I need help with a last minute Accounting 1 assignment. My regular tutor is off the grid so I am looking for a replacement.

I have created the outline for you and enclosed the rubric, plus all f the reading that we have used to date.

I need accounting tutor for the next three weeks, 2-3 assignments per week, plus I am a good tipper.

Assignment: PowerPoint Assignment

A clear understanding of the accounting cycle is important in comprehending the accounting process. Written communication and presentation skills are critical to successful accountants. The accountant must understand and be able to communicate various aspects of the accounting process. This Assignment provides you with the opportunity to hone these skills.

Prepare a PowerPoint Presentation explaining the various steps in the accounting cycle.

The ppt is about the the main steps of the accounting cycle, feel free to add or adjust my slides.

Book Info :

Title:Accounting Principles, 12th Edition Author:Weygandt, J., Kimmel, P., &Kieso, D.

ISBN:978-1-118-87505-6

Publisher:Wiley

eBookor Physical text or Digital Book:Digital Book

1-1 1 Accounting in Action Learning Objectives 1 2 Explain the building blocks of accounting: ethics, principles, and assumptions. 3 State the accounting equation, and define its components. 4 Analyze the effects of business transactions on the accounting equation. 5 1-2 Identify the activities and users associated with accounting. Describe the four financial statements and how they are prepared. LEARNING OBJECTIVE 1 Identify the activities and users associated with accounting. Accounting consists of three basic activitiesit identifies, records, and communicates the economic events of an organization to interested users. 1-3 LO 1 Three Activities Illustration 1-1 The activities of the accounting process The accounting process includes the bookkeeping function. 1-4 LO 1 Who Uses Accounting Data INTERNAL USERS Illustration 1-2 Questions that internal users ask 1-5 LO 1 1-6 LO 1 Who Uses Accounting Data EXTERNAL USERS Illustration 1-3 Questions that external users ask 1-7 LO 1 DO IT! 1 Basic Concepts Indicate whether the following statements are true or false. 1. The three steps in the accounting process are identification, recording, and communication. 2. Bookkeeping encompasses all steps in the accounting process. 3. Accountants prepare, but do not interpret, financial reports. 4. The two most common types of external users are investors and company officers. 5. Managerial accounting activities focus on reports for internal users. Solution: 1-8 1. True 2. False 3. False 4. False 5. True LO 1 LEARNING OBJECTIVE 2 Explain the building blocks of accounting: ethics, principles, and assumptions. Ethics in Financial Reporting Recent financial scandals include: Enron, WorldCom, HealthSouth, AIG, and other companies. Regulators and lawmakers concerned that economy would suffer if investors lost confidence in corporate accounting. In response, 1-9 Congress passed Sarbanes-Oxley Act (SOX). Effective financial reporting depends on sound ethical behavior. LO 2 Ethics in Financial Reporting Illustration 1-4 Steps in analyzing ethics cases and situations 1-10 LO 2 Ethics in Financial Reporting Question Ethics are the standards of conduct by which one's actions are judged as: a. right or wrong. b. honest or dishonest. c. fair or not fair. d. all of these options. 1-11 LO 2 1-12 LO 2 Generally Accepted Accounting Principles Various users need financial information Financial Statements The accounting profession has developed standards that are generally accepted and universally practiced. 1-13 Balance Sheet Income Statement Statement of Owner's Equity Statement of Cash Flows Note Disclosure Generally Accepted Accounting Principles (GAAP) LO 2 Generally Accepted Accounting Principles Generally Accepted Accounting Principles (GAAP) - Standards that are generally accepted and universally practiced. These standards indicate how to report economic events. Standard-setting bodies: Securities and Exchange Commission (SEC) 1-14 Financial Accounting Standards Board (FASB) International Accounting Standards Board (IASB) LO 2 Measurement Principles HISTORICAL COST PRINCIPLE (or cost principle) dictates that companies record assets at their cost. FAIR VALUE PRINCIPLE states that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability). Selection of which principle to follow generally relates to trade-offs between relevance and faithful representation. 1-15 LO 2 Assumptions MONETARY UNIT ASSUMPTION requires that companies include in the accounting records only transaction data that can be expressed in terms of money. ECONOMIC ENTITY ASSUMPTION requires that activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities. Partnership 1-16 Proprietorship Corporation Forms of Business Ownership LO 2 Forms of Business Ownership Proprietorship Owned by one person Owner is often manager/operator 1-17 Owner receives any profits, suffers any losses, and is personally liable for all debts Partnership Owned by two or more persons Often retail and service-type businesses Generally unlimited personal liability Corporation Ownership divided into shares of stock Separate legal entity organized under state corporation law Limited liability Partnership agreement LO 2 Assumptions Question Combining the activities of Kellogg and General Mills would violate the a. cost principle. b. economic entity assumption. c. monetary unit assumption. d. ethics principle. 1-18 LO 2 Assumptions Question A business organized as a separate legal entity under state law having ownership divided into shares of stock is a a. proprietorship. b. partnership. c. corporation. d. sole proprietorship. 1-19 LO 2 DO IT! 2 Building Blocks of Accounting Indicate whether each of the following statements presented below is true or false. 1. Congress passed the Sarbanes-Oxley Act to reduce unethical behavior and decrease the likelihood of future corporate scandals. 2. The primary accounting standard-setting body in the United States is the Financial Accounting Standards True True Board (FASB). 3. The historical cost principle dictates that companies record assets at their cost. In later periods, however, the fair value of the asset must be used if fair value is higher than its cost. 1-20 False LO 2 DO IT! 2 Building Blocks of Accounting Indicate whether each of the following statements presented below is true or false. 4. Relevance means that financial information matches what really happened; the information is factual. 5. A business owner's personal expenses must be separated from expenses of the business to comply with accounting's economic entity assumption. 1-21 False True LO 2 LEARNING OBJECTIVE 3 Assets State the accounting equation, and define its components. = Liabilities + Owner's Equity Basic Accounting Equation Assets are claimed by either creditors or owners. 1-22 Provides the underlying framework for recording and summarizing economic events. If a business is liquidated, claims of creditors must be paid before ownership claims. LO 3 Basic Accounting Equation Assets = Liabilities + Owner's Equity Assets Provide future services or benefits. 1-23 Resources a business owns. Cash, Supplies, Equipment, etc. LO 3 Basic Accounting Equation Assets = Liabilities + Owner's Equity Liabilities Creditors (party to whom money is owed). 1-24 Claims against assets (debts and obligations). Accounts Payable, Notes Payable, Salaries and Wages Payable, etc. LO 3 Basic Accounting Equation Assets = Liabilities + Owner's Equity Owner's Equity Referred to as residual equity. Investment by owners and revenues (+) 1-25 Ownership claim on total assets. Drawings and expenses (-). LO 3 Owner's Equity Illustration 1-6 Expanded accounting equation Increases in Owner's Equity Investments by owner are the assets the owner puts into the business. Revenues result from business activities entered into for the purpose of earning income. Common sources of revenue are: sales, fees, services, commissions, interest, dividends, royalties, and rent. 1-26 LO 3 Owner's Equity Illustration 1-6 Expanded accounting equation Decreases in Owner's Equity Drawings An owner may withdraw cash or other assets for personal use. Expenses are the cost of assets consumed or services used in the process of earning revenue. Common expenses are: salaries expense, rent expense, utilities expense, tax expense, etc. 1-27 LO 3 DO IT! 3 Owner's Equity Effects Classify the following items as investment by owner, owner's drawings, revenue, or expenses. Then indicate whether each item increases or decreases owner's equity. Classification Effect on Equity 1. Rent Expense Expense Decrease 2. Service Revenue Revenue Increase 3. Drawings Drawings Decrease Expense Decrease 4. Salaries and Wages Expense 1-28 LO 3 LEARNING OBJECTIVE 4 Analyze the effects of business transactions on the accounting equation. Transactions are a business's economic events recorded by accountants. May be external or internal. Not all activities represent transactions. Each transaction has a dual effect on the accounting equation. 1-29 LO 4 Transaction Analysis Illustration: Are the following events recorded in the accounting records? Event Criterion Purchase computer Discuss product design with potential customer Illustration 1-7 Pay rent Is the financial position (assets, liabilities, or owner's equity) of the company changed? Record/ Don't Record 1-30 LO 4 Transaction Analysis TRANSACTION 1. INVESTMENT BY OWNER Ray Neal decides to start a smartphone app development company which he names Softbyte. On September 1, 2017, he invests $15,000 cash in the business. This transaction results in an equal increase in assets and owner's equity. Assets Transaction 1. Cash + +15,000 = Liabilities + Owner's Equity Accounts Accounts Owner's Owner's + Supplies + Equipment = + + + Rev. Receivable Payable Capital Drawings - Exp. +15,000 Illustration 1-8 Tabular summary of Softbyte transactions 1-31 LO 4 TRANSACTION 2. PURCHASE OF EQUIPMENT FOR CASH Softbyte Inc. purchases computer equipment for $7,000 cash. Illustration 1-8 Assets Transaction Cash + 1. -7,000 +7,000 +1,600 +1,600 +1,200 +1,200 5. +250 6. +1,500 7. -1,700 8. -250 9. +600 10. -1,300 $8,050 + 1-32 - Exp. +15,000 3. 4. Owner's Equity Accounts Accounts Owner's Owner's + Supplies + Equipment = + + + Rev. Receivable Payable Capital Drawings +15,000 2. = Liabilities + +2,000 -250 +3,500 -600 -900 -200 -250 -600 -1,300 $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300 LO 4 TRANSACTION 3. PURCHASE OF SUPPLIES ON CREDIT Softbyte Inc. purchases for $1,600 headsets and other accessories expected to last several months. The supplier allows Softbyte to pay this bill in October. Illustration 1-8 Transaction Cash + 1. = Liabilities + -7,000 +7,000 +1,600 +1,600 +1,200 +1,200 5. +250 6. +1,500 7. -1,700 8. -250 9. +600 10. -1,300 $8,050 + 1-33 - Exp. +15,000 3. 4. Owner's Equity Accounts Accounts Owner's Owner's + Supplies + Equipment = + + + Rev. Receivable Payable Capital Drawings +15,000 2. Assets +2,000 -250 +3,500 -600 -900 -200 -250 -600 -1,300 $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300 LO 4 TRANSACTION 4. SERVICES PERFORMED FOR CASH Softbyte Inc. receives $1,200 cash from customers for app development services it has performed. Illustration 1-8 Assets Transaction Cash + 1. -7,000 +7,000 +1,600 +1,600 +1,200 +1,200 5. +250 6. +1,500 7. -1,700 8. -250 9. +600 10. -1,300 $8,050 + 1-34 - Exp. +15,000 3. 4. Owner's Equity Accounts Accounts Owner's Owner's + Supplies + Equipment = + + + Rev. Receivable Payable Capital Drawings +15,000 2. = Liabilities + +2,000 -250 +3,500 -600 -900 -200 -250 -600 -1,300 $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300 LO 4 TRANSACTION 5. PURCHASE OF ADVERTISING ON CREDIT Softbyte Inc. receives a bill for $250 from the Daily News for advertising on its online website but postpones payment until a later date. Illustration 1-8 Assets Transaction Cash + 1. -7,000 +7,000 +1,600 +1,600 +1,200 +1,200 5. +250 6. +1,500 7. -1,700 8. -250 9. +600 10. -1,300 $8,050 + 1-35 - Exp. +15,000 3. 4. Owner's Equity Accounts Accounts Owner's Owner's + Supplies + Equipment = + + + Rev. Receivable Payable Capital Drawings +15,000 2. = Liabilities + +2,000 -250 +3,500 -600 -900 -200 -250 -600 -1,300 $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300 LO 4 TRANSACTION 6. SERVICES PERFORMED FOR CASH AND CREDIT. Softbyte performs $3,500 of services. The company receives cash of $1,500 from customers, and it bills the balance of $2,000 on account. Illustration 1-8 Transaction Cash + 1. = Liabilities + -7,000 +7,000 +1,600 +1,600 +1,200 +1,200 5. +250 6. +1,500 7. -1,700 8. -250 9. +600 10. -1,300 $8,050 + 1-36 - Exp. +15,000 3. 4. Owner's Equity Accounts Accounts Owner's Owner's + Supplies + Equipment = + + + Rev. Receivable Payable Capital Drawings +15,000 2. Assets +2,000 -250 +3,500 -600 -900 -200 -250 -600 -1,300 $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300 LO 4 TRANSACTION 7. PAYMENT OF EXPENSES Softbyte Inc. pays the following expenses in cash for September: office rent $600, salaries and wages of employees $900, and utilities $200. Illustration 1-8 Assets Transaction Cash + 1. -7,000 +7,000 +1,600 +1,600 +1,200 +1,200 5. +250 6. +1,500 7. -1,700 8. -250 9. +600 10. -1,300 $8,050 + 1-37 - Exp. +15,000 3. 4. Owner's Equity Accounts Accounts Owner's Owner's + Supplies + Equipment = + + + Rev. Receivable Payable Capital Drawings +15,000 2. = Liabilities + +2,000 -250 +3,500 -600 -900 -200 -250 -600 -1,300 $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300 LO 4 TRANSACTION 8. PAYMENT OF ACCOUNTS PAYABLE Softbyte Inc. pays its $250 Daily News bill in cash. The company previously (in Transaction 5) recorded the bill as an increase in Accounts Payable. Illustration 1-8 Transaction Cash + 1. = Liabilities + -7,000 +7,000 +1,600 +1,600 +1,200 +1,200 5. +250 6. +1,500 7. -1,700 8. -250 9. +600 10. -1,300 $8,050 + 1-38 - Exp. +15,000 3. 4. Owner's Equity Accounts Accounts Owner's Owner's + Supplies + Equipment = + + + Rev. Receivable Payable Capital Drawings +15,000 2. Assets +2,000 -250 +3,500 -600 -900 -200 -250 -600 -1,300 $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300 LO 4 TRANSACTION 9. RECEIPT OF CASH ON ACCOUNT Softbyte Inc. receives $600 in cash from customers who had been billed for services (in Transaction 6). Illustration 1-8 Assets Transaction Cash + 1. -7,000 +7,000 +1,600 +1,600 +1,200 +1,200 5. +250 6. +1,500 7. -1,700 8. -250 9. +600 10. -1,300 $8,050 + 1-39 - Exp. +15,000 3. 4. Owner's Equity Accounts Accounts Owner's Owner's + Supplies + Equipment = + + + Rev. Receivable Payable Capital Drawings +15,000 2. = Liabilities + +2,000 -250 +3,500 -600 -900 -200 -250 -600 -1,300 $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300 LO 4 TRANSACTION 10. WITHDRAWAL OF CASH BY OWNER Ray Neal withdraws $1,300 in cash in cash from the business for his personal use. Illustration 1-8 Transaction Cash + 1. = Liabilities + -7,000 +7,000 +1,600 +1,600 +1,200 +1,200 5. +250 6. +1,500 7. -250 9. +600 10. -1,300 -250 -1,700 8. $8,050 + 1-40 - Exp. +15,000 3. 4. Owner's Equity Accounts Accounts Owner's Owner's + Supplies + Equipment = + + + Rev. Receivable Payable Capital Drawings +15,000 2. Assets +2,000 +3,500 -600 -900 -200 -250 -600 -1,300 $1,400 + $1,600 + $18,050 $7,000 = $1,600 + $15,000 + $1,300 - $4,700 - $1,950 $18,050 LO 4 Summary of Transactions 1. Each transaction is analyzed in terms of its effect on: a. The three components of the basic accounting equation. b. Specific of items within each component. 2. The two sides of the equation must always be equal. 1-41 LO 4 DO IT! 4 Tabular Analysis Transactions made by Virmari & Co., a public accounting firm, for the month of August are shown below. Prepare a tabular analysis which shows the effects of these transactions on the expanded accounting equation, similar to that shown in Illustration 1-8. 1. The owner invested $25,000 cash in the business. 2. The company purchased $7,000 of office equipment on credit. 3. The company received $8,000 cash in exchange for services performed. 4. The company paid $850 for this month's rent. 5. The owner withdrew $1,000 cash for personal use. 1-42 LO 4 DO IT! 4 Tabular Analysis 1. The owner invested $25,000 cash in the business. Assets Transaction 1. Liabilities + + Cash = = Accounts + Payable Equipment +25,000 2. -850 5. +7,000 +8,000 4. Owner's Owner's + + Rev. - Exp. Capital Drawings +25,000 +7,000 3. Owner's Equity -1,000 $31,150 + 1-43 +8,000 -850 -1,000 $7,000 $18,050 = $7,000 + $25,000 + $8,000 - $18,050 $850 - $1,000 LO 4 DO IT! 4 Tabular Analysis 2. The company purchased $7,000 of office equipment on credit. Assets Transaction 1. Liabilities + + Cash = = Accounts + Payable Equipment +25,000 2. -850 5. +7,000 +8,000 4. Owner's Owner's + + Rev. - Exp. Capital Drawings +25,000 +7,000 3. Owner's Equity -1,000 $31,150 + 1-44 +8,000 -850 -1,000 $7,000 $18,050 = $7,000 + $25,000 + $8,000 - $18,050 $850 - $1,000 LO 4 DO IT! 4 Tabular Analysis 3. The company received $8,000 cash in exchange for services performed. Assets Transaction 1. Liabilities + + Cash = = Accounts + Payable Equipment +25,000 2. -850 5. +7,000 +8,000 4. Owner's Owner's + + Rev. - Exp. Capital Drawings +25,000 +7,000 3. Owner's Equity -1,000 $31,150 + 1-45 +8,000 -850 -1,000 $7,000 $18,050 = $7,000 + $25,000 + $8,000 - $18,050 $850 - $1,000 LO 4 DO IT! 4 Tabular Analysis 4. The company paid $850 for this month's rent. Assets Transaction 1. Liabilities + + Cash = = Accounts + Payable Equipment +25,000 2. -850 5. +7,000 +8,000 4. Owner's Owner's + + Rev. - Exp. Capital Drawings +25,000 +7,000 3. Owner's Equity -1,000 $31,150 + 1-46 +8,000 -850 -1,000 $7,000 $18,050 = $7,000 + $25,000 + $8,000 - $18,050 $850 - $1,000 LO 4 DO IT! 4 Tabular Analysis 5. The owner withdrew $1,000 cash for personal use. Assets Transaction 1. Liabilities + + Cash = = Accounts + Payable Equipment +25,000 2. -850 5. +7,000 +8,000 4. Owner's Owner's + + Rev. - Exp. Capital Drawings +25,000 +7,000 3. Owner's Equity -1,000 $31,150 + 1-47 +8,000 -850 -1,000 $7,000 $38,150 = $7,000 + $25,000 + $1,000 $38,150 + $8,000 - $850 LO 4 LEARNING OBJECTIVE 5 Describe the four financial statements and how they are prepared. Companies prepare four financial statements : Income Statement 1-48 Owner's Equity Statement Balance Sheet Statement of Cash Flows LO 5 Financial Statements Question Net income will result during a time period when: a. assets exceed liabilities. b. assets exceed revenues. c. expenses exceed revenues. d. revenues exceed expenses. 1-49 LO 5 Financial Statements Net income is needed to determine the ending balance in owner's equity. SOFTBYTE Income Statement For the Month Ended September 30, 2017 Illustration 1-9 Financial statements and their interrelationships SOFTBYTE Owner's Equity Statement For the Month Ended September 30, 2017 1-50 LO 5 SOFTBYTE Owner's Equity Statement For the Month Ended September 30, 2017 The ending balance in owner's equity is needed in preparing the balance sheet. Illustration 1-9 Financial statements and their interrelationships 1-51 Illustration 1-9 SOFTBYTE Balance Sheet September 30, 2017 Financial Statements SOFTBYTE Balance Sheet September 30, 2017 Balance sheet and income statement are needed to prepare statement of cash flows. SOFTBYTE Statement of Cash Flows For the Month Ended September 30, 2017 Illustration 1-9 Financial statements and their interrelationships 1-52 Income Statement Reports the revenues and expenses for a specific period of time. Lists revenues first, followed by expenses. Shows net income (or net loss). Does not include investment and withdrawal transactions between the owner and the business in measuring net income. 1-53 LO 5 Owner's Equity Statement Reports the changes in owner's equity for a specific period of time. The time period is the same as that covered by the income statement. 1-54 LO 5 Balance Sheet Reports the assets, liabilities, and owner's equity at a specific date. Lists assets at the top, followed by liabilities and owner's equity. Total assets must equal total liabilities and owner's equity. Is a snapshot of the company's financial condition at a specific moment in time (usually the month-end or yearend). 1-55 LO 5 Statement of Cash Flows Information on the cash receipts and payments for a specific period of time. Answers the following: What was cash used for? 1-56 Where did cash come from? What was the change in the cash balance? LO 5 Financial Statements Question Which of the following financial statements is prepared as of a specific date? a. Balance sheet. b. Income statement. c. Owner's equity statement. d. Statement of cash flows. 1-57 LO 5 1-58 LO 5 DO IT! 5 Financial Statement Items Presented below is selected information related to Flanagan Company at December 31, 2017. Flanagan reports financial information monthly. Equipment Cash Service Revenue Rent Expense Accounts Payable $10,000 8,000 36,000 11,000 2,000 Utilities Expense Accounts Receivable Salaries and Wages Expense Notes Payable Owner's Drawings $ 4,000 9,000 7,000 16,500 5,000 (a) Determine the total assets of at December 31, 2017. (b) Determine the net income reported for December 2017. (c) Determine the owner's equity at December 31, 2017. 1-59 LO 5 DO IT! 5 Financial Statement Items Presented below is selected information related to Flanagan Company at December 31, 2017. Flanagan reports financial information monthly. Equipment Cash Service Revenue Rent Expense Accounts Payable $10,000 8,000 36,000 11,000 2,000 Utilities Expense Accounts Receivable Salaries and Wages Expense Notes Payable Owner's Drawings $ 4,000 9,000 7,000 16,500 5,000 (a) Determine the total assets of at December 31, 2017. The total assets are $27,000, comprised of Accounts Receivable $9,000, and 1-60 Cash $8,000, Equipment $10,000. LO 5 DO IT! 5 Financial Statement Items Presented below is selected information related to Flanagan Company at December 31, 2017. Flanagan reports financial information monthly. Equipment Cash Service Revenue Rent Expense Accounts Payable $10,000 8,000 36,000 11,000 2,000 Utilities Expense Accounts Receivable Salaries and Wages Expense Notes Payable Owner's Drawings $ 4,000 9,000 7,000 16,500 5,000 (b) Determine the net income reported for December 2017. 1-61 LO 5 DO IT! 5 Financial Statement Items Presented below is selected information related to Flanagan Company at December 31, 2017. Flanagan reports financial information monthly. Equipment Cash Service Revenue Rent Expense Accounts Payable $10,000 8,000 36,000 11,000 2,000 Utilities Expense Accounts Receivable Salaries and Wages Expense Notes Payable Owner's Drawings $ 4,000 9,000 7,000 16,500 5,000 (c) Determine the owner's equity at December 31, 2017. 1-62 LO 5 LEARNING OBJECTIVE 6 APPENDIX 1A: Explain the career opportunities in accounting. Public Accounting Careers in auditing, taxation, and management consulting serving the general public. Careers in industry working in cost accounting, budgeting, accounting information systems, and taxation. Governmental Accounting Forensic Accounting Careers with the IRS, the FBI, the SEC, public colleges and universities, and in state and local governments. 1-63 Private Accounting Uses accounting, auditing, and investigative skills to conduct investigations into theft and fraud. LO 6 \"Show Me the Money\" Salary estimates for jobs in public and corporate accounting Upper-level management salaries in corporate accounting 1-64 Illustration 1A-1 Illustration 1A-2 LO 6 LEARNING OBJECTIVE 7 Describe the impact of international accounting standards on U.S. financial reporting. Key Points Following are the key similarities and differences between GAAP and IFRS as related to accounting fundamentals. Similarities 1-65 The basic techniques for recording business transactions are the same for U.S. and international companies. Both international and U.S. accounting standards emphasize transparency in financial reporting. Both sets of standards are primarily driven by meeting the needs of investors and creditors. LO 7 Key Points Similarities The three most common forms of business organizations, proprietorships, partnerships, and corporations, are also found in countries that use international accounting standards. Differences 1-66 International standards are referred to as International Financial Reporting Standards (IFRS), developed by the International Accounting Standards Board. Accounting standards in the United States are referred to as generally accepted accounting principles (GAAP) and are developed by the Financial Accounting Standards Board. LO 7 Key Points Differences 1-67 IFRS tends to be simpler in its accounting and disclosure requirements; some people say it is more \"principles-based.\" GAAP is more detailed; some people say it is more \"rules-based.\" The internal control standards applicable to Sarbanes-Oxley (SOX) apply only to large public companies listed on U.S. exchanges. There is continuing debate as to whether non-U.S. companies should have to comply with this extra layer of regulation. LO 7 Looking to the Future Both the IASB and the FASB are hard at work developing standards that will lead to the elimination of major differences in the way certain transactions are accounted for and reported. 1-68 LO 7 A Look at IFRS IFRS Self-Test Questions Which of the following is not a reason why a single set of high-quality international accounting standards would be beneficial? a) Mergers and acquisition activity. b) Financial markets. c) Multinational corporations. d) GAAP is widely considered to be a superior reporting system. 1-69 LO 7 A Look at IFRS IFRS Self-Test Questions The Sarbanes-Oxley Act determines: a) international tax regulations. b) internal control standards as enforced by the IASB. c) internal control standards of U.S. publicly traded companies. d) U.S. tax regulations. 1-70 LO 7 A Look at IFRS IFRS Self-Test Questions IFRS is considered to be more: a) principles-based and less rules-based than GAAP. b) rules-based and less principles-based than GAAP. c) detailed than GAAP. d) None of the above. 1-71 LO 7 Copyright \"Copyright 2015 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.\" 1-72 2-1 2 The Recording Process Learning Objectives 1 2 Indicate how a journal is used in the recording process. 3 Explain how a ledger and posting help in the recording process. 4 2-2 Describe how accounts, debits, and credits are used to record business transactions. Prepare a trial balance. LEARNING OBJECTIVE 1 Describe how accounts, debits, and credits are used to record business transactions. The Account Debit = \"Left\" 2-3 Record of increases and decreases in a specific asset, liability, owners' equity, revenue, or expense item. An account can be illustrated in a Taccount form. Credit = \"Right\" Account Name Debit / Dr. Credit / Cr. LO 1 The Account DEBIT AND CREDIT PROCEDURES Double-entry system Each transaction must affect two or more accounts to keep the basic accounting equation in balance. Recording done by debiting at least one account and crediting at least one other account. 2-4 DEBITS must equal CREDITS. LO 1 Debits and Credits If the sum of Debit entries are greater than the sum of Credit entries, the account will have a debit balance. Account Name Debit / Dr. Credit / Cr. Transaction #1 $10,000 $3,000 Transaction #3 8,000 Balance 2-5 Transaction #2 $15,000 LO 1 Debits and Credits If the sum of Credit entries are greater than the sum of Debit entries, the account will have a credit balance. Account Name Debit / Dr. Balance 2-6 $10,000 $3,000 Transaction #2 8,000 Transaction #1 Credit / Cr. Transaction #3 $1,000 LO 1 Debits and Credits Assets - Debits should exceed credits. Liabilities - Credits should exceed debits. Debit / Dr. Assets Normal balance is on the increase side. Credit / Cr. Normal Balance Chapter 3-23 Liabilities Debit / Dr. Credit / Cr. Normal Balance Chapter 3-24 2-7 LO 1 Debits and Credits Owner's investments and revenues increase owner's equity (credit). Owner's Equity Owner's drawings and expenses decrease owner's equity (debit). Credit / Cr. Debit / Dr. Normal Balance Chapter 3-25 Owner's Capital Owner's Drawing Chapter 3-25 2-8 Credit / Cr. Debit / Dr. Normal Balance Debit / Dr. Normal Balance Credit / Cr. Helpful Hint Because revenues increase owner's equity, a revenue account has the same debit/credit rules as the Owner's Capital account. Expenses have the opposite effect. Chapter 3-23 LO 1 Debits and Credits The purpose of earning revenues is to benefit the owner(s). The effect of debits and credits on revenue accounts is the same as their effect on Owner's Capital. Debit / Dr. Revenue Expenses have the opposite effect: expenses decrease owner's equity. Credit / Cr. Normal Balance Chapter 3-26 Expense Debit / Dr. Credit / Cr. Normal Balance Chapter 3-27 2-9 LO 1 Debits/Credits Rules Liabilities Normal Balance Debit Normal Balance Credit Assets Credit / Cr. Normal Balance Chapter 3-24 Owner's Equity Credit / Cr. Debit / Dr. Debit / Dr. Debit / Dr. Credit / Cr. Normal Balance Normal Balance Chapter 3-23 Expense Debit / Dr. Chapter 3-25 Revenue Credit / Cr. Debit / Dr. Normal Balance Chapter 3-27 2-10 Credit / Cr. Normal Balance Chapter 3-26 LO 1 Debits/Credits Rules Balance Sheet Asset = Liability + Equity Income Statement Revenue - Expense Debit Credit 2-11 LO 1 Debits/Credits Rules Question Debits: a. increase both assets and liabilities. b. decrease both assets and liabilities. c. increase assets and decrease liabilities. d. decrease assets and increase liabilities. 2-12 LO 1 Debits/Credits Rules Question Accounts that normally have debit balances are: a. assets, expenses, and revenues. b. assets, expenses, and equity. c. assets, liabilities, and owner's drawing. d. assets, owner's drawing, and expenses. 2-13 LO 1 Summary of Debit/Credit Rules Relationship among the assets, liabilities and owner's equity of a business: Illustration 2-11 Basic Equation Assets = Liabilities + Owner's Equity Expanded Equation Debit/Credit Effects The equation must be in balance after every transaction. Total Debits must equal total Credits. 2-14 LO 1 DO IT! 1 Normal Account Balances Kate Browne has just rented space in a shopping mall. In this space, she will open a hair salon to be called \"Hair It Is.\" A friend has advised Kate to set up a double-entry set of accounting records in which to record all of her business transactions. Identify the balance sheet accounts that Kate will likely need to record the transactions needed to open her business. Indicate whether the normal balance of each account is a debit or a credit. Assets Liabilities Equity Cash (debit) Notes payable (credit) Owner's Capital (credit) Supplies (debit) Accounts payable (credit) Equipment (debit) 2-15 LO 1 LEARNING OBJECTIVE 2 Indicate how a journal is used in the recording process. Steps in the Recording Process Illustration 2-12 Analyze each transaction Enter transaction in a journal Transfer journal information to ledger accounts Business documents, such as a sales slip, a check, or a bill, provide evidence of the transaction. 2-16 LO 2 Steps in the Recording Process The Journal Book of original entry. Transactions recorded in chronological order. Contributions to the recording process: 1. Discloses the complete effects of a transaction. 2. Provides a chronological record of transactions. 3. Helps to prevent or locate errors because the debit and credit amounts can be easily compared. 2-17 LO 2 Steps in the Recording Process JOURNALIZING - Entering transaction data in the journal. Illustration: On September 1, Ray Neal invested $15,000 cash in the business, and Softbyte purchased computer equipment for $7,000 cash. Illustration 2-13 GENERAL JOURNAL Date Sept. 1 Account Title Cash Ref. Debit 15,000 Owner's Capital Equipment Cash 2-18 Credit 15,000 7,000 7,000 LO 2 Steps in the Recording Process SIMPLE AND COMPOUND ENTRIES Illustration: On July 1, Butler Company purchases a delivery truck costing $14,000. It pays $8,000 cash now and agrees to pay the remaining $6,000 on account. Illustration 2-14 Compound journal entry GENERAL JOURNAL Date July 1 Account Title Equipment Ref. Debit Credit 14,000 Cash Accounts payable 2-19 8,000 6,000 LO 2 2-20 LO 2 DO IT! 2 Recording Business Activities Kate Browne engaged in the following activities in establishing her salon, Hair It Is: 1. Opened a bank account in the name of Hair It Is and deposited $20,000 of her own money in this account as her initial investment. 2. Purchased equipment on account (to be paid in 30 days) for a total cost of $4,800. 3. Interviewed three persons for the position of hair stylist. Prepare the entries to record the transactions. 2-21 LO 2 DO IT! 2 Recording Business Activities Prepare the entries to record the transactions. 1. Opened a bank account and deposited $20,000. Cash Owner's Capital 20,000 20,000 2. Purchased equipment on account (to be paid in 30 days) for a total cost of $4,800. Equipment Accounts Payable 4,800 4,800 3. Interviewed three persons for the position of hair stylist. No entry 2-22 LO 2 LEARNING OBJECTIVE 3 Explain how a ledger and posting help in the recording process. The Ledger General Ledger contains all the asset, liability, and owner's equity accounts. Illustration 2-15 2-23 LO 3 2-24 LO 3 The Ledger STANDARD FORM OF ACCOUNT 2-25 Illustration 2-16 Three-column form of account LO 3 Ledger POSTING Transferring journal entries to the ledger accounts. Illustration 2-17 Posting a journal entry 2-26 LO 3 Posting Question Posting: a. normally occurs before journalizing. b. transfers ledger transaction data to the journal. c. is an optional step in the recording process. d. transfers journal entries to ledger accounts. 2-27 LO 3 Chart of Accounts Illustration 2-18 2-28 LO 3 The Recording Process Illustrated Follow these steps: 1. Determine what type of account is involved. 2. Determine what items increased or decreased and by how much. 3. Translate the increases and decreases into debits and credits. Illustration 2-19 2-29 LO 3 2-30 Illustration 2-20 Purchase of office equipment LO 3 Illustration 2-21 Receipt of cash for future service 2-31 LO 3 2-32 Illustration 2-22 Payment of monthly rent LO 3 Illustration 2-23 Payment for insurance 2-33 LO 3 2-34 Illustration 2-24 Purchase of supplies on credit LO 3 The Recording Process Illustrated Illustration 2-25 Hiring of employees 2-35 LO 3 2-36 Illustration 2-26 Withdrawal of cash by owner LO 3 2-37 Illustration 2-27 Payment of salaries LO 3 2-38 Illustration 2-28 Receipt of cash for services performed LO 3 Summary Journalizing and Posting Illustration 2-29 2-39 LO 3 2-40 Illustration 2-29 LO 3 Illustration 2-30 2-41 LO 3 DO IT! 3 Posting Kate Brown recorded the following transactions in a general journal during the month of March. Post these entries to the Cash account. Mar. 4 Mar. 15 Mar. 19 2-42 Cash Service Revenue Salaries and Wages Expense Cash Utilities Expense Cash 2,280 2,280 400 400 92 92 LO 3 LEARNING OBJECTIVE 2-43 4 Illustration 2-31 Prepare a trial balance. LO 4 Trial Balance Limitations of a Trial Balance Trial balance may balance even when: 1. A transaction is not journalized. 2. A correct journal entry is not posted. 3. A journal entry is posted twice. 4. Incorrect accounts are used in journalizing or posting. 5. Offsetting errors are made in recording the amount of a transaction. 2-44 LO 4 Dollar Signs and Underlining Dollar Signs Do not appear in journals or ledgers. Typically used only in the trial balance and the financial statements. Shown only for the first item in the column and for the total of that column. Underlining 2-45 A single line is placed under the column of figures to be added or subtracted. Totals are double-underlined. LO 4 Trial Balance Question A trial balance will not balance if: a. a correct journal entry is posted twice. b. the purchase of supplies on account is debited to Supplies and credited to Cash. c. a $100 cash drawing by the owner is debited to Owner's Drawing for $1,000 and credited to Cash for $100. d. a $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45. 2-46 LO 4 2-47 LO 4 DO IT! 4 2-48 Trial Balance LO 4 DO IT! 4 2-49 Trial Balance LO 4 A Look at IFRS LEARNING OBJECTIVE 5 Compare the procedures for the accounting process under GAAP and IFRS. Key Points Similarities 2-50 Transaction analysis is the same under IFRS and GAAP. Both the IASB and the FASB go beyond the basic definitions provided in the textbook for the key elements of financial statements, that is assets, liabilities, equity, revenue, and expenses. The implications of the expanded definitions are discussed in more advanced accounting courses. LO 5 A Look at IFRS Key Points Similarities 2-51 As shown in the textbook, dollar signs are typically used only in the trial balance and the financial statements. The same practice is followed under IFRS, using the currency of the country where the reporting company is headquartered. A trial balance under IFRS follows the same format as shown in the textbook. LO 5 A Look at IFRS Key Points Differences 2-52 IFRS relies less on historical cost and more on fair value than do FASB standards. Internal controls are a system of checks and balances designed to prevent and detect fraud and errors. While most public U.S. companies have these systems in place, many non-U.S. companies have never completely documented the controls nor had an independent auditors attest to their effectiveness. LO 5 A Look at IFRS Looking to the Future The basic recording process shown in this textbook is followed by companies across the globe. It is unlikely to change in the future. The definitional structure of assets, liabilities, equity, revenues, and expenses may change over time as the IASB and FASB evaluate their overall conceptual framework for establishing accounting standards. 2-53 LO 5 A Look at IFRS IFRS Self-Test Questions Which statement is correct regarding IFRS? a) IFRS reverses the rules of debits and credits, that is, debits are on the right and credits are on the left. b) IFRS uses the same process for recording transactions as GAAP. c) The chart of accounts under IFRS is different because revenues follow assets. d) None of the above statements are correct. 2-54 LO 5 A Look at IFRS IFRS Self-Test Questions A trial balance: a) is the same under IFRS and GAAP. b) proves that transactions are recorded correctly. c) proves that all transactions have been recorded. d) will not balance if a correct journal entry is posted twice. 2-55 LO 5 A Look at IFRS IFRS Self-Test Questions One difference between IFRS and GAAP is that: a) GAAP uses accrual-accounting concepts and IFRS uses primarily the cash basis of accounting. b) IFRS uses a different posting process than GAAP. c) IFRS uses more fair value measurements than GAAP. d) the limitations of a trial balance are different between IFRS and GAAP. 2-56 LO 5 Copyright \"Copyright 2015 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.\" 2-57 3-1 3 Adjusting The Accounts Learning Objectives 1 2 Prepare adjusting entries for deferrals. 3 Prepare adjusting entries for accruals. 4 3-2 Explain the accrual basis of accounting and the reasons for adjusting entries. Describe the nature and purpose of an adjusted trial balance. LEARNING OBJECTIVE 1 Explain the accrual basis of accounting and the reasons for adjusting entries. Accountants divide the economic life of a business into artificial time periods (Time Period Assumption). Jan. Feb. Generally a quarter, or 3-3 month, Mar. Apr. ..... Dec. Alternative Terminology The time period assumption is also called the periodicity assumption. year. LO 1 Fiscal and Calendar Years Monthly and quarterly time periods are called interim periods. Most large companies must prepare both quarterly and annual financial statements. Fiscal Year = Accounting time period that is one year in length. 3-4 Calendar Year = January 1 to December 31. LO 1 Fiscal and Calendar Years Question The time period assumption states that: a. revenue should be recognized in the accounting period in which it is earned. b. expenses should be matched with revenues. c. the economic life of a business can be divided into artificial time periods. d. the fiscal year should correspond with the calendar year. 3-5 LO 1 Accrual- versus Cash-Basis Accounting Accrual-Basis Accounting Transactions recorded in the periods in which the events occur. Companies recognize revenues when they perform services (rather than when they receive cash). Expenses are recognized when incurred (rather than when paid). In accordance with generally accepted accounting principles (GAAP). 3-6 LO 1 Accrual- versus Cash-Basis Accounting Cash-Basis Accounting Revenues recognized when cash is received. Expenses recognized when cash is paid. Cash-basis accounting is not in accordance with generally accepted accounting principles (GAAP). 3-7 LO 1 Recognizing Revenues and Expenses REVENUE RECOGNITION PRINCIPLE Recognize revenue in the accounting period in which the performance obligation is satisfied. 3-8 LO 1 Recognizing Revenues and Expenses EXPENSE RECOGNITION PRINCIPLE Match expenses with revenues in the period when the company makes efforts that generate those revenues. \"Let the expenses follow the revenues.\" 3-9 LO 1 Illustration 3-1 GAAP relationships in revenue and expense recognition 3-10 LO 1 Recognizing Revenues and Expenses Question One of the following statements about the accrual basis of accounting is false? That statement is: a. Events that change a company's financial statements are recorded in the periods in which the events occur. b. Revenue is recognized in the period in which the performance obligation is satisfied. c. The accrual basis of accounting is in accord with generally accepted accounting principles. d. Revenue is recorded only when cash is received, and expenses are recorded only when cash is paid. 3-11 LO 1 3-12 LO 1 The Need for Adjusting Entries Adjusting Entries Necessary because the trial balance may not contain upto-date and complete data. Required every time a company prepares financial statements. 3-13 Ensure that the revenue recognition and expense recognition principles are followed. Will include one income statement account and one balance sheet account. LO 1 The Need for Adjusting Entries Question Adjusting entries are made to ensure that: a. expenses are recognized in the period in which they are incurred. b. revenues are recorded in the period in which services are performed. c. balance sheet and income statement accounts have correct balances at the end of an accounting period. d. all of the above. 3-14 LO 1 Types of Adjusting Entries Illustration 3-2 Categories of adjusting entries Deferrals Accruals 1. Prepaid Expenses. Expenses 1. Accrued Revenues. 2. Unearned Revenues. 2. Accrued Expenses. paid in cash before they are used or consumed. Cash received before services are performed. 3-15 Revenues for services performed but not yet received in cash or recorded. Expenses incurred but not yet paid in cash or recorded. LO 1 Types of Adjusting Entries Trial Balance - Each account is analyzed to determine whether it is complete and up-to-date. 3-16 Illustration 3-3 LO 1 DO IT! 1 Timing Concepts A list of concepts is provided in the left column below, with a description of the concept in the right column below. There are more descriptions provided than concepts. Match the description of the concept to the concept. f 1. ___ Accrual-basis accounting. (a) Monthly and quarterly time periods. e 2. ___ Calendar year. (b) Efforts (expenses) should be matched with results (revenues). c 3. ___ Time period assumption. b 4. ___ Expense recognition principle. (c) Accountants divide the economic life of a business into artificial time periods. (d) Companies record revenues when they receive cash and record expenses when they pay out cash. (e) An accounting time period that starts on January 1 and ends on December 31. (f) 3-17 Companies record transactions in the period in which the events occur. LO 1 LEARNING OBJECTIVE 2 Prepare adjusting entries for deferrals. Deferrals are expenses or revenues that are recognized at a date later than the point when cash was originally exchanged. There are two types: 3-18 Prepaid expenses Unearned revenues LO 2 Prepaid Expenses Payment of cash, that is recorded as an asset to show the service or benefit the company will receive in the future. Cash Payment BEFORE Expense Recorded Prepayments often occur in regard to: rent supplies equipment 3-19 insurance advertising buildings LO 2 Prepaid Expenses Expire either with the passage of time or through use. Adjusting entry: Increase (debit) to an expense account and Decrease (credit) to an asset account. Illustration 3-4 3-20 LO 2 Supplies Illustration: Pioneer Advertising purchased supplies costing $2,500 on October 5. Pioneer recorded the payment by increasing (debiting) the asset Supplies. This account shows a balance of $2,500 in the October 31 trial balance. An inventory count at the close of business on October 31 reveals that $1,000 of supplies are still on hand. Oct. 31 Supplies Expense Supplies 3-21 1,500 1,500 LO 2 Supplies Illustration 3-5 3-22 LO 2 Insurance Illustration: On October 4, Pioneer Advertising paid $600 for a one-year fire insurance policy. Coverage began on October 1. Pioneer recorded the payment by increasing (debiting) Prepaid Insurance. This account shows a balance of $600 in the October 31 trial balance. Insurance of $50 ($600 12) expires each month. Oct. 31 Insurance Expense Prepaid Insurance 3-23 50 50 LO 2 Insurance Illustration 3-6 3-24 LO 2 Depreciation Buildings, equipment, and motor vehicles (assets that provide service for many years) are recorded as assets, rather than an expense, on the date acquired. Depreciation is the process of allocating the cost of an asset to expense over its useful life. Depreciation does not attempt to report the actual change in the value of the asset. 3-25 Allocation concept, not a valuation concept. LO 2 Depreciation Illustration: For Pioneer Advertising, assume that depreciation on the equipment is $480 a year, or $40 per month. Oct. 31 Depreciation expense 40 Accumulated depreciation 40 Accumulated Depreciation is called a contra asset account. 3-26 LO 2 Illustration 3-7 3-27 LO 2 Depreciation STATEMENT PRESENTATION Accumulated Depreciation is a contra asset account (credit). Offsets related asset account on the balance sheet. Book value is the difference between the cost of any depreciable asset and its accumulated depreciation. Illustration 3-8 3-28 LO 2 Prepaid Expenses Summary of the accounting for prepaid expenses. Illustration 3-9 Accounting for prepaid expenses 3-29 LO 2 Unearned Revenues Receipt of cash that is recorded as a liability because the service has not been performed. Cash Receipt BEFORE Revenue Recorded Unearned revenues often occur in regard to: Magazine subscriptions 3-30 Rent Airline tickets Customer deposits LO 2 Unearned Revenues Adjusting entry is made to record the revenue for services performed during the period and to show the liability that remains at the end of the period. Results in a decrease (debit) to a liability account and an increase (credit) to a revenue account. Illustration 3-10 3-31 LO 2 Unearned Revenues Illustration: Pioneer Advertising received $1,200 on October 2 from R. Knox for advertising services expected to be completed by December 31. Unearned Service Revenue shows a balance of $1,200 in the October 31 trial balance. Analysis reveals that the company performed $400 of services in October. Oct. 31 Unearned Service Revenue Service Revenue 3-32 400 400 LO 2 Unearned Revenues Illustration 3-11 3-33 LO 2 Unearned Revenues Summary of the accounting for unearned revenues. Illustration 3-12 3-34 LO 2 3-35 LO 2 DO IT! 2 Adjusting Entries for Deferrals The ledger of Hammond Company, on March 31, 2017, includes these selected accounts before adjusting entries are prepared. Debit Prepaid Insurance Supplies Equipment Accumulated DepreciationEquipment Unearned Service Revenue $ 3,600 2,800 25,000 Credit $5,000 9,200 An analysis of the accounts shows the following. 1. 2. 3. 4. Insurance expires at the rate of $100 per month. Supplies on hand total $800. The equipment depreciates $200 a month. During March, services were performed for one-half of the unearned service revenue. Prepare the adjusting entries for the month of March. 3-36 LO 2 DO IT! 2 Adjusting Entries for Deferrals The ledger of Hammond Company, on March 31, 2017, includes these selected accounts before adjusting entries are prepared. Debit Prepaid Insurance Supplies Equipment Accumulated DepreciationEquipment Unearned Service Revenue $ 3,600 2,800 25,000 Credit $5,000 9,200 Prepare the adjusting entries for the month of March. 1. Insurance expires at the rate of $100 per month. Insurance Expense Prepaid Insurance 3-37 100 100 LO 2 DO IT! 2 Adjusting Entries for Deferrals The ledger of Hammond Company, on March 31, 2017, includes these selected accounts before adjusting entries are prepared. Debit Prepaid Insurance Supplies Equipment Accumulated DepreciationEquipment Unearned Service Revenue $ 3,600 2,800 25,000 Credit $5,000 9,200 Prepare the adjusting entries for the month of March. 2. Supplies on hand total $800. Supplies Expense Supplies 3-38 2,000 2,000 LO 2 DO IT! 2 Adjusting Entries for Deferrals The ledger of Hammond Company, on March 31, 2017, includes these selected accounts before adjusting entries are prepared. Debit Prepaid Insurance Supplies Equipment Accumulated DepreciationEquipment Unearned Service Revenue $ 3,600 2,800 25,000 Credit $5,000 9,200 Prepare the adjusting entries for the month of March. 3. The equipment depreciates $200 a month. Depreciation Expense Accumulated DepreciationEquipment 3-39 200 200 LO 2 DO IT! 2 Adjusting Entries for Deferrals The ledger of Hammond Company, on March 31, 2017, includes these selected accounts before adjusting entries are prepared. Debit Prepaid Insurance Supplies Equipment Accumulated DepreciationEquipment Unearned Service Revenue $ 3,600 2,800 25,000 Credit $5,000 9,200 Prepare the adjusting entries for the month of March. 4. During March, services were performed for one-half of the unearned service revenue. Unearned Service Revenue Service Revenue 3-40 4,600 4,600 LO 2 LEARNING OBJECTIVE 3 Prepare adjusting entries for accruals. Accruals are made to record 3-41 Revenues for services performed but not yet recorded at the statement date. Expenses incurred but not yet paid or recorded at the statement date. LO 3 Accrued Revenues Revenues for services performed but not yet received in cash or recorded. Revenue Recorded BEFORE Cash Receipt Accrued revenues often occur in regard to: Interest 3-42 Rent Services LO 3 Accrued Revenues Adjusting entry shows the receivable that exists and records the revenues for services performed. Adjusting entry: Increases (debits) an asset account and Increases (credits) a revenue account. Illustration 3-13 3-43 LO 3 Accrued Revenues Illustration: In October Pioneer Advertising performed services worth $200 that were not billed to clients on or before October 31. Oct. 31 Accounts Receivable 200 Service Revenue 200 On November 10, Pioneer receives cash of $200 for the services performed. Nov. 10 Cash Accounts Receivable 3-44 200 200 LO 3 Accrued Revenues Illustration 3-14 3-45 LO 3 Accrued Revenues Summary of the accounting for accrued revenues. Illustration 3-15 3-46 LO 3 Accrued Expenses Expenses incurred but not yet paid in cash or recorded. Expense Recorded BEFORE Cash Payment Accrued expenses often occur in regard to: Taxes 3-47 Rent Interest Salaries LO 3 Accrued Expenses Adjusting entry records the obligation and recognizes the expense. Adjusting entry: Increase (debit) an expense account and Increase (credit) a liability account. Illustration 3-16 3-48 LO 3 Accrued Expenses ACCRUED INTEREST Illustration: Pioneer Advertising signed a three-month note payable in the amount of $5,000 on October 1. The note requires Pioneer to pay interest at an annual rate of 12%. Illustration 3-17 Oct. 31 Interest expense Interest payable 3-49 50 50 LO 3 Accrued Expenses Illustration 3-18 3-50 LO 3 Accrued Expenses ACCRUED INTEREST Illustration: Pioneer Advertising paid salaries and wages on October 26; the next payment of salaries will not occur until November 9. The employees receive total salaries of $2,000 for a five-day work week, or $400 per day. Illustration 3-19 3-51 LO 3 Accrued Expenses Illustration 3-20 3-52 LO 3 Accrued Expenses Summary of the accounting for accrued expenses. Illustration 3-21 3-53 LO 3 3-54 LO 3 Summary of Basic Relationships Illustration 3-22 3-55 LO 3 DO IT! 3 Adjusting Entries for Accruals Micro Computer Services began operations on August 1, 2017. At the end of August 2017, management prepares monthly financial statements. The following information relates to August. 1. At August 31, the company owed its employees $800 in salaries and wages that will be paid on September 1. 2. On August 1, the company borrowed $30,000 from a local bank on a 15-year mortgage. The annual interest rate is 10%. 3. Revenue for services performed but unrecorded for August totaled $1,100. Prepare the adjusting entries needed at August 31, 2017. 3-56 LO 3 DO IT! 3 Adjusting Entries for Accruals Prepare the adjusting entries needed at August 31, 2017. 1. At August 31, the company owed its employees $800 in salaries and wages that will be paid on September 1. Salaries and Wages Expense Salaries and Wages Payable 800 800 2. On August 1, the company borrowed $30,000 from a local bank on a 15-year mortgage. The annual interest rate is 10%. Interest Expense Interest Payable 250 250 3. Revenue for services performed but unrecorded for August totaled $1,100. Accounts Receivable Service Revenue 3-57 1,100 1,100 LO 3 LEARNING OBJECTIVE 4 Describe the nature and purpose of an adjusted trial balance. Adjusted Trial Balance Purpose is to prove the equality of debit balances and credit balances in the ledger. 3-58 Prepared after all adjusting entries are journalized and posted. Is the primary basis for the preparation of financial statements. LO 4 Illustration 3-25 3-59 LO 4 Adjusted Trial Balance Question Which of the following statements is incorrect concerning the adjusted trial balance? a. An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made. b. The adjusted trial balance provides the primary basis for the preparation of financial statements. c. The adjusted trial balance lists the account balances segregated by assets and liabilities. d. The adjusted trial balance is prepared after the adjusting entries have been journalized and posted. 3-60 LO 4 Preparing Financial Statements Financial Statements are prepared directly from the Adjusted Trial Balance. Income Statement 3-61 Owner's Equity Statement Balance Sheet LO 4 Illustration 3-26 Preparation of the income statement and owner's equity statement from the adjusted trial balance 3-62 Illustration 3-27 Preparation of the balance sheet from the adjusted trial balance 3-63 LO 4 DO IT! 3-64 4 Trial Balance (a) Determine the net income for the quarter April 1 to June 30. (b) Determine the total assets and total liabilities at June 30, 2017, for Skolnick Co. (c) Determine the amount of owner's capital at June 30, 2017. LO 4 DO IT! 3-65 4 Trial Balance LO 4 DO IT! 3-66 4 Trial Balance LO 4 DO IT! 3-67 4 Trial Balance LO 4 LEARNING OBJECTIVE 5 APPENDIX 3A: Prepare adjusting entries for the alternative treatment of deferrals. Alternate Treatment for Adjusting Entries 1. When a company prepays an expense, it debits that amount to an expense account. 2. When it receives payment for future services, it credits the amount to a revenue account. 3-68 LO 5 Prepaid Expenses Company may choose to debit (increase) an expense account rather than an asset account. This alternative treatment is simply more convenient. Illustration 3A-2 3-69 LO 5 Unearned Revenues Company may credit (increase) a revenue account when they receive cash for future services. Illustration 3A-5 3-70 LO 5 Summary of Additional Adjustments Relationships Illustration 3A-7 3-71 LO 5 LEARNING OBJECTIVE 6 APPENDIX 3B: Discuss financial reporting concepts. Qualities of Useful Information Two fundamental qualities, relevance and faithful representation. Relevance Make a difference in a business decision. Provides information that has predictive value and confirmatory value. Materiality is a company-specific aspect of relevance. An item is material when its size makes it likely to influence the decision of an investor or creditor. 3-72 LO 6 Qualities of Useful Information Two fundamental qualities, relevance and faithful representation. Faithful Representation Information accurately depicts what really happened. Information must be neutral (is not biased toward one position or another), and 3-73 complete (nothing important has been omitted), free from error. LO 6 Qualities of Useful Information ENHANCING QUALITIES Comparability results when different companies use the same accounting principles. Information is verifiable if independent observers, using the same methods, obtain similar results. Consistency means that a company uses the same accounting principles and methods from year to year. 3-74 Information has the quality of understandability if it is presented in a clear and concise fashion. For accounting information to have relevance, it must be timely. LO 6 Assumptions in Financial Reporting Illustration 3B-2 Monetary Unit Requires that only those things that can be expressed in money are included in the accounting records. 3-75 Economic Entity States that every economic entity can be separately identified and accounted for. LO 6 Assumptions in Financial Reporting Illustration 3B-2 Time Period States that the life of a business can be divided into artificial time periods. 3-76 Going Concern The business will remain in operation for the foreseeable future. LO 6 Principles of Financial Reporting MEASUREMENT PRINCIPLES Historical Cost Or cost principle, dictates that companies record assets at their cost. 3-77 Fair Value Indicates that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability). LO 6 Principles of Financial Reporting Revenue Recognition Principle Requires that companies recognize revenue in the accounting period in which the performance obligation is satisfied. 3-78 Expense Recognition Principle Dictates that efforts (expenses) be matched with results (revenues). Thus, expenses follow revenues. Full Disclosure Principle Requires that companies disclose all circumstances and events that would make a difference to financial statement users. LO 6 Cost Constraint Cost Constraint Accounting standard-setters weigh the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the information available. 3-79 LO 6 A Look at IFRS LEARNING OBJECTIVE 7 Compare the procedures for adjusting entries under GAAP and IFRS. Key Points Similarities Similar to GAAP, cash-basis accounting is not in accordance with IFRS. 3-80 Companies applying IFRS also use accrual-basis accounting to ensure that they record transactions that change a company's financial statements in the period in which events occur. IFRS also divides the economic life of companies into artificial time periods. Under both GAAP and IFRS, this is referred to as the time period assumption. LO 7 A Look at IFRS Key Points Similarities 3-81 The general revenue recognition principle required by GAAP that is used in this textbook is similar to that used under IFRS. Revenue recognition fraud is a major issue in U.S. financial reporting. The same situation occurs in other countries, as evidenced by revenue recognition breakdowns at Dutch software company Baan NV, Japanese electronics giant NEC, and Dutch grocer Ahold NV. LO 7 A Look at IFRS Key Points Differences 3-82 Under IFRS, revaluation (using fair value) of items such as land and buildings is permitted. IFRS allows depreciation based on revaluation of assets, which is not permitted under GAAP. The terminology used for revenues and gains, and expenses and losses, differs somewhat between IFRS and GAAP. For example, income includes both revenues, which arise during the normal course of operating activities, and gains, which arise from activities outside of the normal sales of goods and services. The term income is not used this way under GAAP. Instead, under GAAP income refers to the net difference between revenues and expenses. LO 7 A Look at IFRS Key Points Differences 3-83 Under IFRS, expenses include both those costs incurred in the normal course of operations as well as losses that are not part of normal operations. This is in contrast to GAAP, which defines each separately. LO 7 A Look at IFRS Looking into the Future The IASB and FASB are completing a joint project on revenue recognition. The purpose of this project is to develop comprehensive guidance on when to recognize revenue. It is hoped that this approach will lead to more consistent accounting in this area. For more on this topic, see www.fasb.org/project/revenue_recognition.shtml. 3-84 LO 7 A Look at IFRS IFRS Practice IFRS: a. uses accrual accounting. b. uses cash-basis accounting. c. allows revenue to be recognized when a customer makes an order. d. requires that revenue not be recognized until cash is received. 3-85 LO 7 A Look at IFRS IFRS Practice Which of the following statements is false? a. IFRS employs the periodicity assumption. b. IFRS employs accrual accounting. c. IFRS requires that revenues and costs must be capable of being measured reliably. d. IFRS uses the cash basis of accounting. 3-86 LO 7 A Look at IFRS IFRS Practice As a result of the revenue recognition project being undertaken by the FASB and IASB: a. revenue recognition places more emphasis on when the performance obligation is satisfied. b. revenue recognition places more emphasis on when revenue is realized. c. revenue recognition places more emphasis on when expenses are incurred. d. revenue is no longer recorded unless cash has been received. 3-87 LO 7 Copyright \"Copyright 2015 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.\" 3-88 4-1 4 Completing the Accounting Cycle Learning Objectives 1 2 Prepare closing entries and a post-closing trial balance. 3 Explain the steps in the accounting cycle and how to prepare correcting entries. 4 4-2 Prepare a worksheet. Identify the sections of a classified balance sheet. LEARNING OBJECTIVE 1 Prepare a worksheet. Worksheet Multiple-column form used in preparing financial statements. Not a permanent accounting record. May be a computerized worksheet using an electronic spreadsheet program such as Excel. 4-3 Prepared using a five step process. Use of worksheet is optional. LO 1 Steps in Preparing a Worksheet Illustration 4-1 4-4 Steps in Preparing a Worksheet Illustration 4-2 STEP 1: PREPARE A TRIAL BALANCE ON THE WORKSHEET Cash Supplies Prepaid Insurance Equipment Notes Payable Accounts Payable Unearned Revenue O