Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

Accounting Records and Systems

© The McGraw-Hill Companies, Inc., 1999

4Part One: Financial Accounting

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

New balance 5,450

(decrease)

750

7,200

4,800

3,000

15,750

The Account Slide 4-1

(increase)

Beginning balance -0-

5,000

4,000

200

12,000

21,200

Cash

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

Debits and Credits Slide 4-2

Assets Liabilities Owners’ Equity

Debit Credit Debit Credit Debit Credit

+ - + - + -

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

The Accounting Process Slide 4-3

3. Post journal entries to ledger

4. Identify, journalize, and post adjusting entries

5. Journalize and post closing entries

6. Prepare financial statements

2. Journalize original entries

1. Analyze transactions

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

Transaction Analysis Slide 4-4

On August 1, Snelson invested $5,000 in the business as owner.

On August 1, Snelson invested $5,000 in the business as owner.

Cash Paid-in Capital

5,000 5,000

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

Transaction Analysis Slide 4-5

On August 1, the firm paid $750 rent for the month of August.

On August 1, the firm paid $750 rent for the month of August.

Cash Prepaid Expenses

5,000 750 750

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

Transaction Analysis Slide 4-6

The firm borrowed $4,000 from a bank on a 9 percent note payable, with interest payable quarterly and the principal due in full at the end of two years.

The firm borrowed $4,000 from a bank on a 9 percent note payable, with interest payable quarterly and the principal due in full at the end of two years.

4,000

Cash Notes Payable

5,000 750 4,000

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

Transaction Analysis Slide 4-7

Equipment costing $7,200 was purchased for cash. The expected life of the equipment was 10 years.

Equipment costing $7,200 was purchased for cash. The expected life of the equipment was 10 years.

4,000

Cash Equipment, at Cost

5,000 750 7,2007,200

Refer to pages 94 through 96 for the remaining entries for the month of August.

Refer to pages 94 through 96 for the remaining entries for the month of August.

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

Balance 5,450

Balancing an Account Slide 4-8

Balance -0- 750

5,000 7,200

4,000 4,800

200 3,000

12,000 To Balance 5,450 21,200 21,200

Cash

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

The Trial Balance Slide 4-9

CAMPUS PIZZERIA, INC.Trial Balance

As of August 31

Cash……………………………………………………. $ 5,450Accounts receivable……………………………………. -0-Inventory……………………………………………….. 550Prepaid expenses……………………………………….. 750Equipment, at cost……………………………………… 7,200Accounts payable………………………………………. $ 2,200Notes payable………………………………………….. 4,000Paid-in capital………………………………………….. 5,000Sales revenue…………………………………………... 12,200Cost of sales……………………………………………. 6,000Wage expense………………………………………….. 3,000Utilities expense……………………………………….. 450 Totals……………………………………………….. $23,400 $23,400

Balance Debit Credit

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

Adjusting Entries Slide 4-10

Fuel oil was purchased for $1,000. Fuel oil was purchased for $1,000.

Fuel Oil Inventory Accounts Payable

1,000 1,000

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

Adjusting Entries Slide 4-11

By the end of the accounting period, $600 of the fuel had been consumed.

By the end of the accounting period, $600 of the fuel had been consumed.

Fuel Oil Inventory Fuel Expense

1,000 600600

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

Adjusting Entries Slide 4-12

Paid an insurance premium on company car, $1,200.

Paid an insurance premium on company car, $1,200.

Prepaid Insurance Cash

1,200 1,200

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

Prepaid Insurance Insurance Expense

1,200

Adjusting Entries Slide 4-13

At year-end, $800 of this is an expense. At year-end, $800 of this is an expense.

800

800

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

Adjusting Entries Slide 4-14

Employees earned $150 of wages during the period. These wages have not been paid.

Employees earned $150 of wages during the period. These wages have not been paid.

Wages Expense Accrued Wages 150

150

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

Adjusting Entries Slide 4-15

Annual depreciation on equipment totaled $2,000.

Annual depreciation on equipment totaled $2,000.

Depreciation Accumulated Expense Depreciation

2,000

2,000

Additional adjusting entries are explained on pages 99 through 101 of the textbook.

Additional adjusting entries are explained on pages 99 through 101 of the textbook.

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

12,200200

Closing Entries Slide 4-16

Closing the Sales Revenues accountClosing the Sales Revenues account

Sales Income Revenues Summary

12,400 12,400

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

6,000 12,400 6,000 6,000

Closing Entries Slide 4-17

Closing the Cost of Sales accountClosing the Cost of Sales account

Cost of Income Sales Summary

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

Closing Entries Slide 4-18

Closing the Income Summary accountClosing the Income Summary account

(17) 382

Income Summary(B) 6,000(C) 3,000(D) 450(E) 750(F) 60(G) 30

10,290

(A) 12,400

Credit Income Tax

Expense (H) 1,728

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

Financial Statements Slide 4-19

CAMPUS PIZZERIA, INC.Balance Sheet

As of August 31

Assets Liabilities and Owners’ Equity

Cash $ 5,450 Accounts payable $ 2,200Accounts receivable 200 Notes payable 4,000Inventory 550 Accrued expenses 30Prepaid expenses 0 Income tax liability 382 Total current assets 6,200 Total liabilities 6,612Equipment, at cost 7,200 Paid-in capital 5,000 Less: Accum. Depr. 60 Retained earnings 1,728Equipment, net 7,140 Total owners’ equity 6,728Total assets $13,340 Total liab. and own. eq. $13,340

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

Sales revenues $12,400Cost of sales 6,000Gross margin 6,400Operating expenses:

Wages $3,000Rent 750Utilities 450Depreciation 60Interest 30 4,290

Income before income taxes 2,110Income tax expense 382Net income $ 1,728

Financial Statements Slide 4-20

CAMPUS PIZZERIA, INC.Income Statement

For the Month of August

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 1999

Chapter 4

The End