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The Matching Concept and The Adjusting Process: Accounting
The Matching Concept and The Adjusting Process: Accounting
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Under the cash basis for the accounting period concept, revenues and expenses are reported in the income statement in the period in which cash is received or paid.
Under the accrual basis for the accounting period concept, revenues are reported in the income statement in the period in which they are earned.
NetSolutions Trial Balance December 31, 2005 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense 2 2 2 2 20 1 065 220 000 400 000 800 00 00 00 00 00 00 900 00 360 00 25 000 00 4 000 00 16 340 00 4 275 00 1 600 00 985 00 800 00 455 00 42 600 00 42 600 00
NetSolutions Trial Balance December 31, 2005 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense 2 2 2 2 20 1 065 220 000 400 000 800 00 00 00 00 00 00 900 00 360 00 25 000 00
Assets
NetSolutions Trial Balance December 31, 2005 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense 2 2 2 2 20 1 065 220 000 400 000 800 00 00 00 00 00 00 900 00 360 00 25 000 00 4 000 00
Liabilities
NetSolutions Trial Balance December 31, 2005 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense 2 2 2 2 20 1 065 220 000 400 000 800 00 00 00 00 00 00 900 00 360 00 25 000 00 4 000 00 16 340 00 4 275 00 1 600 00 985 00 800 00 455 00 42 600 00 42 600 00
Owners Equity
NetSolutions Trial Balance December 31, 2005 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense 2 2 2 2 20 1 065 220 000 400 000 800 00 00 00 00 00 00 900 00 360 00 25 000 00 4 000 00 16 340 00 4 275 00 1 600 00 985 00 800 00 455 00 42 600 00 42 600 00
Revenue
NetSolutions Trial Balance December 31, 2005 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense 2 2 2 2 20 1 065 220 000 400 000 800 00 00 00 00 00 00 900 00 360 00 25 000 00 4 000 00 16 340 00 4 275 00 1 600 00 985 00 800 00 455 00 42 600 00 42 600 00
Expenses
Income Statement
4. Revenue 41 Fees Earned 42 Rent Revenue 5. 51 52 53 54 Accumulated 55 56 59 Expenses Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Expense
NetSolutions Trial Balance December 31, 2005 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense 2 065 00 2 220 00 2 000 00 2 400 00 Some of these supplies 20 have 000 00 1 800 been used. On December 31,00 a
55 14
1 240 00 1 240 00
Supplies Expense Supplies 14 Bal. 2,000 Dec. 31 1,240 Bal. 800 760 Dec. 31 1,240 2,040
55
NetSolutions Trial Balance December 31, 2005 Cash 2 065 00 Accounts Receivable 2 220 00 Supplies 2 000 00 Prepaid Insurance 2 400 00 Land 20 000 00 Office Equipment 1 800 00 The prepayment for 24 months of Accounts Payable 900 Unearned Rent insurance does not reflect that 360 Chris Clark, Capital 25 000 Chris Clark, Drawing 4 000 00 Fees Earned theoretically expired. 16 340 Wages Expense 4 275 00 Rent Expense 1 600 00 Utilities Expense 985 00 Supplies Expense 800 00 Miscellaneous Expense 455 00 42 600 00 42 600
00 00 00 00
00
4 5 6 7
56 15
100 00 100 00
15
100
56
Note: You probably have the idea of how posting flows, so the rest of the slides will omit the arrows.
NetSolutions Trial Balance December 31, 2005 Cash 2 065 00 Accounts Receivable 2 220 00 Supplies 2 000 00 Three months rent, $360, was Prepaid Insurance 2 400 00 Land 20 000 00 Office Equipment 1 800 00 December 31, only $120 has been Accounts Payable 900 Unearned Rent 360 earned. Chris Clark, Capital 25 000 Chris Clark, Drawing 4 000 00 Fees Earned 16 340 Wages Expense 4 275 00 Rent Expense 1 600 00 Utilities Expense 985 00 Supplies Expense 800 00 Miscellaneous Expense 455 00 42 600 00 42 600
received on December 1. As of
00 00 00 00
00
7 8 9 10
23 42
120 00 120 00
23
360 240
42
120
NetSolutions Trial Balance December 31, 2005 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense
25
2 065 00 2 220 00 accrued At the end of December, 2 000 00 wages amounted to $250. 2 400 00 Currently, Wages Expense is 20 000 00 1 800 understated and there is 00 no liability 900 00 shown for these wages. 360 00 25 000 00 4 000 00 16 340 00 4 275 00 1 600 00 985 00 800 00 455 00 42 600 00 42 600 00
10 11 12 13
51 22
250 00 250 00
Wages Payable
Dec. 31
22 250
Wages Expense
Bal. Dec. 31 4,275 250
51
NetSolutions Trial Balance December 31, 2005 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense 2 065 00 2 220 00 2 000 00 400 00 NetSolutions provided 2 $500 20 000 00 in services during December 1 800 00
29
13 14 15 16
12 41
500 00 500 00
Fixed Assets
Land
Building
A building has a limited life, so it must be depreciated. The contra account used in the adjusting entry is Accumulated DepreciationBuilding
Equipment
Because equipment has a limited life, it depreciates. The contra account used is Accumulated DepreciationEquipment
NetSolutions estimates the depreciation on its office equipment to be $50 for the month of December.
16 17 31 Depreciation Expense Accumulated Depreciation 53 50 00
18
19
Office Equipment
19
50 00
19
Dec. 31
50
NetSolutions balance sheet would show the office equipment at cost, less the accumulated depreciation.
$1,800
50 $1,750
Book value
NetSolutions Adjusted Trial Balance December 31, 2005 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accumulated Depreciation Accounts Payable Wages Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Rent Revenue Wages Expense Rent Expense Utilities Expense 2 065 00 2 720 00 760 00 2 300 00 20 000 00 1 800 00 50 900 250 240 25 000 4 000 00
41
00 00 00 00 00
Continued
NetSolutions Trial Balance December 31, 2005 (Continued) Supplies Expense Insurance Expense Miscellaneous Expense 2 040 100 455 43 400
42
00 00 00 00 43 400 00
J. Holmes, Attorney-at-Law Income Statements For the Years Ended December 31, 2005 and 2006
Fees earned Operating expenses: Wages expense Rent expense Utilities expense Supplies expense Miscellaneous exp. Total operating expenses Net income
2006 2005 Amount Percent Amount Percent $187,500 $150,000 $60,000 15,000 12,500 2,700 2,300 $92,500 $95,000 $45,000 12,000 9,000 3,000 1,800 $70,800 $79,200
Chapter 3
The End