会计英语人大课件

LessonOne:

IntroductiontoAccounting

Aims:1.Useaccountingvocabulary.2.Explainwhataccountingis.3.Describethefinancialaccountingandmanagerialaccounting.4.Usetheaccountingequationtodescribeanorganization’sfinancialposition.5.Prepareandusethefinancialstatements.6.Usetheaccountingequationtoanalyzebusinesstransactions.7.Explainwhattheaccountingelementsare.LessonOne:

IntroductiontoAc1.1

WhatIsAccounting?Accountingprovidesfinancialinformationfordecision-makinginthebusinessworld.

Accountingisaservice-basedprofessionthatprovidesreliableandrelevantfinancialinformationusefulinmakingdecisions.Accountingis“languageofbusiness.”1.1WhatIsAccounting?Account1.2

FinancialAccountingv.sManagerialAccountingAccountinginformationthatisintendedtosatisfytheneedsofresourceowners(externalusers)iscalledfinancialaccounting.Managerialaccountingprovidesusefulinformationthatisneededinoperatinganorganizationbyinternalusers.1.2FinancialAccountingv.sM1.3

FinancialStatementsThefourwidely-usedfinancialstatementsabusinessenterpriseusesare:(1)Incomestatement;(2)StatementofChangesinEquity;(3)BalanceSheet;(4)StatementofCashFlows.1.3FinancialStatementsThefo1.4

IncomeStatementABCCompanyIncomeStatementForthePeriodEnded2012

Revenue$10

000

Expenses

4

000

Net

Income

$6

000

1.4IncomeStatementABCCo1.5

RevenueRevenuesareincreasesinretainedearningsfromdeliveringgoodsorservicetocustomersorclients.1.5RevenueRevenuesareincrea1.6

ExpenseExpensearedecreasesinretainedearningsthatresultfromoperations.Expensearethecostofdoingbusinessandaretheoppositeofrevenues.Expensesincludeofficerent,salaries,andutilitypaymentsetc.1.6ExpenseExpensearedecreas1.7

TheStatementofChangesinEquityABCCompanyStatementofChangesinEquityForthePeriodEnded2012

Beginning

Contributed

Capital$0

Plus:

Capital

Acquisition20

000Ending

Contributed

Capital

20

000

Beginning

Retained

Earnings0

Plus:

Net

Income6

000

Less:

Distribution(4

000)Ending

Retained

Earnings

2

000

Total

Equity

$22

000

1.7TheStatementofChangesi1.8

BalanceSheetABCCompanyBalanceSheetasatDecember31,2012Assets$30

000Total

Assets

30

000

Liabilities8

000Equity

Contributed

Capital20

000

Retained

Earnings2

000Total

Equity22

000Total

Liability

and

Equity

(Claims)

$30

000

1.8BalanceSheet1.9

AssetsAssetreferstoanyitemofeconomicvalueownedbyanindividualorcorporation.Assetsaredividedintothefollowingcategories:current,long-term,prepaidanddeferred,andintangibleassets1.9AssetsAssetreferstoany1.10

LiabilitiesLiabilitymeansanobligationthatlegallybindsanindividualorcompanytosettleadebt.Liabilitycanincludeaccountspayable,taxes,wages,accruedexpenses,anddeferredrevenues.Currentliabilitiesaredebtspayablewithinoneyear,whilelong-termliabilitiesaredebtspayableoveralongerperiod.1.10LiabilitiesLiabilitymean1.11

Owners’Equity(Capital)

Owners’equityreferstoownershipinterestinacorporationintheformofcommonstockorpreferredstock.Italsoreferstototalassetsminustotalliabilities,inwhichcaseitisalsoreferredtoasshareholders’equityornetworthorbookvalue.1.11Owners’Equity(Capital)1.12

StatementofCashFlowsABCCompanyStatementofCashFlowsForthePeriodEnded2012

Cash

Flows

from

Operating

Activities

Cash

Receipts

from

Revenue$14

000

Cash

Payments

for

Expenses

(9

000)Net

Cash

Flow

from

Operating

Activities

5

000

Cash

Flows

from

Investment

Activities

0

Cash

Flows

from

Financing

Activities

Cash

Receipts

from

Borrowed

Funds8

000

Cash

Receipts

from

Capital

Acquisitions20

000

Cash

Payments

for

Distributions(3

000)Net

Cash

Flow

from

Financing

Activities

25

000

Net

Increase

in

Cash30

000

Plus:

Beginning

Cash

Balance0Ending

Cash

Balance

$30

000

1.12StatementofCashFlowsAB1.13

AccountingEquationAssets=ClaimsAssets=Liabilities+Equity1.13AccountingEquationAssets1.14

ExampleforAssets=ClaimsNowlet’sseehowtheelementsofaccountingequationchangeduringanoperatingcycle.Wewillhaveafewtransactionsandwillfollowtherelevantchanges.1.14ExampleforAssets=Clai(1)TomCompanyisestablishedwhentheirownerspool$10000intothebusiness.Theeffectsofassetsacquisitionontheaccountingequationare:ClaimsAssets=Liabilities+Equity$10

000=$0+$10

000(1)TomCompanyisestablished(2)Next,assumethatTomCompanyobtainsanadditional$4000ofassetsbyborrowingthemfromcreditors.Thisisalsoanassetsourcetransaction.Notethatthebeginningbalancesareoriginatedfromtheendingbalancesofthelasttransaction:(2)Next,assumethatTomCompClaimsAssets=Liabilities+EquityBeginning

Balances$10

000=$0+$10

000Effect

of

Borrowing+$4

000=+$4

000Ending

Balances$14

000=$4

000+$10

000ClaimsAssets=Liabilities+Equit

(3)AssumethatTomCompanyreceived$6000inexchangeforservicesthatitprovidedtoitscustomers(notethatwhileassetsincrease,retainedearningsgetbiggeralso):(3)AssumethatTomCompanyrEquityContributedRetainedAssets=Liabilities+

Capital+EarningsBeginning

Balances$14

000=$4

000+$10

000+$0

Effect

of

Revenue+$6

000+$6

000Ending

Balances$20

000=$4

000+$10

000+$6

000EquityContributedRetainedAsset

(4)AssumethatTomCompanyhadbeenrequiredtouse$2000ofitsassetstoearn$6000fromtheprevioustransaction.Theeffectoftheassetusetransactionontheaccountingequationisshownasfollows:(4)AssumethatTomCompanyhEquityContributedRetainedAssets=Liabilities+Capital+EarningsBeginning

Balances$20

000=$4

000+

$10

000+$6

000Effect

of

Expenses($2

000)($2

000)Ending

Balances$18

000=$4

000+

$10

000+$4

000EquityContributedRetainedAsset

(5)AssumeTomCompanytransfers$500ofassetstotheowners:EquityContributedRetained

Assets=Liabilities+Capital+EarningsBeginning

Balances$18

000=$4

000+$10

000+$4

000Effect

of

Distribution($1

000)($1

000)Ending

Balances$17

000=$4

000+$10

000+$3

000(5)AssumeTomCompanytransf1.16

EndingBalancesAsanaccountingperiodisover,endingbalancesoftheperiodchangeintobeginningbalancesofthenextperiodsuchasassets,liabilities.Attheendofanaccountingperiod,amountsintherevenue,expense,anddistributionaccountsaretransferredtoRetainedEarnings.1.16EndingBalancesAsanaccoLessonTwo:

TheBalanceSheetandDouble-entry.Aims:1.Toconstructabalancesheetinaformatusedbybusiness.2.Toidentifytheessentialfeaturesofarecordbookkeepingsystem.3.Toapplythedoubleentryruletosimpletransactionsofasoletrader.4.Tounderstandtheaimofthetrialbalanceinthebookkeepingsystem.5.Toexaminetheinter-relationshipbetweenthedailybusinessrecordsandthefinalaccounts.LessonTwo:

TheBalanceSheet2.1

IntroductionAllorganizationsmustpreparefinancialstatementsperiodically,usuallyatleastonceayear.Thesenormallycomprisethreemainfinancialstatements:(1)TheBalanceSheet;(2)TheIncomeStatement;(3)TheStatementofCashFlow.2.1IntroductionAllorganizati2.2

TheEffectofTransactions

ontheBalanceSheetJohnstartsabusiness,sellingdenimclothes,tradingas“JohnClothingCo.”.OnJanuary1stJohnopensabusinessbankaccountwith$60000ofhisownmoney.JohnClothingCo.BalanceSheetAsatJanuary1stAssetsCash

&

Bank$60

000

60

000

EquityJohn’s

Capital60

000

$60

000

2.2TheEffectofTransactions2.3

TheTwoSectionsofaBalanceSheetABalanceSheetisdividedintotwosections.ThetotalsofeachsectionoftheBalanceSheetarealwaysequalinvalue.Thisisknownastheaccountingequation.EverytransactionofthebusinesswillaffectTWOitemsontheBalanceSheet.Inthisexamplethetwoitemsare:(1)Asset:cashatbank;(2)Equity:John’scapital.2.3TheTwoSectionsofaBala2.4

BusinessEntityForaccountingpurposes,theownerandthebusinessaretreatedastwoseparate.OnJanuary2nd,Johnbuysasecondhanddeliveryvanfor$16000payingwithabusinesscheque.AssetsCash

&

Bank$44

000Motor

Vehicles16

000

60

000

EquityJohn’s

Capital60

000

$60

000

2.4BusinessEntityForaccount2.5

BuyJeansNotYettoPayOnJanuary5ththebusinessbuysdenimjeansfromthemanufacturertoselltocustomers.Thejeanscost$12000.JohnClothingCo.willpaythesuppliernextmonth.AssetsCash

&

Bank$44

000Stock12

000Motor

Vehicles16

000

72

000

Account

Payable12

000EquityJohn’s

Capital60

000

72

000

2.5BuyJeansNotYettoPayOn2.6

TheOrderingandClassificationofAssetsandLiabilities.Intheaboveexample,theassetswerelistedinarandomorder.Thisisclearlyanunsatisfactorymethodofcommunication;thereforetheitemsontheBalanceSheetareorderedandclassified.2.6TheOrderingandClassific2.7

TheClassificationofAssetsAssetsarelistedontheBalanceSheetintermsofliquidity,whichmeansthemosttemporaryassets(cash)listedfirst.[1]TheassetsontheBalanceSheetareclassifiedintotwocategories:2.7TheClassificationofAsse(1)CurrentAssetsareacquiredbyabusinesstobeconvertedintootherassetsorconsumed,inthenormalcourseofbusiness,withinoneyear.(2)FixedAssetsarelonglifeassetsnormallyacquiredbyabusinesstobeusedovermorethanoneyearintheproductionofgoodsandservices.(1)CurrentAssetsareacquire2.8

TheClassificationofLiabilitiesThecreditorsontheBalanceSheetareclassifiedintotwocategories:(1)Creditors:amountsfallingduewithinoneyear.ThesearesometimescalledCurrentLiabilities.(2)Creditors:amountsfallingdueaftermorethanoneyear.ThesearesometimescalledLongTermLiabilities.2.8TheClassificationofLiab2.9

WorkingCapitalNetCurrentAssets(WorkingCapital)isthedifferencebetweencurrentassetsandcurrentliabilities.2.9WorkingCapital2.10

Jane’sBusinessOnthebusinessbalancesheet,theassetsownedbythebusinesslesstheliabilities(creditors)owedbythebusinessequalthecapital,theownersstakeinthebusiness.2.10Jane’sBusiness2.11

RecordingBusinessTransactionsTheBalanceSheetandotherfinalaccountsofabusinessaredrawnupattheendoftheaccountingperiod.Allorganizationswill,however,needtorecordtheirtransactionsonaregularbasisduringtheaccountingperiod.2.11RecordingBusinessTransaForeachtransactionitwillbenecessarytorecordthefollowing:(1)theamount($);(2)thedate;(3)adescriptionofthetransaction.Foreachtransactionitwillb2.12

BasicRulesforRecordingBusinessTransactionsTherulesforrecordingbusinesstransactionsarethateverytransactionwillatleastaffecttwoitems.2.12BasicRulesforRecording2.13

AnExampleofDualAspectConceptAmotorvehicleisboughtforcashof$16000.Thetwoitemsaffectedare:(1)MotorVehicle(+$16000);(2)Cash(-$16000).Eachitemmusthaveitsownrecordi.e.“account”inthebooks(ledgers)ofthebusiness.2.13AnExampleofDualAspect2.14

DoubleEntryRuleASSETSe.g.andEXPENSESe.g.DebitCreditINCREASES(+)DECREASES(-)2.14DoubleEntryRuleASSETSeEQUITY,CREDITORS,INCOMEandPROVISIONSDebitCredit

DECREASES(-)INCREASES(+)EQUITY,CREDITORS,INCOMEandP2.15

T-accountAccount

TitleDecreases

&

IncreasesIncreases

&

Decreases

TheleftsideoftheT-accountiscalledDebit,andtherightsideiscalledCredit.2.15T-accountAccountTitleDec2.16

TwoImportantRulesaboutDouble-entryRecordingSystem(1)Debitsincreaseassetsanddecreaseliabilitiesandequity;(2)Creditsincreaseliabilitiesandequityanddecreaseassets.2.16TwoImportantRulesabout2.17

ApplicationoftheDoubleEntryRule1.Identifythetwoitemsinvolvedinthetransaction(e.g.CashandCapital).2.Ensurethereisanaccountforeachitem(e.g.CashA/c).3.Takingeachitemindependently:4.Repeattheprocessin3withtheotheriteminvolvedinthetransaction.5.Checkthatoneaccounthasbeendebitedandtheotherhasbeencredited.2.17ApplicationoftheDouble2.18

AnExampleoftheDoubleEntryRuleOnJanuary1stJohnstartsinbusiness,tradingas“JohnClothingCo.”.Heputs$60000ofhisownmoneyintoabusinessbankaccount.Cash

&

Bank

AccountDebit(=+)$Credit(=-)$Jan

1Capital60

000Jan

2Motor

Vehicles16

0002.18AnExampleoftheDouble2.20

TransactionNo.1:StartingtheOperationsHike’sConsultantsstarteditsoperationsonJanuary31stwhentheownermade$20000cashcontribution.Assets=Liabilities+EquityCashContributed

CapitalDebitCredit++(1)20

000(1)20

0002.20TransactionNo.1:Starting2.21

TransactionNo.2:PurchasingOfficeSuppliesOnMay15th,Hike’sConsultantspurchased$800ofofficesuppliesfromalocalsupplycompanyonaccount.Assets=Liabilities+EquitySuppliesAccounts

PayableDebitCredit++(2)800(2)8002.21TransactionNo.2:Purchas2.22

TransactionNo.3:ProvidingServicesonAccountOnMay20th,thecompanyprovidedservicesonaccount(i.e.,itwillcollectcashlater,eventhoughithadalreadyprovidedservices)toMercyFoodStore.Mr.Mercy’sbusinesswasbilledfor$3200.Assets=Liabilities+EquityAccounts

ReceivableConsulting

RevenueDebitCredit++(3)1

600(3)1

6002.22TransactionNo.3:Providi2.23

TransactionNo.4:

PayingCashforOperatingExpensesOnApril5th,thecompanypaid$1200cashforoperatingexpenses.Assets=Liabilities+EquityCash

Operating

ExpenseCreditDebit-+

Expense-

Equity(4)1

200(4)1

200

2.23TransactionNo.4:

Paying2.24

TransactionNo.5:BorrowingMoneyfromBankOnMay31st,duetocashlimitsHike’sConsultantsdecidedtoborrow$8000fromtheLocalBusinessBank.Thecompanyissuedanotethathadaone-yeartermandcarried7%annualinterestrate.Assets=Liabilities+EquityCashNotes

PayableDebitCredit+

+(5)8

000(5)8

0002.24TransactionNo.5:Borrowi2.25

TransactionNo.6:PayingRentOnJune1st,Mr.Hikesawthatthebusinesswasgrowingandinthisconnectionmadeadecisiontorentalargeroffice.$4800cashwaspaidinadvanceforaone-yearrentofanewoffice.Assets=ClaimsPrepaid

Rent+CashDebit+(6)4

800Credit-(6)4

8002.25TransactionNo.6:Paying2.26

TransactionNo.7:

ReceivingCashfortheProvidedServicesOnJune15th,Hike’sConsultantsreceived$3000cashfromMercyFoodStorefortheprovidedservices(seeTransactionNo.3).Assets=ClaimsCash+Accounts

ReceivableDebit+(7)3

000Credit-(7)3

0002.26TransactionNo.7:

Receiv2.27

TransactionNo.8:

ReceivinganAdvancedCashPaymentOnJune31st,Mr.HikesignedupacontractwithMikeCompanytoperformconsultingservices.Hike’sConsultantsreceivedanadvancedcashpaymentintheamountof$7200andthetermofthecontractwasoneyear.Assets=Liabilities+EquityCashUnearned

RevenueDebit+(8)7

200Credit+(8)7

2002.27TransactionNo.8:

Receiv2.28

TransactionNo.9:

ReceivingCashforOperatingActivityOnJune31st,Hike’sConsultantsrepresentedMr.Ebert(aclient)inthecourt,forwhatthecompanyreceived$1400cash.Assets=Liabilities+EquityCashConsulting

RevenueDebit+(9)1

400Credit+(9)1

4002.28TransactionNo.9:

Receiv2.29

TransactionNo.10:LoaningtootherCompanyOnJune31st,Hike’sConsultantsloanedJamBuildingCompany(InvestmentActivity)$6000.JamBuildingCompanyissuedaone-year,8%note.Assets=ClaimsNotes

Receivable+CashDebit+(10)6

000Credit-(10)6

0002.29TransactionNo.10:Loanin2.30

TransactionNo.11:

PayingCashtoPurchaseOfficeEquipmentOnJune31st,Mr.Hikepaid$4000cashtopurchaseanewtableandseveralchairs.Theofficeequipmentisexpectedtohaveausefullifeof2yearsandasalvagevalueof$800.Assets=ClaimsOffice

Equipment+Cash

Debit+(11)4

000Credit-(11)4

0002.30TransactionNo.11:

Payin2.31

TransactionNo.12:

PayingCashtoAccountsPayableOnAugust14th,Hike’sConsultantspaid$800ofaccountspayablefromalocalsupplycompany.Assets=Liabilities+EquityCashAccounts

PayableCredit-(12)800Debit-(12)8002.31TransactionNo.12:

Payin2.32

TransactionNo.13:

ReceivingaBillforOfficeCleaningServicesOnSeptember18th,Hike’sConsultantsreceiveda$1600billfromSulkCleanersforofficecleaningservices.Mr.Hikeplanstopaythebilllater.Assets=Liabilities+EquityAccounts

PayableOffice

Maintenance

ExpenseCredit+(13)1

600Debit+Expense-Equity(13)1

600

2.32TransactionNo.13:

Recei2.33

TransactionNo.14:

PayingCashDistributiontotheOwnerOnNovember31st,Hike’sConsultantspaid$600cashdistributiontoitsowner.Assets=Liabilities+EquityCashCash

DistributionCredit-(15)600Debit+

Dist.-

Equity(15)6002.33TransactionNo.14:

Payin2.34

MakingAdjustingEntriesWhenwehaveseenallthetransactionspertainingtotheaccountingperiod,weneedtomakeadjustingentries.Adjustingentriesaremadeattheendofayear(oranyotherfiscalperiod)torecognizerevenueorexpenses(accrualsordeferrals).2.34MakingAdjustingEntriesW2.35

AdjustmentNo.1:RecognizingInterestExpenseOnMay31st,Hike’sConsultantsborrowed$8000cashfromabankandagreedtoreturnthemoneyinayearandpay7%annualinterest(seeTransactionNo.5).Fortheaccountingperiodinterestexpenseonthenoteamountedto$327(i.e.,$8000×7%×(7months/12months)).Assets=Liabilities+EquityInterest

PayableInterest

ExpenseCredit+(A1)327Debit+

Expense-

Equity-(A1)3272.35AdjustmentNo.1:Recogniz2.36

AdjustmentNo.2:RecognizingRentExpenseOnJune1st,Hike’sConsultantspaid$4800cashinadvanceforanew1-yearofficerent(seeTransactionNo.6).Therentexpensetoberecognizedattheendoftheperiodiscalculatedasfollows:$4800×(7months/12months)=$2800.Assets=Liabilities+EquityPrepaid

RentRent

ExpenseCredit-(A2)2

800Debit+

Expense-

Equity(A2)2

8002.36AdjustmentNo.2:Recogniz2.37

AdjustmentNo.3:

RecordingaRevenuefortheProvidedServicesOnJune31st,HikesConsultantsreceivedinadvancecashpaymentof$7200forservicestobeperformedduringayearaftersigningupthecontract(seeTransactionNo.8).ByDecember31stthecompanyhadprovidedservicesfor6months,sotheamounttoberecordedasarevenueis$7200×(6months/12months)=$3600.Thisamountshouldberemovedfromliabilities(UnearnedRevenue)andplacedintoequity(ConsultingRevenue).2.37AdjustmentNo.3:

RecordiAssets=Liabilities+EquityUnearned

RevenueConsulting

RevenueDebit-(A3)3

600Credit+(A3)3

600Assets=Liabilities+EquityUnear2.38

AdjustmentNo.4:RecordingInterestRevenueOnJuly31st,Hike’sConsultantsloaned$6000toJamBuildingCompanyandreceivedforitanotecarryinga1-yeartermandobligationtopay8%annually(seeTransactionNo.10).Inthisconnection,HikesConsultantshavetorecord$200(i.e.,$6000×8%×(5months/12months))asinterestrevenue.Assets=Liabilities+EquityInterest

ReceivableInterest

RevenueDebit+(A4)200Credit+(A4)2002.38AdjustmentNo.4:Recordin2.39

AdjustmentNo.5:

RecognizingDepreciationExpenseOnJune31st,officeequipmentof$4000wasbought.Theusefullifeofthisassetswasexpectedtobe2yearswithasalvagevalueof$800.Hike’sConsultantshavetorecognizetheamountofofficeequipmentusedduringayearasadepreciationexpense.Theamounttoberecordedis$1600(i.e.,($4000-$800)/2years).Assets=Liabilities+EquityAccumulated

DepreciationDepreciation

ExpenseCredit+Acc.

Depr.-Assets(A5)1

600Debit+Expense-Equity(A5)1

6002.39AdjustmentNo.5:

Recogni2.40

AdjustmentNo.6:RecognizingSalariesExpenseAttheendoftheperiodHike’sConsultantsaccrued$1200salariesthatwillbepaidoffinthenextaccountingperiod(2013).Assets=Liabilities+EquitySalaries

PayableSalaries

ExpenseCredit+(A6)1

200Debit+Expense-Equity-(A6)1

200

2.40AdjustmentNo.6:Recogniz2.41

AdjustmentNo.7:ExpensingtheSuppliesOnMay15th,Hike’sConsultantsbought$800ofsupplies.Attheendoftheaccountingperiod$200ofsuppliesremainedonhand.Others($600=$800-$200)wereusedduringtheyear,and,therefore,mustbeexpensed.Theadjustmentdecreasesassetsandequity.Assets=Liabilities+EquitySuppliesSupplies

ExpenseCredit-(A7)600Debit+Expense-Equity(A7)6002.41AdjustmentNo.7:Expensin2.42

TransferringDatetoT-accountsNowwewilltransferallthedatatoT-accounts.Notethatwemeetthetworequirementsaboutthedouble-entryrecordingprocess:TotalDebits=TotalCredits;TotalAssets=TotalLiabilities+TotalEquity.2.42TransferringDatetoT-ac2.43

ASummaryofthePrinciplesofAccountsTofacilitateyourunderstandingthebasicprincipalsofT-accounts,atableofaccountsandhowtheyareincreasedordecreasedispresentedbelow:AccountDebitCreditAssetsIncreaseDecreaseContra

AssetsDecreaseIncreaseLiabilitiesDecreaseIncreaseEquityDecreaseIncreaseContributed

CapitalDecreaseIncreaseRevenueDecreaseIncreaseExpensesIncreaseDecreaseDistributionsIncreaseDecrease2.43ASummaryofthePrincipl2.44

TheProceduresofAccountingIngeneral,allthestepsare:(1)Analyzingsourcedocuments;(2)Makingentriestothegeneraljournal;(3)Postingthedatetotheledger;(4)Comparingdebitandcreditbalancesforequality;(5)Preparingfinancialstatements.2.44TheProceduresofAccount2.45

TheJournalDateAccount

TitlesDebitCreditJan.

31Cash

Contributed

Capital20

00020

000May

15Supplies

Accounts

Payable800800May

20Accounts

Receivable

Consulting

Revenue3

2003

200April

5Operating

Expense

Cash1

2001

200May

31Cash

Notes

Payable8

0008

000June

1Prepaid

Rent

Cash4

8004

800June

15Cash

Accounts

Receivable3

0003

000June

31Cash

Unearned

Revenue7

2007

200June

31Cash

Consulting

Revenue1

4001

400June

31Notes

Receivable

Cash6

0006

000June

31Office

Equipment

Cash4

0004

000Aug.

14Accounts

Payable

Cash800800Sept.

18Office

Maintenance

Expense

Accounts

Payable1

6001

6002.45TheJournalDateAccountTiNov.

31Distributions

Cash600600Adjusting

EntriesDec.

31Interest

Expense

Interest

Payable327327Dec.

31Rent

Expense

Prepaid

Rent2

8002

800Dec.

31Unearned

Revenue

Consulting

Revenue3

6003

600Dec.

31Interest

Receivable

Interest

Revenue200200Dec.

31Depreciation

Expense

Accumulated

Depreciation800800Dec.

31Salaries

Expense

Salaries

Payable1

2001

200Dec.

31Supplies

Expense

Supplies600600Totals

of

debits

and

credits

71

627

71

627Nov.31Distributions600Adjusti2.46

ClosingEntriesInadditiontoadjustingentries,closingentriesmustbemadeattheendofanaccountingperiod.Closingentriesmaingoalistofreeup(tozero)thenominalaccounts—revenue,expense,anddistributionones—forthenextaccounting2.46ClosingEntriesInadditioDateAccount

titlesDebitCreditJohn

Closing

entriesDec.

31Consulting

RevenueInterest

Revenue

Retained

Earnings6

800

2007

000Dec.

31Retained

Earnings

Operating

Expense

Office

Maintenance

Expense

Interest

Expense

Rent

Expense

Depreciation

Expense

Salaries

Expense

Supplies

Expense9

3271

2001

600

3272

8001

6001

200

600Dec.

31Retained

Earnings

Distributions

600

600DateAccounttitlesDebitCreditJ2.47

TheTrialBalanceTheaimoftheTrialBalanceistoprovethatforeverydebitentryacorrespondingcreditentryhasbeenmade.John

Clothing

Co.

Trial

Balance

as

at

January

2ndDrCrCash

&

Bank60

00016

000Capital60

000Motor

Vehicles16

00076

00076

0002.47TheTrialBalanceTheaimAfterbalancing-off:John

Clothing

Co.

Trial

Balance

as

at

January

2ndDrCrCash

&

Bank44

000Capital60

000Motor

Vehicles16

00060

00060

000Afterbalancing-off:JohnClothLessonThree

CurrentAssetsAims:1.Toexplaintheimportanceofcashandtheaccountingtreatmentofcash.2.Tointroducefourinventoryvaluationmethods.3.Toexplaintwosystemsofinventoryaccounting.4.Todiscussthebaddebtandtheaccountingtreatment.5.Tomakeallowancefordoubtfulaccountreceivable.6.Towriteoffanun-collectibleaccountreceivable.LessonThree

CurrentAssetsAim3.1

IntroductiontoAssetsAssetsarefutureeconomicbenefitsobtainedorcontrolledbyanentityasaresultofpasttransactionsorevents.Assetsmaybephysical,suchasland,buildings,inventoryofsupplies,material,orfinishedproducts.Assetsmayalsobeintangible,suchaspatentsandtrademarks.Assetsarenormallydividedintotwomajorcategories:currentassetsandlong-termassets.3.1IntroductiontoAssetsAsse3.2

CurrentAssetsCurrentassetsareassets:(1)intheformofcash;(2)willnormallyberealizedincash;(3)orconservetheuseofcashduringtheoperatingcycleofafirmorforoneyear,whicheverislonger.3.2CurrentAssetsCurrentasse3.3

CashCashismoneyintheformofbillsorcoins,whichcanpromptpaymentforgoodsorservicesincurrencyorbycheck.Cashislistedfirstinthebalancesheet,becauseitisthemostliquidofallcurrentassets.3.3CashCashismoneyinthef3.4

InventoryInventoryreferstovariousassetsthatarestockedforthepurposeofsale,productionorconsumptionduringtheprocessoftheproductionandoperationforabusiness.3.4InventoryInventoryrefers3.5

FourCo