Get 700 Cash No Credit Check Lender

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					                                      Chapter 12
1 Old Adjusting Entries:
   Prepaid Insurance
   Depreciation
   Salary
2 New Adjusting Entries:
   Supplies
   Inventory under the Periodic Method
   Unearned Revenue
3 Adjusting Entries:
   Worksheet
   Journal Entries
   Periodic vs. Perpetual Inventory (see page 434-35)
                              Unearned Revenue
If Time Magazine receives subscription revenue for the whole year, can they record it
all as revenue in the first month?
   No
   They must record unearned subscription revenue, and then make adjustments
   each month
Other examples:
   Sports teams receive ticket sales in advance
   Health club advance payments
Is "Unearned Revenue" an Asset, Liability Or Owner’s Equity?
   Time Magazine “owes” the customer the magazines, right?
   The insurance company “owes” the customer the insurance coverage, right?
   Unearned revenue is a liability!
   The customer has a claim against the company for the goods or services until the
   goods are delivered or the services are rendered
Define: Unearned Revenue
   Revenue received in advance for goods or services to be delivered later
   Considered to be a liability until the revenue is earned
         General Journal (for Health Club)          Page:                               Mercha
    Date                      Description            PR     DR         CR
  2006                       Adjustments
Dec      31 Insurance Expense                         650   1,400.00
              Prepaid Insurance                       120              1,400.00

          31 Depreciation Expense, Building           675   2,500.00                          S
              Accumulated Depreciation, Building      175              2,500.00

          31 Depreciation Expense, Equipment          676   4,100.00
              Accumulated Depreciation, Equipment     176              4,100.00

          31 Salary Expense                           640   3,200.00              Unearned Fitn
              Salaries Payable                        220              3,200.00

          31


          31                                                                              Incom


          31


          31                                                                              Supp




                                                                                     Fitness Me
115   Merchandise Inventory
120   Prepaid Insurance
130   Supplies
175   Accumulated Depreciation, Building
176   Accumulated Depreciation, Equipment
220   Salaries Payable
260   Unearned Fitness Membership Dues
350   Income Summary
410   Fitness Membership Revenue
635   Supplies Expense
640   Salary Expense
650   Insurance Expense
675   Depreciation Expense, Building
676   Depreciation Expense, Equipment
      Merchandise Inventory          115
     DR                  CR                After inventory was
      15,000.00                             counted, the total
                                              was: $16,000



              Supplies               130
     DR                      CR               The amount of
       1,200.00                            supplies used during
                                           the period was $700


Unearned Fitness Membership Dues     260
                                              The amount of
     DR                 CR
                                           Fitness Membership
                         22,000.00
                                           Dues earned during
                                           the period is $10,000


          Income Summary             350
                                           This is the catch all
     DR                      CR
                                             account for the
                                              Merchandise
                                             Inventory entry


          Supplies Expense           635
     DR                      CR




  Fitness Membership Revenue         410
     DR                CR
                                Chapter 13
1 Classified (Multi-stepped) Financial Statements
a Prepare a classified income statement for a merchandising firm
     Net sales
     Cost of goods sold
     Gross profit
     Income from operations
b   Prepare a classified balance sheet for any type of business
     Current assets
     Plant & equipment
     Current liabilities
     Long-term liabilities
2 Liquidity
    Liquidity Measures
      Compute working capital and current ratio
3 Journalize the closing entries for a merchandising firm
  Determine which adjusting entries can be reversed, and journalize the
4 reversing entries
                                     Chart Of Accounts
Cash
Accounts Receivable
Merchandise Inventory
Store Supplies
Prepaid Insurance
Land
Building
Accumulated Depreciation, Building
Store Equipment
Accumulated Depreciation, Store Equipment
Accounts Payable
Sales Tax Payable
Notes Payable
Unearned Membership Dues
B. Monty, Capital
B. Monty, Drawing
Sales
Sales Returns & Allowances
Sales Discounts
Purchases
Purchases Returns & Allowances
Purchases Discount
Freight In
Salary Expense
Advertising Expense
Utilities Expense
Miscellaneous Expense
Interest Expense

Income Summary
Store Supplies Expense
Insurance Expense
Depreciation Expense, Building
Depreciation Expense, Store Equipment
Salaries Payable
Membership Dues Revenue

Variable
Owner First Name
Owner Last Name
Business Name
Business Full Name
Capital
Drawing
Building
Store Equipment
Building
Store Equipment
IS Labels 1
IS Labels 2
IS Labels 3
     IS Labels 4
     IS Labels 5
     SOOE 1
     SOOE 2
     SOOE 3
     SOOE 4
     SOOE 5
     BS 1
     BS 2
     BS 3

     Start Date
     End Date
     Date Label 1
     Date Label 2
     Date Label 3
     Date Label 4
     Date Label 5
     Period
     Reverse Date 1
     Reverse Date 2
     Reverse Date 3
     Reverse Date 4
     Payroll Payment Amount
     Additional Investment Amount
     Additional Investment Date

                                                                        Adjustments
a)   Merchandise Inventory is counted and the remaing value on Jan. 1, 2002 is: $120,500.00
b)   Merchandise Inventory is counted and the remaing value on Dec. 31, 2002 is: $104,682.00
c)   Store Supplies are counted and the remaing value on Dec. 31, 2002 is: $900.00
d)   Insurance expired during the year: $2,040.00
e)   Salary accrued at Dec. 31, 2002: $1,865.00
f)   Depreciation of Building for the year: $2,142.00
g)   Depreciation of Store Equipment for the year: $2,731.00
h)   Portion of Unearned Membership Dues that is earned for the year: $17,000.00

                                                                      Other Details:
 1 Additional Investment, January 20, 2002, for $1,985.00
 2 Notes Payable (Current Portion) = $1,045.00
 3 Notes Payable (Current Portion) = $3,955.00
 4
 5
                       DR                           CR
                                        22,500.00
                                         2,140.00
                                       120,500.00
                                         1,520.00
                                         3,040.00
                                        68,000.00
                                       108,000.00
                                                     16,600.00
                                        36,400.00
                                                     11,600.00
                                                     14,650.00
                                                      4,192.00
                                                      5,000.00
                                                     30,000.00
                                                    216,135.00
                                        44,200.00
                                                    467,550.00
                                         2,634.00
                                              -
                                       284,719.00
                                                         5,560.00
                                                         3,671.00
                                         7,868.00
                                        58,673.00
                                         7,259.00
                                         5,895.00
                                           840.00
                                           770.00
                                       774,958.00   774,958.00




Formula or Raw Data
Bob
Monty
Company
Monty Company
B. Monty, Capital
B. Monty, Drawing
Accumulated Depreciation, Building
Accumulated Depreciation, Store Equipment
Depreciation Expense, Building
Depreciation Expense, Store Equipment
Less: Sales Returns & Allowances
Merchandise Inventory, January 1, 2002
Merchandise Inventory, December 31, 2002
Less: Purchases Returns & Allowances
Add Freight In
B. Monty, Capital, January 1, 2002
Additional Investment, January 20, 2002
B. Monty, Capital, December 31, 2002
Net Income for the year
Less Withdrawals for the year
Notes Payable (Current Portion)                        (Current Portion)
Notes Payable (Long-term Portion)                      (Long-term Portion)


                                            1/1/2002
                                          12/31/2002
December 31, 2002
2002
Dec.
31
For The Year Ended December 31, 2002
year
                                            1/1/2003
2003
Jan.
1
                                           2,444.71
                                           1,985.00
                                           1/20/2002


                                          120,500.00
                                          104,682.00
                                              900.00
                                            2,040.00
                                            1,865.00
                                            2,142.00
                                            2,731.00
                                           17,000.00


                                            1,985.00
                                            1,045.00
                                            3,955.00
                                                 Adjustments
a)     Merchandise Inventory is counted and the remaing value on Jan. 1, 2002 is: $120,500.00
b)     Merchandise Inventory is counted and the remaing value on Dec. 31, 2002 is: $104,682.00
c)     Store Supplies are counted and the remaing value on Dec. 31, 2002 is: $900.00
d)     Insurance expired during the year: $2,040.00
e)     Salary accrued at Dec. 31, 2002: $1,865.00
f)     Depreciation of Building for the year: $2,142.00
g)     Depreciation of Store Equipment for the year: $2,731.00
h)     Portion of Unearned Membership Dues that is earned for the year: $17,000.00

                                              Other Details:
     1 Additional Investment, January 20, 2002, for $1,985.00
     2 Notes Payable (Current Portion) = $1,045.00
     3 Notes Payable (Current Portion) = $3,955.00
120,500.00
104,682.00
    900.00
  2,040.00
  1,865.00
  2,142.00
  2,731.00
 17,000.00


  1,985.00
  1,045.00
  3,955.00
                                                                    Monty Company
                                                 Work Sheet (without "Adjusted Trial Balance Column")
                                                         For The Year Ended December 31, 2002
                                                 Trial Balance                     Adjustments
                     Account Name              DR             CR             DR                 CR
Cash                                         22,500.00
Accounts Receivable                           2,140.00
Merchandise Inventory                       120,500.00
Store Supplies                                1,520.00
Prepaid Insurance                             3,040.00
Land                                         68,000.00
Building                                    108,000.00
Accumulated Depreciation, Building                          16,600.00
Store Equipment                              36,400.00
Accumulated Depreciation, Store Equipment                   11,600.00
Accounts Payable                                            14,650.00
Sales Tax Payable                                            4,192.00
Notes Payable                                                5,000.00
Unearned Membership Dues                                          -
B. Monty, Capital                                          216,135.00
B. Monty, Drawing                            44,200.00
Sales                                                      467,550.00
Sales Returns & Allowances                    2,634.00
Sales Discounts                                    -
Purchases                                   284,719.00
Purchases Returns & Allowances                               5,560.00
Purchases Discount                                           3,671.00
Freight In                                    7,868.00
Salary Expense                               58,673.00
Advertising Expense                           7,259.00
Utilities Expense                             5,895.00
Miscellaneous Expense                           840.00
Interest Expense                                770.00
                                            774,958.00     744,958.00
Income Summary
Store Supplies Expense
Insurance Expense
Depreciation Expense, Building
Depreciation Expense, Store Equipment
Salaries Payable
Membership Dues Revenue
                                                                                   -
mpany
ed Trial Balance Column")
December 31, 2002
       Adjustments              Income Statement    Balance Sheet
                    CR          DR           CR    DR           CR




                            -
                                      Performance Measures (IS)
Different measure on the classified income statement tell us different things:
  Gross profit:
    How profitable the company is after only subtracting COGS
    Common measure used to compare companies (GP%)
  Operating income:
    How profitable the company is from its ordinary operations, before any “other revenue/expenses”
    Common measure used in estimating future profitability
  Net income:
    The bottom line
    Profit for the period
  Other Income, Or Expenses
  Not related to ordinary operations
    Examples:
      Interest revenue
      Rent Revenue
      Interest expense
      Cash Sort & Over (If Firm decides to classify it as such)
                                                 Monty Company
                                                Income Statement
                                      For The Year Ended December 31, 2002
Revenue from Sales:
  Sales
    Less: Sales Returns & Allowances
           Sales Discounts
Net Sales
Cost of Goods Sold:
  Merchandise Inventory, January 1, 2002
  Purchases
  Less: Purchases Returns & Allowances
          Purchases Discount
  Net Purchases
  Add Freight In
  Delivered Cost of Purchases
  Cost of Goods Available for Sale
  Merchandise Inventory, December 31, 2002
  Cost of Goods Sold
Gross Profit
Operating Expenses:
  Salary Expense
  Advertising Expense
  Utilities Expense
  Depreciation Expense, Store Equipment
  Depreciation Expense, Building
  Insurance Expense
  Miscellaneous Expense
  Store Supplies Expense
  Total Operating Expense
Income From Operations
Other Income:
  Membership Dues Revenue
Other Expenses:
  Interest Expense
Add Net of Other
Net Income
                                    Monty Company
                               Statement of Owners' Equity
                         For The Year Ended December 31, 2002
B. Monty, Capital, January 1, 2002
Additional Investment, January 20, 2002
  Total Investment
Net Income for the year
Less Withdrawals for the year
Increase in Capital
B. Monty, Capital, December 31, 2002
                                   Balance Sheet Classifications
Current Assets (Get cash soon)
  Cash and any other assets or resources that are expected to be realized in cash or to be sold or consumed
  during the normal operating cycle* of the business
    *One year, if the normal operating cycle is less than twelve months
  Listed on balance sheet in the order of liquidity (how quickly can it be converted to cash):
    Cash
    Notes Receivable (Current)
      Written promises to pay the seller/lender the amount due in a period of less than one year
    A/R
    Inventory
    Prepaid items (supplies, prepaid insurance)
Plant And Equipment
  Long-lived assets that are held for use in the production or sale of other assets or services
    Also called fixed assets
  Order on Balance Sheet:
    Rank according to length of life
    Longest life first
Current Liabilities (Pay cash soon)
  Debts that will become due within the normal operating cycle of a business
    Usually within one year
  Normally paid from current assets
  Listed on balance sheet in the order they will be paid off:
    Mortgage Payable (current portion)
    N/P (current portion)
    A/P
    Wages payable
    Unearned revenue
Long-Term Liabilities
  Debts payable over a comparatively long period
    Usually more than one year
  Usually, for sole-proprietorship only LTL:
    Mortgage Payable (LT portion)
    N/P (LT portion)
                                         Monty Company
                                          Balance Sheet
                                        December 31, 2002
                          Assets
Current Assets:
  Cash
  Accounts Receivable
  Merchandise Inventory
  Store Supplies
  Prepaid Insurance
    Total Current Assets
Plant and Equipment
  Land
  Building
  Accumulated Depreciation, Building
  Store Equipment
  Accumulated Depreciation, Store Equipment
Total Plant and Equipment
Total Assets
                       Liabilities
Current Liabilities:
  Accounts Payable
  Salaries Payable
  Sales Tax Payable
  Notes Payable (Current Portion)
  Unearned Membership Dues
    Total Current Liabilities
Long-term Liabilities
  Notes Payable (Long-term Portion)
Total Liabilities

                     Owners' Equity
B. Monty, Capital
Total Liabilities and Owners' Equity
                                                    Liquidity                                                         Mo
Define Liquidity
 “How quickly an asset can be converted to cash”
 The ability of an asset to be quickly turned into cash, either by selling it or by putting it up as security for a
 loan
Why Liquidity:
 Banks want to know if the firm can make its interest payments
 Managers want to know if they have enough money to pay the bills and buy assets
 Cash is queen! (Cash is king)
Think of Current Assets & Current Liabilities in this way:
 Current assets (CA)
   Get cash soon
 Current liabilities (CL)
   Pay cash soon
Short term cash management measures (liquidity measures):
 Current Ratio = CA/CL
   Because of the division, the number can be used to compare with other companies
   Portrays a firm’s short-term debt-paying ability
   Ability to pay current liabilities with current assets
   For every $1 of CL, CA/CL tells you how many dollars of CA you have to pay off the $1 of CL
 Working Capital = CA - CL
   A firm’s current assets less its current liabilities
   The amount of capital a firm has available to use or to work with during a normal operating cycle
            Monty Company Liquidity

CA =

CL =

CA/CL =
CA/CL =
CA/CL =

CA - CL =




Coke CA                       50,000,000.00
Coke CL                       52,500,000.00
Coke CA/CL =                           0.95

Jewelers are Us CA =                 198500
Jewelers are Us CL =                  24060
CA/CL =                         8.250207814
                    General Journal                       Page: GL 19
     Date                       Description                PR       DR          CR
2002                         Adjusting Entries
Dec.    31   Income Summary
               Merchandise Inventory

       31    Merchandise Inventory
              Income Summary

       31    Store Supplies Expense
               Store Supplies

       31    Insurance Expense
               Prepaid Insurance

       31    Salary Expense
              Salaries Payable

       31    Depreciation Expense, Building
              Accumulated Depreciation, Building

       31    Depreciation Expense, Store Equipment
              Accumulated Depreciation, Store Equipment

       31    Unearned Membership Dues
              Membership Dues Revenue




                                                                         0.00        0.00
a


b


c


d


e


f


g


h
                                 Closing Entries For Merchandising Co.
Step 1 Close all temporary (nominal) accounts with a credit balance (except income summary line)
        Revenues & contra expenses like purchase discounts
          Debit nominal accounts
          Credit income summary
Step 2 Close all temporary (nominal) accounts with a debit balance (except income summary line)
        Expenses & contra revenues like sales discounts
          Credit nominal accounts
          Debit income summary
Step 3 Close income summary to capital
Step 4 Close drawings to capital
                     General Journal                   Page: GL 20
     Date                        Description            PR       DR   CR   In
2002                           Closing Entries
Dec.    31   Sales
             Purchases Returns & Allowances
             Purchases Discount
             Membership Dues Revenue
              Income Summary

       31    Income Summary
               Sales Returns & Allowances
               Sales Discounts
               Purchases
               Freight In
               Salary Expense
               Advertising Expense
               Utilities Expense
               Miscellaneous Expense
               Interest Expense
               Store Supplies Expense
               Insurance Expense
               Depreciation Expense, Building
               Depreciation Expense, Store Equipment

       31    Income Summary
               B. Monty, Capital

       31    B. Monty, Capital
               B. Monty, Drawing
          Income Summary
        DR              CR
      $104,682.00     $120,500.00




Increase in Capital
Reversing Entries                                                                Monty Company
What is a Reversing Entry?

 You make the reverse journal entry (for certain adjusting          Adj. Entry
 entries) on the first day of the next period                     that meets 3
   Make it easier for the accountant next period                   conditions:
   Next period the accountant does not need to worry about
   compound entries for payables and receivables where the
   cash is paid or is received
 The use of reversing entries is optional
Determining Which Adjusting Entries Can Be Reversed:
 Look at all adjusting entries and find entries that meet all 3
 Conditions:
   1) An asset or liability was increased
   2) The asset or liability did not have a previous balance
   3) Entry does not involve merchandise inventory or contra
   accounts
How to Make Reversing Entries
 Date is the first day of the next period
 Just as with Adj. and Clo. Entries, make one header
 (Reversing Entries) instead of individual descriptions
 For the adjusting entries that meet all 3 conditions, make a
 new journal entry with reverse debits and credits
 When you post, don’t forget to write “reversing” in item
 column in the ledger accounts
                    Monty Company
Adj Entry                                 DR          CR


Salary Expense                             1,865.00
 Salaries Payable                                      1,865.00




Total Salary Expense next period:          2,444.71

What you would have to do next quarter:
                                          DR          CR
Salary Expense                              579.71

Salaries Payable                           1,865.00
FICA Payable                                               180.91
Employees' Fed Income Tax Payable                          244.47

Salaries Payable                                       2,019.33
                    General Journal                         Page: GL 21
Date                           Description                   PR       DR
                            Reversing Entries




       13 Salaries Expense                                            2,444.71
           FICA Payable
           Employees' Fed Income Tax Payable
           Salaries Payable
             Record Payroll from Payroll Register page 46
CR                    Salaries Payable      214
                      DR           CR
           1/1/2003              1,865.00




  180.91
  244.47              Salary Expense        695
2,019.33              DR         CR
           1/1/2003
0acf7028-54b4-45fa-8149-580d8a1cf800.xls                             Adjustments (3)                                                          Accounting Is Fun!



                     General Journal                   Page:                                    Merchandise Inventory                115
     Date                      Description              PR      DR              CR             DR                  CR                      After inventory was
   2006                       Adjustments                                                       15,000.00           15,000.00               counted, the total
 Dec      31 Insurance Expense                           650    1,400.00                        16,000.00                                     was: $16,000
               Prepaid Insurance                         120                   1,400.00         16,000.00

            31 Depreciation Expense, Building            675    2,500.00                              Supplies                       130
                 Accumulated Depreciation, Building      175                   2,500.00        DR                      CR                     The amount of
                                                                                                 1,200.00                   700.00         supplies used during
            31 Depreciation Expense, Equipment           676    4,100.00                           500.00                                  the period was $700
                 Accumulated Depreciation, Equipment     176                   4,100.00

            31 Salary Expense                            640    3,200.00                  Unearned Fitness Membership Dues           260
                                                                                                                                              The amount of
                 Salaries Payable                        220                   3,200.00        DR                 CR
                                                                                                                                           Fitness Membership
                                                                                                10,000.00          22,000.00
                                                                                                                                           Dues earned during
            31 Income Summary                            350   15,000.00                                           12,000.00
                                                                                                                                           the period is $10,000
                 Merchandise Inventory                   115                  15,000.00

            31 Merchandise Inventory                     115   16,000.00                          Income Summary                     350
                                                                                                                                           This is the catch all
                Income Summary                           350                  16,000.00        DR                CR
                                                                                                                                             account for the
                                                                                                15,000.00         16,000.00
                                                                                                                                              Merchandise
            31 Supplies Expense                          635     700.00                                            1,000.00
                                                                                                                                             Inventory entry
                 Supplies                                130                     700.00

            31 Unearned Fitness Membership Dues          260   10,000.00                            Supplies Expense                 635
                 Fitness Membership Revenue              410                  10,000.00        DR                      CR
                                                                                                    700.00



                                                                                            Fitness Membership Revenue               410
                                                                                               DR                CR
                                                                                                                  10,000.00




                                                                     Page 33 of 45
0acf7028-54b4-45fa-8149-580d8a1cf800.xls                            Worksheet (3)                                                              Accounting Is Fun!



                                                                    Monty Company
                                                 Work Sheet (without "Adjusted Trial Balance Column")
                                                         For The Year Ended December 31, 2002
                                                 Trial Balance                     Adjustments                 Income Statement             Balance Sheet
                    Account Name               DR             CR             DR                 CR             DR           CR            DR            CR
Cash                                         22,500.00                                                                                  22,500.00
Accounts Receivable                           2,140.00                                                                                   2,140.00
Merchandise Inventory                       120,500.00                 b)   104,682.00 a)      120,500.00                              104,682.00
Store Supplies                                1,520.00                                    c)        620.00                                 900.00
Prepaid Insurance                             3,040.00                                    d)      2,040.00                               1,000.00
Land                                         68,000.00                                                                                  68,000.00
Building                                    108,000.00                                                                                 108,000.00
Accumulated Depreciation, Building                          16,600.00                     f)      2,142.00                                            18,742.00
Store Equipment                              36,400.00                                                                                  36,400.00
Accumulated Depreciation, Store Equipment                   11,600.00                     g)      2,731.00                                            14,331.00
Accounts Payable                                            14,650.00                                                                                 14,650.00
Sales Tax Payable                                            4,192.00                                                                                  4,192.00
Notes Payable                                                5,000.00                                                                                  5,000.00
Unearned Membership Dues                                    30,000.00 h)     17,000.00                                                                13,000.00
B. Monty, Capital                                          216,135.00                                                                                216,135.00
B. Monty, Drawing                            44,200.00                                                                                  44,200.00
Sales                                                      467,550.00                                                     467,550.00
Sales Returns & Allowances                    2,634.00                                                         2,634.00
Sales Discounts                                    -                                                                -
Purchases                                   284,719.00                                                       284,719.00
Purchases Returns & Allowances                               5,560.00                                                       5,560.00
Purchases Discount                                           3,671.00                                                       3,671.00
Freight In                                    7,868.00                                                         7,868.00
Salary Expense                               58,673.00                 e)     1,865.00                        60,538.00
Advertising Expense                           7,259.00                                                         7,259.00
Utilities Expense                             5,895.00                                                         5,895.00
Miscellaneous Expense                           840.00                                                           840.00
Interest Expense                                770.00                                                           770.00
                                            774,958.00     774,958.00
Income Summary                                                         a)   120,500.00 b)      104,682.00    120,500.00   104,682.00
Store Supplies Expense                                                 c)       620.00                           620.00
Insurance Expense                                                      d)     2,040.00                         2,040.00
Depreciation Expense, Building                                          f)    2,142.00                         2,142.00
Depreciation Expense, Store Equipment                                  g)     2,731.00                         2,731.00
Salaries Payable                                                                          e)      1,865.00                                             1,865.00
Membership Dues Revenue                                                                   h)     17,000.00                 17,000.00
                                                                            251,580.00         251,580.00    498,556.00   598,463.00   387,822.00   287,915.00
                                                                                                              99,907.00                              99,907.00
                                                                                                             598,463.00   598,463.00   387,822.00   387,822.00




                                                                    Page 34 of 45
0acf7028-54b4-45fa-8149-580d8a1cf800.xls                    Performance Measures (2)                                    Accounting Is Fun!


                                                        Performance Measures (IS)
                  Different measure on the classified income statement tell us different things:
                    Gross profit:
                      How profitable the company is after only subtracting COGS
                      Common measure used to compare companies (GP%)
                    Operating income:
                      How profitable the company is from its ordinary operations, before any “other revenue/expenses”
                      Common measure used in estimating future profitability
                    Net income:
                      The bottom line
                      Profit for the period
                    Other Income, Or Expenses
                    Not related to ordinary operations
                      Examples:
                        Interest revenue
                        Rent Revenue
                        Interest expense
                        Cash Sort & Over (If Firm decides to classify it as such)




                                                                   Page 35 of 45
0acf7028-54b4-45fa-8149-580d8a1cf800.xls                                IS (3)                                                           Accounting Is Fun!


                                                                   Monty Company
                                                                  Income Statement
                                                        For The Year Ended December 31, 2002
                   Revenue from Sales:
                     Sales                                                                             $   467,550.00
                       Less: Sales Returns & Allowances                               $     2,634.00
                               Sales Discounts                                                   -           2,634.00
                   Net Sales                                                                                            $   464,916.00
                   Cost of Goods Sold:
                     Merchandise Inventory, January 1, 2002                                                120,500.00
                     Purchases                                                            284,719.00
                     Less: Purchases Returns & Allowances           $      5,560.00
                             Purchases Discount                            3,671.00         9,231.00
                     Net Purchases                                                        275,488.00
                     Add Freight In                                                         7,868.00
                     Delivered Cost of Purchases                                                           283,356.00
                     Cost of Goods Available for Sale                                                      403,856.00
                     Merchandise Inventory, December 31, 2002                                              104,682.00
                     Cost of Goods Sold                                                                                     299,174.00
                   Gross Profit                                                                                             165,742.00
                   Operating Expenses:
                     Salary Expense                                                                         60,538.00
                     Advertising Expense                                                                     7,259.00
                     Utilities Expense                                                                       5,895.00
                     Depreciation Expense, Store Equipment                                                   2,731.00
                     Depreciation Expense, Building                                                          2,142.00
                     Insurance Expense                                                                       2,040.00
                     Miscellaneous Expense                                                                     840.00
                     Store Supplies Expense                                                                    620.00
                     Total Operating Expense                                                                                 82,065.00
                   Income From Operations                                                                                    83,677.00
                   Other Income:
                     Membership Dues Revenue                                                                17,000.00
                   Other Expenses:
                     Interest Expense                                                                         770.00
                   Add Net of Other                                                                                          16,230.00
                   Net Income                                                                                           $    99,907.00




                                                                   Page 36 of 45
0acf7028-54b4-45fa-8149-580d8a1cf800.xls                          SOOE (3)                                           Accounting Is Fun!


                                                                 Monty Company
                                                            Statement of Owners' Equity
                                                      For The Year Ended December 31, 2002
                             B. Monty, Capital, January 1, 2002                     $ 214,150.00
                             Additional Investment, January 20, 2002                     1,985.00
                               Total Investment                                                     $   216,135.00
                             Net Income for the year                                    99,907.00
                             Less Withdrawals for the year                              44,200.00
                             Increase in Capital                                                         55,707.00
                             B. Monty, Capital, December 31, 2002                                   $   271,842.00




                                                                 Page 37 of 45
0acf7028-54b4-45fa-8149-580d8a1cf800.xls                              BS Classifications (2)                                                    Accounting Is Fun!



                                                              Balance Sheet Classifications
  Current Assets (Get cash soon)

    Cash and any other assets or resources that are expected to be realized in cash or to be sold or consumed during the normal operating cycle* of the business
      *One year, if the normal operating cycle is less than twelve months
    Listed on balance sheet in the order of liquidity (how quickly can it be converted to cash):
      Cash
      Notes Receivable (Current)
        Written promises to pay the seller/lender the amount due in a period of less than one year
      A/R
      Inventory
      Prepaid items (supplies, prepaid insurance)
  Plant And Equipment
    Long-lived assets that are held for use in the production or sale of other assets or services
      Also called fixed assets
    Order on Balance Sheet:
      Rank according to length of life
      Longest life first
  Current Liabilities (Pay cash soon)
    Debts that will become due within the normal operating cycle of a business
      Usually within one year
    Normally paid from current assets
    Listed on balance sheet in the order they will be paid off:
      Mortgage Payable (current portion)
      N/P (current portion)
      A/P
      Wages payable
      Unearned revenue
  Long-Term Liabilities
    Debts payable over a comparatively long period
      Usually more than one year
    Usually, for sole-proprietorship only LTL:
      Mortgage Payable (LT portion)
      N/P (LT portion)




                                                                          Page 38 of 45
0acf7028-54b4-45fa-8149-580d8a1cf800.xls                              BS (3)                                                   Accounting Is Fun!


                                                              Monty Company
                                                               Balance Sheet
                                                             December 31, 2002
                                               Assets
                     Current Assets:
                       Cash                                                                  $    22,500.00
                       Accounts Receivable                                                         2,140.00
                       Merchandise Inventory                                                     104,682.00
                       Store Supplies                                                                900.00
                       Prepaid Insurance                                                           1,000.00
                         Total Current Assets                                                                 $   131,222.00
                     Plant and Equipment
                       Land                                                                       68,000.00
                       Building                                             $   108,000.00
                       Accumulated Depreciation, Building                        18,742.00        89,258.00
                       Store Equipment                                           36,400.00
                       Accumulated Depreciation, Store Equipment                 14,331.00        22,069.00
                     Total Plant and Equipment                                                                    179,327.00
                     Total Assets                                                                             $   310,549.00
                                            Liabilities
                     Current Liabilities:
                       Accounts Payable                                                           14,650.00
                       Salaries Payable                                                            1,865.00
                       Sales Tax Payable                                                           4,192.00
                       Notes Payable (Current Portion)                                            $1,045.00
                       Unearned Membership Dues                                                   13,000.00
                         Total Current Liabilities                                                                 34,752.00
                     Long-term Liabilities
                       Notes Payable (Long-term Portion)                                                            3,955.00
                     Total Liabilities                                                                            $38,707.00

                                          Owners' Equity
                     B. Monty, Capital                                                                            271,842.00
                     Total Liabilities and Owners' Equity                                                     $   310,549.00




                                                                   Page 39 of 45
0acf7028-54b4-45fa-8149-580d8a1cf800.xls                                       Liquidity (3)                                                      Accounting Is Fun!


                                                    Liquidity                                                                     Monty Company Liquidity
Define Liquidity
 “How quickly an asset can be converted to cash”                                                                      CA =                  $          131,222.00
 The ability of an asset to be quickly turned into cash, either by selling it or by putting it up as security for a
 loan                                                                                                                 CL =                              34,752.00
Why Liquidity:
 Banks want to know if the firm can make its interest payments                                                        CA/CL =                          3.775955341
 Managers want to know if they have enough money to pay the bills and buy assets                                      CA/CL =              $3.78/$1
 Cash is queen! (Cash is king)                                                                                        CA/CL =              $3.78 of CA/$1.00 of CL
Think of Current Assets & Current Liabilities in this way:
 Current assets (CA)                                                                                                  CA - CL =             $           96,470.00
    Get cash soon
 Current liabilities (CL)
    Pay cash soon
Short term cash management measures (liquidity measures):
 Current Ratio = CA/CL                                                                                                Coke CA                       50,000,000.00
    Because of the division, the number can be used to compare with other companies                                   Coke CL                       52,500,000.00
    Portrays a firm’s short-term debt-paying ability                                                                  Coke CA/CL =                           0.95
    Ability to pay current liabilities with current assets
    For every $1 of CL, CA/CL tells you how many dollars of CA you have to pay off the $1 of CL                       Jewelers are Us CA =                 198500
 Working Capital = CA - CL                                                                                            Jewelers are Us CL =                  24060
    A firm’s current assets less its current liabilities                                                              CA/CL =                         8.250207814
    The amount of capital a firm has available to use or to work with during a normal operating cycle




                                                                              Page 40 of 45
0acf7028-54b4-45fa-8149-580d8a1cf800.xls                           GJ (19) (3)                                             Accounting Is Fun!


                                   General Journal                                Page: GL 19
                   Date                        Description                         PR       DR              CR
              2002                          Adjusting Entries
              Dec.    31    Income Summary                                               $120,500.00                   a
                              Merchandise Inventory                                                      $120,500.00

                      31    Merchandise Inventory                                        $104,682.00                   b
                             Income Summary                                                              $104,682.00

                      31    Store Supplies Expense                                              620.00                 c
                              Store Supplies                                                                 620.00

                      31    Insurance Expense                                               2,040.00                   d
                              Prepaid Insurance                                                             2,040.00

                      31    Salary Expense                                                 $1,865.00                   e
                             Salaries Payable                                                              $1,865.00

                      31    Depreciation Expense, Building                                  2,142.00                   f
                             Accumulated Depreciation, Building                                             2,142.00

                      31    Depreciation Expense, Store Equipment                           2,731.00                   g
                             Accumulated Depreciation, Store Equipment                                      2,731.00

                      31    Unearned Membership Dues                                       17,000.00                   h
                             Membership Dues Revenue                                                       17,000.00




                                                                                          251,580.00      251,580.00




                                                                  Page 41 of 45
0acf7028-54b4-45fa-8149-580d8a1cf800.xls                          Closing (2)                                           Accounting Is Fun!


                                                      Closing Entries For Merchandising Co.
                     Step 1 Close all temporary (nominal) accounts with a credit balance (except income summary line)
                              Revenues & contra expenses like purchase discounts
                               Debit nominal accounts
                               Credit income summary
                     Step 2 Close all temporary (nominal) accounts with a debit balance (except income summary line)
                              Expenses & contra revenues like sales discounts
                               Credit nominal accounts
                               Debit income summary
                     Step 3 Close income summary to capital
                     Step 4 Close drawings to capital




                                                                 Page 42 of 45
0acf7028-54b4-45fa-8149-580d8a1cf800.xls                 GJ (20) (3)                                              Accounting Is Fun!


                      General Journal                   Page: GL 20
     Date                         Description            PR            DR        CR                   Income Summary
2002                            Closing Entries                                                     DR              CR
Dec.    31    Sales                                              467,550.00                       $120,500.00     $104,682.00
              Purchases Returns & Allowances                       5,560.00                                        493,781.00
              Purchases Discount                                   3,671.00                        378,056.00
              Membership Dues Revenue                             17,000.00                                        $99,907.00
               Income Summary                                                  493,781.00

        31    Income Summary                                     378,056.00
                Sales Returns & Allowances                                       2,634.00
                Sales Discounts                                                       -
                Purchases                                                      284,719.00
                Freight In                                                       7,868.00
                Salary Expense                                                  60,538.00
                Advertising Expense                                              7,259.00
                Utilities Expense                                                5,895.00
                Miscellaneous Expense                                              840.00
                Interest Expense                                                   770.00
                Store Supplies Expense                                             620.00
                Insurance Expense                                                2,040.00
                Depreciation Expense, Building                                   2,142.00
                Depreciation Expense, Store Equipment                            2,731.00
                                                                                            Increase in Capital
        31    Income Summary                                     $99,907.00                        $55,707.00
                B. Monty, Capital                                              $99,907.00

        31    B. Monty, Capital                                    44,200.00
                B. Monty, Drawing                                               44,200.00




                                                        Page 43 of 45
0acf7028-54b4-45fa-8149-580d8a1cf800.xls                           Reversing Entry (3)                            Accounting Is Fun!


Reversing Entries                                                 Monty Company
What is a Reversing Entry?                                                                                   DR          CR

 You make the reverse journal entry (for certain adjusting
 entries) on the first day of the next period                      Adj. Entry that       Salary Expense      $1,865.00
   Make it easier for the accountant next period                  meets 3 conditions:     Salaries Payable               $1,865.00
   Next period the accountant does not need to worry about
   compound entries for payables and receivables where the
   cash is paid or is received
 The use of reversing entries is optional
Determining Which Adjusting Entries Can Be Reversed:
 Look at all adjusting entries and find entries that meet all 3
 Conditions:
   1) An asset or liability was increased
   2) The asset or liability did not have a previous balance
   3) Entry does not involve merchandise inventory or contra
   accounts
How to Make Reversing Entries
 Date is the first day of the next period
 Just as with Adj. and Clo. Entries, make one header
 (Reversing Entries) instead of individual descriptions
 For the adjusting entries that meet all 3 conditions, make a
 new journal entry with reverse debits and credits
 When you post, don’t forget to write “reversing” in item
 column in the ledger accounts




                                                                     Page 44 of 45
0acf7028-54b4-45fa-8149-580d8a1cf800.xls                            GJ (21) (3)                                                    Accounting Is Fun!



                         General Journal                          Page: GL 21
     Date                            Description                   PR             DR          CR                      Salaries Payable          214
2003                              Reversing Entries                                                                   DR           CR
Jan.    1      Salaries Payable                                     214      $1,865.00                   1/1/2003   1,865.00     1,865.00
                Salary Expense                                      695                      $1,865.00                                -
                                                                                                                                 2,019.33
            13 Salaries Expense                                     695           2,444.71
                FICA Payable                                                                    180.91
                Employees' Fed Income Tax Payable                                               244.47                Salary Expense            695
                Salaries Payable                                    214                       2,019.33                DR          CR
                   Record Payroll from Payroll Register page 46                                          1/1/2003   2,444.71    1,865.00
                                                                                                                      579.71




                                                                  Page 45 of 45

				
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