nus acc1002x lecture 3 accounting cycle (ii) - accruals

7/30/2019 NUS ACC1002X Lecture 3 Accounting Cycle (II) - Accruals

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3

Accounting Cycle (II)

- Accruals


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To complete accounting cycle, twomore additional ournal entries are

needed:

Closing Entries

by Vincent Chen 2


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Adjusting Entries

by Vincent Chen 3


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Prior Periods Current Period Future Periods

BusinessRevenues or expenses not

recognized in business

Transactions

included to reflect a firms

performance

Entries Entries

by Vincent Chen 4


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Costs are matched with revenuein two ways:

with specific revenue

over the useful life of the

by Vincent Chen 6

.


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enera u es

Every

Cash is not involved entry involves a

revenue or expense

or liability.

by Vincent Chen 7


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1. Converting Assets toExpenses

by Vincent Chen 9


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Convertin Assets to Ex ensesEnd of Current Period


TransactionPaid cash in

Adjusting Entry Recognizes portion

advance ofincurring

of asset consumedas expense, and

by Vincent Chen 10

(creates anasset).

asset account.


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n a y, cos s a ene more an oneaccounting period are recorded as assets.

Date Account Titles and Explanation Debit Credit

Jan. 1 Prepaid Insurance Expense 2,400

Cash 2,400

by Vincent Chen 13

- .


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Cost of assetsCost of assetsused this period to

generate revenue.

that benefit

future periods.

1/31 2001/1 2,400 1/31 200

Bal. 2 200

by Vincent Chen 15


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De reciable assets are h sical ob ects

that retain their size and shape but losetheir economic usefulness over time.

Depreciation is the systematic allocation ofthe cost of a depreciable asset to expense.

by Vincent Chen 16


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The ortion of an assets utilit that is used

up must be expensed in the period used.

Fixed

Asset

The assets

usefulness is

Depreciation

Expense

On date

consumedduring the

period. At end of

e

payment ismade . . .

period . . .Accumulated

by Vincent Chen 17

(credit)

(credit)


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, ,

mower with a useful life of 50 months for, .

Using the straight-line method, calculatet e mont y eprec at on expense.Depreciation

Cost of the asset

expense perperiod) = Estimated useful life

by Vincent Chen 18

,

50=$50$50


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wou ma e e o ow ng a us ng en ry.

GENERAL JOURNAL


Accumulated Depreciation: Equipment 50

To record one month's depreciation.

by Vincent Chen 19Contra-asset


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s , ruc s eprec a e over months as follows:

GENERAL JOURNAL


Accumulated Depreciation: Truck 250

To record one month's depreciation.

by Vincent Chen 20$15,00060 months = $250 per month


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appear on the balance sheet as

o ows:qu pmen ,

Less: Accum. depr. 50 2,450

,

Less: Accum. depr. 250 14,750

by Vincent Chen 21


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Exercise 1

corpora on ren s a ware ouse or s comp e e nven ory ocustomized engines. Rent of $60,000, covering a one-year periodbeginning February 1, 2008 was paid on February 1, 2008.

Please prepare the necessary adjusting entry for 2008

by Vincent Chen 22


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2. Converting Liabilities toRevenue

by Vincent Chen 23


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Examples Include:

Rental

Airline Ticket Sales

Sports Teams Salesof Season Tickets

by Vincent Chen 25


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$6,000 Rental ContractCovera e for 12 Months

$500 Monthly Rental Revenue

. .On January 1, NUS received $6,000 in

by Vincent Chen 26

advance for a one-year rental contract.


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n a y, revenues a ene more an oneaccounting period are recorded as liabilities.

Date Account Ti tles and Ex planation Debit Credi t

Jan. 1 Cash 6,000Unearned Rental Revenue 6,000

by Vincent Chen 27

, .


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ver me, e revenue s recogn ze as searned.

Date Account Ti tles and Explanation Debit Credi t

Monthl y Adjusting Entry for Rent RevenueJan. 31 Unearned Rental Revenue 500

by Vincent Chen 28

Rental revenue for January.


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Exercise 2

corpora on prov es mon y ma n enance o s cus omerson certain custom engines. Most customers pay for this servicemonthly, but one customer paid $6,000 on September 1, 2008 formonthl services throu h Au ust 31 2009.

Please prepare the necessary adjusting entry for 2008

by Vincent Chen 30


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Expenses

by Vincent Chen 31


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End of Current Period


TransactionPay cash in

Adjusting Entry Recognizes expense

settlement ofliability.

incurred, and Records liabil ity for

by Vincent Chen 32

.


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Examples Include:

Wages and Salaries

ncome axes

by Vincent Chen 33


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$3,000 WagesExpense

Monday,May 29

Friday,June 2

Wednesday,May 31

On May 31,NUS owes wages of $3,000.

by Vincent Chen 34

Payday is Friday, June 2.


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n a y, an expense an a a y arerecorded.


May 31 Wages Ex pense 3,000Wages Payable 3,000

by Vincent Chen 35

.


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Cost incurred thisLiability to beperiod to generate

revenue.paid in a future

period.

5/31 3,000

5/31 3,000

by Vincent Chen 36


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s a corpora on earns axa e ncome,

incurs income taxes expense, and also aa y o governmen a ax au or es.


Dec. 31 Income Taxes Expense 780Income Taxes Payable 780

by Vincent Chen 39

s ma e ncome axes app ca e o

taxable income earned in December.


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4. Accruing UncollectedRevenue

by Vincent Chen 41


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$170 InterestRevenue

a ur ay,Jan. 15

ues ay,Feb. 15

on ay,Jan. 31

On Jan. 31, the bank owes NUS interest of$170. Interest is paid on the 15th day of

by Vincent Chen 43

each month.


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n a y, e revenue s recogn ze an a

receivable is created.


Jan. 31 Interest Receivable 170Interest Revenue 170

by Vincent Chen 44

.


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Income Statement

Receivable toevenue earnethis period.

be collected in afuture period.

1/31 1701/31 170

by Vincent Chen 45


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$170 Interest $150 InterestRevenue Revenue

Saturday, Tuesday,Monday,

Jan. 15 Feb. 15

Jan. 31

by Vincent Chen 46

.


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Eff t f th Adj ti E t i


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Effects of the Adjusting Entries

Journalizetransactions.

Post entries to

the led er

Prepare trial

balance.

Make end-of-year

adjustments.accounts.

Lets look at NUSs adjusted trial

by Vincent Chen 49

Prepare adjusted

trial balance.

.


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NUS

May 31, 2008

Cash 3,925$Accounts receivable 75 are taken fromthe led er

oo s equ pmen ,

Accum. depreciation: tools & eq. 50$

Truck 15,000

Accum. depreciation: truck 250

accounts on

May 31 afterNotes payable 13,000Accounts payable 150

Capital stock 8,000

Dividends 200

preparing thetwo

Sales revenue 750Gasoline expense 50

Depreciation exp.: tools & eq. 50adjusting

by Vincent Chen 50

.

Total 22,200$ 22,200$ (pp19,20)


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Summary

The reasoning to make adjusting entries

Four types of adjusting entries

How do those adjusting entries affect there aration for trial balance

by Vincent Chen 51

nus acc1002x lecture 3 accounting cycle (ii) - accruals

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