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Chapter Three

Chapter Three. Bookkeeping Mechanics. Steps in the Bookkeeping Process. Record Transactions in Journals Post Journal Transactions to Ledgers Prepare a Trial Balance using the General Ledger Adjust the trial balance to reflect actuality. Adjusting Entries--Lapovers Asset-Expense.

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Chapter Three

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  1. Chapter Three Bookkeeping Mechanics

  2. Steps in the Bookkeeping Process • Record Transactions in Journals • Post Journal Transactions to Ledgers • Prepare a Trial Balance using the General Ledger • Adjust the trial balance to reflect actuality

  3. Adjusting Entries--LapoversAsset-Expense • Pay two year rent on 7/1/1 with a check for $18,000 • Record as asset Prepaid Rent $18,000 Cash $18,000 • What is the adjusting entry at 12/31/1? Rent Expense $4,500 Prepaid Rent $4,500

  4. Adjusting Entries-LapoversAsset -Expense • Pay 2 years rent on 7/1/1 with a check for $18,000 • This time record initially as expense Rent Expense $18,000 Cash $18,000 • What is your adjusting entry on 12/31/1? Prepaid Rent $13,500 Rent Expense $13,500

  5. Adjusting Entries-LapoversLiability Revenue • As a landlord you on 7/1/1 received a check for $18,000 for two years rent. • Record initially as liability Cash $18,000 Unearned Rental Income $18,000 • What is your adjusting entry on 12/31/1? Unearned Rental Income $4,500 Rental Income $4,500

  6. Adjusting EntriesLiability-Revenue • As a landlord you again received a check for $18,000 on 7/1/1. • Record as a revenue Cash $18,000 Rental Revenue or Income $18,000 • What is your 12/31/1 adjusting entry? Rental Revenue $13,500 Unearned Rental Revenue $13,500

  7. Adjusting Entries Unrecorded Expenses • Pay your employees $2,000 per day and year ends on a Wednesday. Assuming you pay every Friday for current week, what is your entry on Dec. 31? Salaries Expense (3X$2,000) $6,000 Salaries Payable $6,000

  8. Adjusting EntriesUnrecorded Revenues • As a Tax specialist you agreed to do a tax return with planning for $1,000 for a wealthy customer. At December 31 you have earned $600 and will earn the rest next year. You will be paid when the return is complete some time in March. • What entry do you need at December 31 Accounts Receivable $600 Fees Earned $600

  9. Estimates • Depreciation and Bad Debts • $200,000 building, 20 year life, $40,000 salvage value, DDB • Entry • Debit: Depn Expense 20,000 • Credit: Accumulated Depn 20,000

  10. Steps in the Bookkeeping Process Continued • Prepare an Adjusted Trial Balance • Using the Adjusted Trial Balance, prepare the financial statements • Closing entries • Post closing entries • Consider and make necessary reversing entries

  11. Worksheet on Sample Company • Using the sheets attached to your notes—let’s try to do a worksheet with income taxes for Sample Company

  12. Tips on Everett--Slide One • Marketable securities are shown at market: If Market higher DEBIT Adj to Mkt and CREDIT Unrealized gain. If Market lower DEBIT Unrealized loss CREDIT Adj. To Mkt. • Review the balance sheet and income statement approaches to bad debts.

  13. Tips on Everett--Slide Two • Error in inventory is taken to retained earnings. • The gain on the warehouse is extraordinary. The cumulative effect is $3,750. In Chapter Five we will show how these are presented. • Entry for the note payable involves a Debit to Interest Expense and a credit to the Discount on Notes Payable account.

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