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Accounting: a Malaysian perspective, 4 th ed (Adapted from Accounting 22 nd ed) Warren, Reeve and Duchac Completing the Accounting Cycle 3 2 Click to edit Master title style 2 2 The Matching Concept 2. Nature of the Adjusting Process 3. Recording Adjusting Entries 4. Summary of Adjustment Process 5. Prepare the Financial Statement 6. Prepare the Closing entries
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Judul Asli
PP for Chapter 3 Completing the Accounting Cycle - Final
Accounting: a Malaysian perspective, 4 th ed (Adapted from Accounting 22 nd ed) Warren, Reeve and Duchac Completing the Accounting Cycle 3 2 Click to edit Master title style 2 2 The Matching Concept 2. Nature of the Adjusting Process 3. Recording Adjusting Entries 4. Summary of Adjustment Process 5. Prepare the Financial Statement 6. Prepare the Closing entries
Accounting: a Malaysian perspective, 4 th ed (Adapted from Accounting 22 nd ed) Warren, Reeve and Duchac Completing the Accounting Cycle 3 2 Click to edit Master title style 2 2 The Matching Concept 2. Nature of the Adjusting Process 3. Recording Adjusting Entries 4. Summary of Adjustment Process 5. Prepare the Financial Statement 6. Prepare the Closing entries
1 1 Accounting: A Malaysian Perspective, 4 th ed (Adapted from Accounting 22 nd ed) Warren, Reeve and Duchac Completing the Accounting Cycle 3 2 Click to edit Master title style 2 2 1. The Matching Concept 2. Nature of the Adjusting Process 3. Recording Adjusting Entries 4. Summary of Adjustment Process 5. Prepare the Financial Statement 6. Prepare the Closing Entries After completing this chapter, you should be able to: 3 Click to edit Master title style 3 3 TWO METHODS Reporting Revenue and Expense Cash Basis of Accounting Accrual Basis of Accounting 3-1 4 Click to edit Master title style 4 4 Cash Basis of Accounting Revenue reported when cash is received Expense reported when cash is paid Does not properly match revenues and expenses 3-1 5 Click to edit Master title style 5 5 Accrual Basis of Accounting Revenue reported when earned Expense reported when incurred Properly matches revenues and expenses in determining net income Requires adjusting entries at end of period It just sounds mean it really isnt 3-1 6 Click to edit Master title style 6 6 The Matching Concept Assets Liabilities Owners Equity Debits = Credits Expenses Revenues 3-1 7 Click to edit Master title style 7 7 The Matching Concept Assets Liabilities Owners Equity Debits = Credits Expenses Revenues Net Income 3-1 8 Click to edit Master title style 8 8 The Matching Concept Assets Liabilities Owners Equity Debits = Credits Net income is determined by properly matching expenses and revenues. Expenses Revenues Net Income matching 3-1 9 Click to edit Master title style 9 9 NetSolutions Unadjusted Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,220 14 Supplies 2,000 15 Prepaid Insurance 2,400 17 Land 20,000 18 Office Equipment 1,800
3. Owners Equity 31 Chris Clark, Capital 32 Chris Clark, Drawing 4. Revenue 41 Fees Earned 42 Rent Revenue
5. Expenses 51 Wages Expense 52 Rent Expense 53 Depreciation Expense 54 Utilities Expense 55 Supplies Expense 56 Insurance Expense 59 Miscellaneous Expense 3-1 20 Click to edit Master title style 20 20 Adjustments Deferrals and Accruals Current Period Future Period Cash Received Revenue Recorded Deferrals Cash Received Revenues 3-1 21 Click to edit Master title style 21 21 Adjustments Deferrals and Accruals Current Period Future Period Cash Received Revenue Recorded Deferrals Cash Received Accruals Revenue Recorded Cash Received Revenues 3-1 22 Click to edit Master title style 22 22 Adjustments Deferrals and Accruals Current Period Future Period Cash Received Revenue Recorded Deferrals Cash Received Current Period Future Period Cash Paid Expense Recorded Expenses Cash Paid Accruals Revenue Recorded Cash Received Revenues Deferrals 3-1 23 Click to edit Master title style 23 23 Adjustments Deferrals and Accruals Current Period Future Period Cash Received Revenue Recorded Deferrals Cash Received Current Period Future Period Expense Recorded Cash Paid Cash Paid Expense Recorded Expenses Cash Paid Accruals Revenue Recorded Cash Received Revenues Deferrals Accruals 3-1 24 Click to edit Master title style 24 24 Adjustments Deferred Expense P1..... 2,400 Cash Prepaid Insurance Insurance Expense P1..... 2,400 On December 1, NetSolutions purchased insurance for 24 months at a cost of $2,400. Adjustment A1 Record insurance used for December, $100. Expenses Assets Example P1 Purchase initially recorded as an asset. 3-1 25 Click to edit Master title style 25 25 Adjustments Deferred Expense P1..... 2,400 Cash Prepaid Insurance Insurance Expense P1..... 2,400 On December 1, NetSolutions purchased insurance for 24 months at a cost of $2,400. Adjustment A1 Record insurance used for December, $100. A1..... 100 A1.....100 Expenses Assets A1 Example P1 Purchase initially recorded as an asset. A1 3-1 26 Click to edit Master title style 26 26 Adjustments Deferred Expense P2..... 2,400 Cash Prepaid Insurance Insurance Expense P2..... 2,400 On December 1, NetSolutions purchased insurance for 24 months at a cost of $2,400. Adjustment A2 Record insurance unused as of December 31. Expenses Assets Example P2 Purchase initially recorded as an expense. 3-1 27 Click to edit Master title style 27 27 Adjustments Deferred Expense P2..... 2,400 Cash Prepaid Insurance Insurance Expense P2..... 2,400 On December 1, NetSolutions purchased insurance for 24 months at a cost of $2,400. Adjustment A2 Record insurance unused as of December 31. A2..... 2,300 A2.....2,300 Expenses Assets A2 Example P2 Purchase initially recorded as an expense. A2 3-1 28 Click to edit Master title style 28 28 Adjustments Deferred Revenue Cash Unearned Rent Rent Revenue S1..... 360 On December 1, NetSolutions received cash of $360 for three months rent beginning December 1. Adjustment A3 Record rent earned for December. S1..... 360 Revenues Liabilities Example S1 Sale initially recorded as a liability. 3-1 29 Click to edit Master title style 29 29 Adjustments Deferred Revenue A3..... 120 Cash Unearned Rent Rent Revenue S1..... 360 On December 1, NetSolutions received cash of $360 for three months rent beginning December 1. Adjustment A3 Record rent earned for December. S1..... 360 A3.....120 Revenues Liabilities A3 Example S1 Sale initially recorded as a liability. A3 3-1 30 Click to edit Master title style 30 30 Adjustments Deferred Revenue Cash Unearned Rent Rent Revenue S2..... 360 On December 1, NetSolutions received cash of $360 for three months rent beginning December 1. Adjustment A4 Record rent unearned as of December 31. S2.....360 Revenues Liabilities Example S2 Sale initially recorded as revenue. 3-1 31 Click to edit Master title style 31 31 Adjustments Deferred Revenue A4..... 240 Cash Unearned Rent Rent Revenue S2..... 360 On December 1, NetSolutions received cash of $360 for three months rent beginning December 1. Adjustment A4 Record rent unearned as of December 31. A4..... 240 S2.....360 Revenues Liabilities A4 Example S2 Sale initially recorded as revenue. A4 3-1 32 Click to edit Master title style 32 32 Adjustments Accrued Expense Wages Payable Wages Expense NetSolutions received employee services for the last two days of December amounting to $250, to be paid later. Adjustment A5 Record accrued wages of $250. Bal.....4,275 Expenses Liabilities 3-1 33 Click to edit Master title style 33 33 Adjustments Accrued Expense Wages Payable Wages Expense NetSolutions received employee services for the last two days of December amounting to $250, to be paid later. Adjustment A5 Record accrued wages of $250. A5..... 250 Bal.....4,275 Expenses Liabilities A5 A5 A5.....250 3-1 34 Click to edit Master title style 34 34 Adjustments Accrued Revenue Accounts Receivable Fees Earned As of December 31, NetSolutions provided 25 hours of services at $20 per hour to be billed next month. Adjustment A6 Record accrued fees earned of $500. Bal....16,340 Revenues Assets Bal.....2,220 35 Click to edit Master title style 35 35 Adjustments Accrued Revenue Accounts Receivable Fees Earned As of December 31, NetSolutions provided 25 hours of services at $20 per hour to be billed next month. Adjustment A6 Record accrued fees earned of $500. A6..... 500 Bal....16,340 Revenues Assets A6 A6 A6.....500 Bal.....2,220 3-1 36 Click to edit Master title style 36 36 Summary of Adjustments Deferred Expenses Expenses Assets A1 A2 Buying Side Rearranging the Debits 3-1 37 Click to edit Master title style 37 37 Summary of Adjustments Deferred Expenses Expenses Assets A1 A2 Deferred Revenues Revenues Liabilities A3 A4 Buying Side Selling Side Rearranging the Debits Rearranging the Credits 3-1 38 Click to edit Master title style 38 38 Summary of Adjustments Expenses Liabilities A5 Accrued Expenses Buying Side Selling Side Adding a New Transaction 3-1 39 Click to edit Master title style 39 39 Summary of Adjustments Expenses Liabilities A5 Revenues Assets A6 Accrued Expenses Buying Side Selling Side Adding a New Transaction Adding a New Transaction Accrued Revenues 3-1 40 Click to edit Master title style 40 40 Summary of Adjustments Deferred Expenses Expenses Assets A1 A2 Expenses Liabilities A5 Deferred Revenues Revenues Liabilities A3 A4 Revenues Assets A6 Accrued Expenses Buying Side Selling Side Rearranging the Debits Adding a New Transaction Rearranging the Credits Adding a New Transaction Accrued Revenues 3-1 41 Click to edit Master title style 41 41 NetSolutions Income Statement For Two Months Ended December 31, 2002 Fees earned $16,840 Rent revenue 120 Total revenues $16,960 Expenses: Wages expense $ 4,525 Supplies expense 2,040 Rent expense 1,600 Utilities expense 985 Insurance expense 100 Depreciation expense 50 Miscellaneous expense 455 Total expenses 9,755 Net income $ 7,205
3-1 42 Click to edit Master title style 42 42 NetSolutions Statement of Owners Equity For Two Months Ended December 31, 2002 Chris Clark, capital, November 1, 2002 $ 0 Investment on November 1, 2002 $15,000 Net income for November and December 7,205 $22,205 Less withdrawals 4,000 Increase in owners equity 18,205 Chris Clark, capital, December 31, 2002 $18,205
3-1 43 Click to edit Master title style 43 43 NetSolutions Balance Sheet December 31, 2002 ASSETS Current assets: Cash $ 2,065 Accounts receivable 2,720 Supplies 760 Prepaid insurance 2,300 Total current assets $ 7,845 Property, plant, and equipment: Land $20,000 Office equipment 1,800 Less accum. depr. (50) Total property, plant, and equipment 11,750 Total assets $29,595 3-1 44 Click to edit Master title style 44 44 NetSolutions Balance Sheet December 31, 2002 LIABILITIES Current liabilities: Accounts payable $ 900 Wages payable 250 Unearned rent 240 Total liabilities $ 1,390
OWNERS EQUITY Chris Clark, capital 28,205 Total liabilities and owners equity $29,595 3-1 45 Click to edit Master title style 45 45 Wages Expense Bal. 4,525 Rent Expense Bal. 1,600 Depreciation Expense Bal. 50 Utilities Expense Bal. 985 Supplies Expense Bal. 2,040 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 Fees Earned Bal. 16,840 Rent Revenue Bal. 120 Chris Clark, Capital Bal. 15,000 Chris Clark, Drawing Bal. 4,000 Income Summary
Note: The balances shown are adjusted balances before closing. The following sequence demonstrates the closing process. The Closing Process 3-1 46 Click to edit Master title style 46 46 Wages Expense Bal. 4,525 Rent Expense Bal. 1,600 Depreciation Expense Bal. 50 Utilities Expense Bal. 985 Supplies Expense Bal. 2,040 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 Fees Earned Bal. 16,840 Rent Revenue Bal. 120 16,840 120 Income Summary 16,960 Chris Clark, Capital Close Revenues Bal. 25,000 Chris Clark, Drawing Bal. 4,000 Total Revenues The Closing Process 3-1 47 Click to edit Master title style 47 47 Wages Expense Bal. 4,525 Rent Expense Bal. 1,600 Depreciation Expense Bal. 50 Utilities Expense Bal. 985 Supplies Expense Bal. 2,040 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 4,525 1,600 50 985 2,040 100 455 Fees Earned Bal. 16,840 Rent Revenue Bal. 120 16,840 120 Income Summary 16,960 9,755 Chris Clark, Capital Close Revenues Bal. 25,000 Chris Clark, Drawing Bal. 4,000 Close Expenses Total Expenses Total Revenues The Closing Process 3-1 48 Click to edit Master title style 48 48 Wages Expense Bal. 4,525 Rent Expense Bal. 1,600 Depreciation Expense Bal. 50 Utilities Expense Bal. 985 Supplies Expense Bal. 2,040 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 4,525 1,600 50 985 2,040 100 455 Fees Earned Bal. 16,840 Rent Income Bal. 120 16,840 120 Income Summary 16,960 9,755 Chris Clark, Capital Close Revenues Bal. 15,000 Chris Clark, Drawing Bal. 4,000 Close Expenses The Closing Process 7,205 7,205 Close Income Summary Net Income Closed 3-1 49 Click to edit Master title style 49 49 Wages Expense Bal. 4,525 Rent Expense Bal. 1,600 Depreciation Expense Bal. 50 Utilities Expense Bal. 985 Supplies Expense Bal. 2,040 Insurance Expense Bal. 100 Miscellaneous Expense Bal. 455 4,525 1,600 50 985 2,040 100 455 Fees Earned Bal. 16,840 Rent Income Bal. 120 16,840 120 Income Summary 16,960 9,755 Chris Clark, Capital Close Revenues Bal. 15,000 Chris Clark, Drawing Bal. 4,000 Close Expenses The Closing Process 7,205 7,205 Close Income Summary Net Income 4,000 4,000 Close Drawing Drawing Closed Closed 3-1 50 Click to edit Master title style 50 50 Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Expense Fees Earned Rent Income Income Summary Chris Clark, Capital Bal. 15,000 Chris Clark, Drawing Net Income Drawing Bal. 18,205 All temporary accounts now have zero balances and are ready for the next accounting period. 7,205 4,000 The Closing Process 3-1 51 Click to edit Master title style 51 51 NetSolutions Post-Closing Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,720 14 Supplies 760 15 Prepaid Insurance 2,300 17 Land 20,000 18 Office Equipment 1,800 19 Accum. Depreciation 50 21 Accounts Payable 900 22 Wages Payable 250 23 Unearned Rent 240 31 Chris Clark, Capital 28,205 29,645 29,645 Assets 3-1 52 Click to edit Master title style 52 52 NetSolutions Post-Closing Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,720 14 Supplies 760 15 Prepaid Insurance 2,300 17 Land 20,000 18 Office Equipment 1,800 19 Accum. Depreciation 50 21 Accounts Payable 900 22 Wages Payable 250 23 Unearned Rent 240 31 Chris Clark, Capital 28,205 29,645 19,645 Liabilities 3-1 53 Click to edit Master title style 53 53 NetSolutions Post-Closing Trial Balance December 31, 2002 11 Cash 2,065 12 Accounts Receivable 2,720 14 Supplies 760 15 Prepaid Insurance 2,300 17 Land 20,000 18 Office Equipment 1,800 19 Accum. Depreciation 50 21 Accounts Payable 900 22 Wages Payable 250 23 Unearned Rent 240 31 Chris Clark, Capital 28,205 29,645 29,645 Owners Equity 3-1 54 Click to edit Master title style 54 54 This is the last slide in Chapter 3. Power Notes Analyzing Transactions Chapter 3 3-1