreciation Expense o The fixed asset account is not decreased (credited) when making the related adjusting entry. This is because both the original cost of a fixed asset and the depreciation recorded since its purchase are reported on the balance sheet. Instead, an account entitled Accumulated Depreciation is increased (credited). o Accumulated depreciation accounts are called contra accounts, or contra asset accounts. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 46. Depreciation Expense o Normal titles for fixed asset accounts and their related contra asset accounts are as follows: c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 47. Depreciation Expense o NetSolutions estimates the depreciation on its office equipment to be $50 for the month of December. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 48. DEPRECIATION EXPENSE Accounting Equation Impact Assets = Liabilities + Stockholders’ Equity (Expense) increase increase
- 49. Depreciation Expense o The difference between the original cost of the office equipment and the balance in the accumulated depreciation—office equipment account is called the book value of the asset (or net book value). It is computed as shown below. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 51. Lear ning Obje Su m ctive mari ze th e ad j ustm en t p roce ss. 3 c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 62. Lear ning Obje Prep ctive are a n ad ju s ted t rial b alanc e. 4 c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 63. Adjusted Trial Balance o The purpose of the adjusted trial balance is to verify the equality of the total debit and credit balances before the financial statements are prepared. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 65. Lear ning Obje Desc ctive r ibe and verti illu ca s l com analysis trate the pany ’s pe in evalua use of r finan formanc ting a e cial c ondi and t i on. 5 c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 66. Vertical Analysis o Comparing each item in a financial statement with a total amount from the same statement is referred to as vertical analysis. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 67. VERTICAL ANALYSIS $ 12,500 $187,500 = .067 or 6.7%
- 68. VERTICAL ANALYSIS $ 3,000 $150,000 = .02 or 2%
- 69. i ng ust s dj e A roces Th P nd eE Th c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.