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What do adjusting entries affect? See slide #6 Calculate Profit Margin. slide 29 What is the journal entry for buying a prepaid expense like PP Insurance? slide 10 and 11 What 2 accounts are used for determining depreciation? slide 17 What assets don't you depreciate? Think logically. What don't you use up? What don't you throw away? Record salaries earned, but not yet paid. slide 23 Adjust unearned revenues now earned at the end of the month, slide 19 Adjust supplies used up at the end of the month. slide 14 What do Adj Entries Affect? Adjustments never affect Cash. We are adjusting prepaid expenses, inventory, payroll, accounts receivable, and so on. . These are Balance Sheet accounts. Adjustments affect Income Statement accounts. Examples of income statement items are Revenues and Expenses, debit supplies expense and credit supplies, as an example. Profit Margin Exhibit 3.16 The profit margin ratio measures the company's net income to net sales. Profit Margin Net Income Net Sales Limited Brands, Inc. 2015 $ millions 2014 2013 2012 2011 $ 1,042 $11.454 $ 903 $10.773 $ 753 $10,459 Ner income Net sales Profit margin Industry profit margin $ 850 $10,364 8.2% 2.2% $ 805 $9,613 8.4% 2.1% 8.49 2.5% 2.0% 29 12. Comprenditmargn and describe its use in analyzing company performance. TO Marcin Net Income Net Sales Limited Brands, Inc. 2012 2013 Net $ op 112 11145 21 1 31166 18 31 UN BAN 20 tky 613 LE 21 20 Campus Tapuca Profit margin is an important measure in business. It tells us about the relationship between sales and profits or net income. We calculate the ratio by dividing net income for the period by sales revenue. A high profit margin is an indicator of future growth. You can see the profit margin at Limited Brands for the years 2011 through 2015. Limited's average profit margin is 8.3% during this five-year period. This favorably compares to the average industry profit margin of 2.3%. Moreover, we see that Limited's profit margin has rebounded from the recent recessionary period and is at the 7% to 9% margin for the past five years (see margin graph). P. 2:27 Prepaid Insurance On 12/01/2017, FastForward paid $2,400 to cover insurance for 24 months that began on 12/01/2017. Recorded as Prepaid Insurance on 12/01/17. 24-month policy Beginning 12/01 PREPAID INSURANCE $2,400 10 Lomhofecture P1: Pure and pendum Step 1: We determine that the current balance of FastForward's prepaid insurance is equal to its $2,400 payment for 24 months of insurance benefits that began on December 1, 2017. Step 2: As time passes, the benefits of the insurance gradually expire and a portion of the Prepaid Insurance asset becomes expense. For instance, one month's insurance coverage expires by December 31, 2017. This expense is $100, or 1/24 of $2,400, which leaves $2,300. Step 3: The adjusting entry to record this expense will reduce the asset. Prepaid Insurance On 12/31, one month's worth of Insurance has expired. Step 1: Current balance - $2400 Step 2: Balance in balance in prepaid Insurance should equal $2,300. Slop 3: Current prepakd Insurance balance $2,400 - 100 = $2,300 PREPAID INSURANCE INSURANCE EXPENSE $2,400 $100 $100 $2,400/24 months = $100 Insurance Expense is debited $100 to recognize the amount of insurance coverage for Dec and Prepaid Insurance is credited for $100 to reduce it's balance. La Chanotive Pape and managers, 11 Now that December is over, we need to remove the cost of one month's insurance from this account. Insurance expense is debited for $100 and Prepaid insurance is credited for $100. Adjusting Entry for Depreciation Step 3: Record adjusting entry for $300 for one month. Depreciation Expense Equipment 120 25,000 12/31 300 Accumulated Depreciation-Equipment 12/31 300 300 300 Dec. 31 Depreciation Expense Accumulated Depreciation - Equipment To record mority equipment depreciation 29MMODATIE TORTE On December 31, 2017, we will debit, or increase, depreciation expense for three hundred dollars and credit a new account called accumulated depreciation - (dash) -- equipment. Accumulated depreciation is a contra asset account. This is the first time we have seen a contra-account, but it will not be the last. A contra- account means that the amount in the account reduces the related asset account. In our case, accumulated depreciation will reduce the asset account, equipment. Because this is a new type of account, let's look at the treatment of the contra and related asset account on the balance sheet. Accrued Salaries Expense Step 1: FastForward's pays its employee $70 per day, or $350 for a five-day work. Salaries are paid every two weeks on a Friday. Step 2: 12/31 is a Wednesday, so three day's salaries are owed at year end which equals $70 x 3 = $210. Step 3: Adjusting entry increases a liability, Salaries Payable, and increases the Salaries Expense account for $210 with the following journal entry: Dec. 31 Salaries Expense 210 Salaries Payable To record three days' accrued salaries 210 Tarinn ok. tiwe Pie Drecare and explan adjusting entes. Salaries Payable To record three days' accrued salaries 210 Lama Detective P1: Pemandant anti Step 1: FastForward's pays its employee $70 per day, or $350 for a five-day work. Salaries are paid every two weeks on a Friday. Step 2: 12/31 is a Wednesday, so three day's salaries are owed at year end which equals $70 x 3 = $210. Step 3: Adjusting entry increases a liability, Salaries Payable, and increases the Salaries Expense account for $210 with the following journal entry: Unearned (Deferred) Revenues Exhibit 3.8 Cash received in advance of providing products or services. Dengan TIN Liability Revenue Dr. Llability Cr. Revenue... Learning Objecuve P1: Prepare and again aducing arna. The term unearned revenues refers to cash received in advance of providing products and services. Unearned revenues, also called deferred revenues, are liabilities. When accounting for deferred revenues, we are faced with a transaction where cash is received in advance of providing a product or service. In other words, we have received the cash, but have done nothing to earn it. In our example, we will examine accounting for the receipt of cash prior to our company rendering any services. When we render consulting services, we will prepare an adjustment for deferred revenues (a liability). We always debit, or reduce, a liability account and credit, or increase, a revenue account. Adjusting Entry for Expired Supplies We've seen the adjustment in the T-accounts but we need to record the adjustment on Dec. 31, in the General Journal 1,050 1,050 Dec. 31 Supplies Expense Supplies To record supplies used 12 Learning Objective P1: Prepare and explain adjusting entries. 14:11 - SHDS t: TILLA 15 Part I During December, FastForward paid a total of $9,720 for supplies. FastForward took a physical count of their supplies and determined that they actually had $8,670 on hand. Let's look at the adjusting entry we would make on December 31, 2017 to show one month of expired rent. Part II We would debit, or increase, the supplies expense account for the difference between the beginning supplies balance and the ending supplies balance or $1,050 and credit, or reduce, the asset supplies account. Now we have recorded the rent expense for December, 2017, we would post the adjusting entry to the two ledger accounts in the general ledger. Prepaid (Deferred) Expenses Prepaid expenses are assets paid for in advance of receiving their benefits. Examples: Prepaid Insurance, Prepaid Rent, Supplies Tecrease it Decrease it Exhibit 3.5 Asset Expense Unadjusted balance overstated Dr. Expense... + Cr. Asset..... # Learning Objective P1: Prepare and explain adjusting entries. apad insurance Pad Ret Suches 23 Let's start with the first type of adjusting entries, the payment or receipt of cash before the expense or revenue is recognized. We will start with a prepaid expense. Prepaid expenses are assets paid for in advance of receiving their benefits. For all adjustments involving prepaid expenses, we increase, or debit, an expense account and reduce, or credit, an asset account. What do adjusting entries affect? See slide #6 Calculate Profit Margin. slide 29 What is the journal entry for buying a prepaid expense like PP Insurance? slide 10 and 11 What 2 accounts are used for determining depreciation? slide 17 What assets don't you depreciate? Think logically. What don't you use up? What don't you throw away? Record salaries earned, but not yet paid. slide 23 Adjust unearned revenues now earned at the end of the month, slide 19 Adjust supplies used up at the end of the month. slide 14 What do Adj Entries Affect? Adjustments never affect Cash. We are adjusting prepaid expenses, inventory, payroll, accounts receivable, and so on. . These are Balance Sheet accounts. Adjustments affect Income Statement accounts. Examples of income statement items are Revenues and Expenses, debit supplies expense and credit supplies, as an example. Profit Margin Exhibit 3.16 The profit margin ratio measures the company's net income to net sales. Profit Margin Net Income Net Sales Limited Brands, Inc. 2015 $ millions 2014 2013 2012 2011 $ 1,042 $11.454 $ 903 $10.773 $ 753 $10,459 Ner income Net sales Profit margin Industry profit margin $ 850 $10,364 8.2% 2.2% $ 805 $9,613 8.4% 2.1% 8.49 2.5% 2.0% 29 12. Comprenditmargn and describe its use in analyzing company performance. TO Marcin Net Income Net Sales Limited Brands, Inc. 2012 2013 Net $ op 112 11145 21 1 31166 18 31 UN BAN 20 tky 613 LE 21 20 Campus Tapuca Profit margin is an important measure in business. It tells us about the relationship between sales and profits or net income. We calculate the ratio by dividing net income for the period by sales revenue. A high profit margin is an indicator of future growth. You can see the profit margin at Limited Brands for the years 2011 through 2015. Limited's average profit margin is 8.3% during this five-year period. This favorably compares to the average industry profit margin of 2.3%. Moreover, we see that Limited's profit margin has rebounded from the recent recessionary period and is at the 7% to 9% margin for the past five years (see margin graph). P. 2:27 Prepaid Insurance On 12/01/2017, FastForward paid $2,400 to cover insurance for 24 months that began on 12/01/2017. Recorded as Prepaid Insurance on 12/01/17. 24-month policy Beginning 12/01 PREPAID INSURANCE $2,400 10 Lomhofecture P1: Pure and pendum Step 1: We determine that the current balance of FastForward's prepaid insurance is equal to its $2,400 payment for 24 months of insurance benefits that began on December 1, 2017. Step 2: As time passes, the benefits of the insurance gradually expire and a portion of the Prepaid Insurance asset becomes expense. For instance, one month's insurance coverage expires by December 31, 2017. This expense is $100, or 1/24 of $2,400, which leaves $2,300. Step 3: The adjusting entry to record this expense will reduce the asset. Prepaid Insurance On 12/31, one month's worth of Insurance has expired. Step 1: Current balance - $2400 Step 2: Balance in balance in prepaid Insurance should equal $2,300. Slop 3: Current prepakd Insurance balance $2,400 - 100 = $2,300 PREPAID INSURANCE INSURANCE EXPENSE $2,400 $100 $100 $2,400/24 months = $100 Insurance Expense is debited $100 to recognize the amount of insurance coverage for Dec and Prepaid Insurance is credited for $100 to reduce it's balance. La Chanotive Pape and managers, 11 Now that December is over, we need to remove the cost of one month's insurance from this account. Insurance expense is debited for $100 and Prepaid insurance is credited for $100. Adjusting Entry for Depreciation Step 3: Record adjusting entry for $300 for one month. Depreciation Expense Equipment 120 25,000 12/31 300 Accumulated Depreciation-Equipment 12/31 300 300 300 Dec. 31 Depreciation Expense Accumulated Depreciation - Equipment To record mority equipment depreciation 29MMODATIE TORTE On December 31, 2017, we will debit, or increase, depreciation expense for three hundred dollars and credit a new account called accumulated depreciation - (dash) -- equipment. Accumulated depreciation is a contra asset account. This is the first time we have seen a contra-account, but it will not be the last. A contra- account means that the amount in the account reduces the related asset account. In our case, accumulated depreciation will reduce the asset account, equipment. Because this is a new type of account, let's look at the treatment of the contra and related asset account on the balance sheet. Accrued Salaries Expense Step 1: FastForward's pays its employee $70 per day, or $350 for a five-day work. Salaries are paid every two weeks on a Friday. Step 2: 12/31 is a Wednesday, so three day's salaries are owed at year end which equals $70 x 3 = $210. Step 3: Adjusting entry increases a liability, Salaries Payable, and increases the Salaries Expense account for $210 with the following journal entry: Dec. 31 Salaries Expense 210 Salaries Payable To record three days' accrued salaries 210 Tarinn ok. tiwe Pie Drecare and explan adjusting entes. Salaries Payable To record three days' accrued salaries 210 Lama Detective P1: Pemandant anti Step 1: FastForward's pays its employee $70 per day, or $350 for a five-day work. Salaries are paid every two weeks on a Friday. Step 2: 12/31 is a Wednesday, so three day's salaries are owed at year end which equals $70 x 3 = $210. Step 3: Adjusting entry increases a liability, Salaries Payable, and increases the Salaries Expense account for $210 with the following journal entry: Unearned (Deferred) Revenues Exhibit 3.8 Cash received in advance of providing products or services. Dengan TIN Liability Revenue Dr. Llability Cr. Revenue... Learning Objecuve P1: Prepare and again aducing arna. The term unearned revenues refers to cash received in advance of providing products and services. Unearned revenues, also called deferred revenues, are liabilities. When accounting for deferred revenues, we are faced with a transaction where cash is received in advance of providing a product or service. In other words, we have received the cash, but have done nothing to earn it. In our example, we will examine accounting for the receipt of cash prior to our company rendering any services. When we render consulting services, we will prepare an adjustment for deferred revenues (a liability). We always debit, or reduce, a liability account and credit, or increase, a revenue account. Adjusting Entry for Expired Supplies We've seen the adjustment in the T-accounts but we need to record the adjustment on Dec. 31, in the General Journal 1,050 1,050 Dec. 31 Supplies Expense Supplies To record supplies used 12 Learning Objective P1: Prepare and explain adjusting entries. 14:11 - SHDS t: TILLA 15 Part I During December, FastForward paid a total of $9,720 for supplies. FastForward took a physical count of their supplies and determined that they actually had $8,670 on hand. Let's look at the adjusting entry we would make on December 31, 2017 to show one month of expired rent. Part II We would debit, or increase, the supplies expense account for the difference between the beginning supplies balance and the ending supplies balance or $1,050 and credit, or reduce, the asset supplies account. Now we have recorded the rent expense for December, 2017, we would post the adjusting entry to the two ledger accounts in the general ledger. Prepaid (Deferred) Expenses Prepaid expenses are assets paid for in advance of receiving their benefits. Examples: Prepaid Insurance, Prepaid Rent, Supplies Tecrease it Decrease it Exhibit 3.5 Asset Expense Unadjusted balance overstated Dr. Expense... + Cr. Asset..... # Learning Objective P1: Prepare and explain adjusting entries. apad insurance Pad Ret Suches 23 Let's start with the first type of adjusting entries, the payment or receipt of cash before the expense or revenue is recognized. We will start with a prepaid expense. Prepaid expenses are assets paid for in advance of receiving their benefits. For all adjustments involving prepaid expenses, we increase, or debit, an expense account and reduce, or credit, an asset account