Class Notes

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Accounting 211

Tuesday, January 19th, 1999
Announcements:

Free tutoring available: Tuesday and Thursday, 7-9 PM, 220 Boucke
Chapter 3 for this week.

Lecture notes:

T Accounts--found in general ledger
Debit Side	Credit Side

Debits = Credits at all times.

Assets--have a debit balance

Liabilities and Stockholder's Equity (SE)--have a credit balance

Expenses--have a debit balance

Revenues--have a credit balance

ASSETS
Debit to increase	Credit to decrease

LIABILITIES & SE
Debit to decrease	Credit to increase

EXPENSES
Debit to increase	Credit to decrease

REVENUES
Debit to decrease	Credit to increase

T Accounts (for 7 transactions of 1/12/99):

(Number in parentheses is transaction number)

CASH

10,000
5,000

(7) 1,500

2,000

(5) 300

(6) 500

Balance = 13,700

CONTRIBUTED CAPITAL
	(1) 10,000

LOAN (NOTES) PAYABLE
	(2) 5,000

COMPUTER
(3) 2,000

ACCOUNTS RECEIVABLE
(4) 1,500	(7) 1,500

SALES REVENUE
	(4) 1,500

WAGE EXPENSE
(5) 300

RENT EXPENSE
(6) 500

Income Statement (7 transactions above):

(profit / loss statement, revenues--income generated in business, heading--contains company name and date)

Revenues			$1,500
Less Expenses:
	Rent	$500
	Wages	$300
Net Income			$700

*prepared over a period of time, usually defined at top of statement

**we get the numbers from general ledger

Balance Sheet (7 transactions above):

(at one point in time, displayed on heading)

Assets:
Cash	13,700
Computer	2,000
Total =	15,700

Liabilities:
Bank Loan	5000

Stockholder's Equity:
Controlled Capital	10,000
Retained Earnings	700
Total =	10,700

Liabilities and SE:
Total =	15,700

*Remember: Assets = Liabilities + SE

Journal Entries: (7 transactions):

(refer to #3 in the accounting cycle we discussed on 1/12/99)

1) Cash		10,000
	Controlled Capital		10,000
2) Cash		5,000
	Loan (Notes Payable)		5,000
3) Computer		2,000
	Cash		2,000
4) Accounts Receivable		1,500
	Sales Revenue		1,500
5) Wage Expense		300
	Cash		300
6) Rent Expense		500
	Cash		500
7) Cash		1,500
	Accounts Receivable		1,500

Example Journal Entry #1:

Building		75,000
	Cash		15,000
	Mortgage Payable		60,000

Company bought building worth $75,000 with $15,000 cash and a mortgage, which is a liability, of $60,000 borrowed.

Example Journal Entry #2:

10/1/97
Your company purchases a one year insurance policy costing $3,600. The policy covers the period beginning 10/1/97 and ending 9/30/98.

Prepaid Insurance		3,600
	Cash		3,600

Deferral: this is when a cash payment has taken place, but the expense has not yet been recognized (it will be at a later date), as in this problem.

Assume that the income statement is to be prepared for the year ending 12/31/97.

Adjusting Entry (as of 12/31/97):

Insurance Expense		900
	Prepaid Insurance		900

$900 in 1/4 of the expense, which has been consumed only for the months of October, November, and December, 1/4 of the year for which the insurance is purchased.

What is the impact on the financial statements for the 12/31/97 year if the adjusting entry was not prepared?

Income Statement:
Expenses would be low, Net Income would be high

Balance Sheet:
Assets would be high, SE would be high

(high net income causes high SE)

As of 12/31/97:
Insurance Expense = $900
Prepaid Insurance = $2,700

Information contained on this page does not represent the lecture verbatim. These notes are not a substitute for class attendance.

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