Professional Documents
Culture Documents
Intermediate Acc Ch3
Intermediate Acc Ch3
Accounting
Prepared by
Coby Harmon
University of California, Santa Barbara
3-1
The Accounting
3 Information System
Intermediate Accounting
14th Edition
3-3
The Accounting Information System
Financial
Accounting The Accounting
Statements for
Information System Cycle
Merchandisers
3-5
Accounting Information System
3-6
Accounting Information System
Basic Terminology
◆ Event ◆ Journal
◆ Transaction ◆ Posting
◆ Account ◆ Trial Balance
◆ Real Account ◆ Adjusting Entries
◆ Nominal Account ◆ Financial Statements
◆ Ledger ◆ Closing Entries
Account Name
Debit / Dr. Credit / Cr.
Balance $15,000
Account Name
Debit / Dr. Credit / Cr.
Balance $1,000
Assets Chapter
Equity
3-24
Normal Balance
Normal Balance
Chapter
Expense
3-23
Revenue
Chapter
3-25
Normal Balance
Normal Balance
Chapter
3-27 Chapter
3-26
Debit
Credit
Stockholders’
Assets = Liabilities +
Equity
+ 40,000 + 40,000
Stockholders’
Assets = Liabilities +
Equity
- 600 - 600
(expense)
Stockholders’
Assets = Liabilities +
Equity
+ 5,200 + 5,200
Stockholders’
Assets = Liabilities +
Equity
+ 4,000 + 4,000
(revenue)
Stockholders’
Assets = Liabilities +
Equity
- 7,000 - 7,000
Stockholders’
Assets = Liabilities +
Equity
+ 5,000 - 5,000
Stockholders’
Assets = Liabilities +
Equity
- 80,000 + 80,000
Stockholders’
Assets = Liabilities +
Equity
- 16,000
+ 16,000
Proprietorship or
Corporation
Partnership
Work
6. Financial Statements Sheet 4. Adjustments
What to Record?
Types of Events:
Illustration 3-8
Illustration 3-8
3-29 LO 4
2. Posting
Expanded Example
The purpose of transaction analysis is
Keep in mind that every journal entry affects one or more of the
following items: assets, liabilities, stockholders’ equity, revenues, or
expense.
Cash Dividends
Debit Credit Debit Credit
100,000 9,000 5,000
12,000 6,000
5,000
Trial Balance –
A list of each
account and its
balance; used
to prove
equality of debit
and credit
balances.
3-41 LO 4
4. Adjusting Entries
Illustration 3-20
Prepayments Accruals
1. Prepaid Expenses. 3. Accrued Revenues.
Expenses paid in cash and Revenues earned but not
recorded as assets before yet received in cash or
they are used or consumed. recorded.
Deferrals are
either
◆ prepaid
expenses
or
◆ unearned
revenues.
Illustration 3-21
Supplies Cash
Debit Credit Debit Credit
25,000 25,000
10,000
Statement
Presentation:
Supplies identifies that
portion of the asset’s
cost that will provide
future economic benefit.
Illustration 3-35
3-48
Adjusting Entries for “Prepaid Expenses”
Illustration 3-35
Statement
Presentation:
Supplies expense
identifies that portion of
the asset’s cost that
expired in October.
5,500
Statement
Presentation:
Prepaid insurance
identifies that portion of
the asset’s cost that will
provide future economic
benefit.
Illustration 3-35
3-52
Adjusting Entries for “Prepaid Expenses”
Illustration 3-35
Statement
Presentation:
Insurance expense
identifies that portion of
the asset’s cost that
expired in October.
Statement
Presentation:
Accumulated
Depreciation—is a
contra asset account.
Illustration 3-35
3-55
Adjusting Entries for “Prepaid Expenses”
Illustration 3-35
Statement
Presentation:
Depreciation expense
identifies that portion of
the asset’s cost that
expired in October.
Statement
Presentation:
Unearned service
revenue identifies that
portion of the liability
that has not been
earned.
Illustration 3-35
3-60
Adjusting Entries for “Unearned Revenues”
Illustration 3-35
Statement
Presentation:
Service Revenue
includes the portion of
unearned service
revenue earned in
October.
Accruals are
either
◆ accrued
revenues or
◆ accrued
expenses.
Illustration 3-27
Illustration 3-35
3-65 LO 5
Adjusting Entries for “Accrued Expenses”
1 2 3 Illustration 3-29
Illustration 3-35
3-69 LO 5
Adjusting Entries for “Accrued Expenses”
46,000
Illustration 3-35
3-73 LO 5
Adjusting Entries for “Accrued Expenses”
Bad Debts. Assume Pioneer reasonably estimates a bad debt
expense for the month of $1,600. It makes the adjusting entry for
bad debts as follows.
Illustration 3-32
Illustration 3-35
3-75 LO 5
5. Adjusted Trial Balance
Shows the
balance of all
accounts, after
adjusting entries,
at the end of the
accounting period.
Illustration 3-33
3-76
6. Preparing Financial Statements
Retained
Income Balance
Earnings
Statement Sheet
Statement
Illustration 3-34
3-78 LO 6
6. Preparing Financial Statements
Illustration 3-35
3-79 LO 6
7. Closing Entries
3-82
8. Post-Closing Trial Balance
Illustration 3-38
3-83 LO 7
9. Reversing Entries
Illustration 3-39
3-86 LO 7
Financial Statements of a Merchandising Company
Illustration 3-40
3-87 LO 7
Financial
Statements of a
Merchandising
Company
Illustration 3-41
3-88 LO 7
CASH-BASIS ACCOUNTING VERSUS
APPENDIX 3A ACCRUAL-BASIS ACCOUNTING
Illustration 3A-5
Illustration 3A-5
3-95 LO 8
CASH-BASIS ACCOUNTING VERSUS
APPENDIX 3A ACCRUAL-BASIS ACCOUNTING
The accrual basis, not the cash basis, recognizes all aspects of
the credit phenomenon.
Worksheet Columns
Illustration 3C-1
Worksheet
3-102 LO 10
USING A WORKSHEET: THE ACCOUNTING
APPENDIX 3C CYCLE REVISITED
The Worksheet:
◆ provides information needed for preparation of the
financial statements.
Illustration 3-39
3-104 LO 10
USING A WORKSHEET: THE ACCOUNTING
APPENDIX 3C CYCLE REVISITED
Illustration 3-40
3-105 LO 10
APPENDIX 3C
USING A
WORKSHEET: THE
ACCOUNTING
CYCLE REVISITED
Illustration 3-41
3-106 LO 10
RELEVANT FACTS
◆ International companies use the same set of procedures and
records to keep track of transaction data. Thus, the material in
Chapter 3 is the same under both GAAP and IFRS.
◆ Transaction analysis is the same under IFRS and GAAP but, as you
will see in later chapters, different standards sometimes impact how
transactions are recorded.
3-107
RELEVANT FACTS
◆ Both the IASB and FASB go beyond the basic definitions provided in
this textbook for the key elements of financial statements, that is,
assets, liabilities, equity, revenues, and expenses.
◆ A trial balance under IFRS follows the same format as shown in the
textbook.
◆ Internal controls are a system of checks and balances designed to
prevent and detect fraud and errors. While most companies have
these systems in place, many have never completely documented
them nor had an independent auditor attest to their effectiveness.
Both of these actions are required under SOX. Enhanced internal
control standards apply only to large public companies listed on U.S.
exchanges.
3-108
IFRS SELF-TEST QUESTION
Information in a company’s first IFRS statements must:
a. have a cost that does not exceed the benefits.
b. be transparent.
c. provide a suitable starting point.
d. All the above.
3-109
IFRS SELF-TEST QUESTION
The transition date is the date:
a. when a company no longer reports under its national standards.
b. when the company issues its most recent financial statement
under IFRS.
c. three years prior to the reporting date.
d. None of the above.
3-110
IFRS SELF-TEST QUESTION
When converting to IFRS, a company must:
a. recast previously issued financial statements in accordance with
IFRS.
b. use GAAP in the reporting period but subsequently use IFRS.
c. prepare at least three years of comparative statements.
d. use GAAP in the transition year but IFRS in the reporting year.
3-111
Copyright
Copyright © 2012 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Copyright Act without the
express written permission of the copyright owner is unlawful.
Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser
may make back-up copies for his/her own use only and not for
distribution or resale. The Publisher assumes no responsibility for
errors, omissions, or damages, caused by the use of these
programs or from the use of the information contained herein.
3-112