CHAPTER 3 – ADJUSTING THE ACCOUNTS

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CHAPTER 3 – ADJUSTING THE ACCOUNTS Powered By Docstoc
					Amortization:
 Any asset with an useful life is amortized.
 The process of allocating the cost of an
  asset to expense over its useful life in a
  rational manner.
 Accumulated amortization is a contra
  asset, which helps reduce the value of
  an asset over time. (NBV – Net book
  Value)
 It can only be an estimate because...?
 We are going to look at this in more
  depth later on.
 Right now we will use the most basic
  calculation of amortization:

Historical Cost / useful life = amortization
Brief Exercise:
 3-6, 3-7


Exercise:
 3-6, 3-7
   Now all the accounts can be adjusted
    for what happened during the fiscal
    period, and more accurate statements
    can be created.
                         Pioneer Advertising Agency
                                Trial Balance
                              October 31, 2002
                           Before Adjustment           After Adjustment
                          Debit          Credit       Debit         Credit
Cash                    $ 15,200                    $ 15,200
Accounts Receivable                                      200
Advertising Supplies        2,500                      1,000
Prepaid Insurance             600                        550
Office Equipment            5,000                      5,000
Accumulated Amort'n.                                              $      83
Notes Payable                          $ 5,000                        5,000
Accounts Payable                           2,500                      2,500
Unearned Revenue                           1,200                        800
Salaries Payable                                                      1,200
Interest Payable                                                         25
C.R. Byrd, Capital                        10,000                     10,000
C.R. Byrd, Drawings           500                        500
Service Revenue                           10,000                     10,600
Adv. Supplies Expense                                  1,500
Amortization Expense                                       83
Insurance Expense                                          50
Salaries Expense            4,000                      5,200
Rent Expense                  900                        900
Interest Expense                                           25
                        $ 28,700       $ 28,700     $ 30,208      $ 30,208
               Pioneer Advertising Agency
                   Income Statement
         For the Month Ended October 31, 2002
Revenues
   Service Revenue                        $ 10,600
Expenses
   Adv. Supplies Expense $       1,500
   Amortization Expense             83
   Insurance Expense                50
   Salaries Expense              5,200
   Rent Expense                    900
   Interest Expense                 25
   Total Expenses                            7,758
Net Income                                $ 2,842



               Pioneer Advertising Agency
               Statement of Owner's Equity
         For the Month Ended October 31, 2002
   C.R. Byrd, Capital, October 1           $    -
   Add: Investments                          10,000
        Net income                            2,842
                                             12,842
   Less: Drawings                               500
   C.R. Byrd, Capital, October 31          $ 12,342
                  Pioneer Advertising Agency
                        Balance Sheet
                       October 31, 2002
                           Assets
Cash                                               $ 15,200
Accounts Receivable                                     200
Advertising Supplies                                  1,000
Prepaid Insurance                                       550
Office Equipment                       $   5,000
Less: Accumulated Amortization                83      4,917
     Total Assets                                  $ 21,867

                 Liabilities and Owner's Equity
Liabilities
Notes Payable                                      $   5,000
Accounts Payable                                       2,500
Unearned Revenue                                         800
Salaries Payable                                       1,200
Interest Payable                                          25
  Total Liabilities                                $   9,525
Owner's Equity
C.R. Byrd, Capital                                   12,342
Total Liabilities and Owner's Equity               $ 21,867
Exercise
 3-11, 3-12 (just trial balance)


Problem Set A:
 3-1, 3-5

				
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