This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
PowerPoint Authors:Susan Coomer Galbreath, Ph.D., CPACharles W. Caldwell, D.B.A., CMAJon A. Booker, Ph.D., CPA, CIACynthia J. Rooney, Ph.D., CPA
The income statement summarizes the results of profit-generating activities of the company.
Page 76: Income statement
2 - 12
Current assets: Cash 68,500$ Accounts receivable 2,000$ Less: Allowance for uncollectible accounts 500 1,500 Supplies 1,200 Inventory 38,000 Prepaid rent 22,000 Total current assets 131,200 Property and equipment: Furniture and fixtures 12,000 Less: Accumulated depreciation 200 11,800 Total assets 143,000$
Dress Right Clothing CorporationBalance SheetAt July 31, 2011
Assets
The balance sheet presents the financial position of the company on a particular date.
Page 77: Balance Sheet
2 - 13
Current liabilities: Accounts payable 35,000$ Salaries payable 5,500 Unearned rent revenue 750 Interest payable 333 Note payable 10,000 Total current liabilities 51,583 Long-term liabilities: Note payable 30,000 Shareholders' equity: Common stock 60,000$ Retained earnings 1,417 Total shareholders' equity 61,417 Total liabilities and shareholders' equity 143,000$
Dress Right Clothing CorporationBalance SheetAt July 31, 2011
Liabilities and Shareholders' Equity
Notice that assets of $143,000 equals total liabilities plus shareholders’ equity of $143,000.
Page 77: Balance Sheet
2 - 14
Cash flows from Operating Activities:Cash inflows: From customers 36,500$ From rent 1,000 Cash outflows: For rent (24,000) For supplies (2,000) To suppliers for merchandise (25,000) To employees (5,000) Net cash used by operating activities (18,500)$ Cash flows from Investing Activities: Purchase of furniture and fixtures (12,000) Cash flows from Financing Activities: Issue of capital stock 60,000$ Increase in notes payable 40,000 Payment of cash dividend (1,000) Net cash provided by financing activities 99,000 Net increase in cash 68,500$
Dress Right Clothing CorporationStatement of Cash Flows
For the Month of July 2011
Page 78: Statement of Cash Flows
The statement of cash flows discloses the changes in cash during a period.
2 - 15
The statement of shareholders’ equity presents the changes in permanent
shareholder accounts.
Common Stock
Retained Earnings
Total Shareholders'
EquityBalance at July 1, 2011 -$ -$ -$ Issue of capital stock 60,000 60,000 Net income for July 2011 2,417 2,417 Less: Dividends (1,000) (1,000) Balance at July 31, 2011 60,000$ 1,417$ 61,417$
Dress Right Clothing CorporationStatement of Shareholders' Equity
For the Month of July 2011
Page 79:Statement of Shareholders’ Equity
2 - 16
Temporary Accounts
Revenues
Income Summary
Exp
ense
s
Divid
end
s
Permanent Accounts
Assets
Lia
bili
ties
Sh
areho
lders’
Eq
uity
The closing process applies only to temporary accounts.
The Closing Process (page 79)
2 - 17
Conversion From Cash Basis to Accrual Basis (pages 83-85)
• Read very carefully• Confirm your understanding by working through
Illustration 2-14 on page 85
2 - 18
Appendix 2A: Use of a Worksheet
A worksheet can be used as a tool to facilitate the preparation of adjusting and closing entries and the
financial statements.
Steps to Follow for Worksheet Completion:
1. Enter account titles in column A and the unadjusted account balances in columns B and C.
2. Determine end-of-period adjusting entries and enter them in columns E and G.
3. Add or deduct the effects of the adjusting entries on the account balances and enter in columns H and I.
4. Transfer the temporary retained earnings account balances to columns J and K.
5. Transfer the balances in the permanent accounts to columns L and M.
Let’s look at the completed worksheet for Dress Right.
2 - 19
A B C D E F G H I J K L MWorksheet, Dress Right Clothing Corporation, July 2011
Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.Cash 68,500 68,500 68,500 Accounts receivable 2,000 2,000 2,000
Net income 2,417 2,417 Totals 38,750 38,750 144,700 144,700
Balance SheetUnadjusted Trial
Balance Adjusting Entries Adjusted Trial Balance Income Statement
2 - 20
Appendix 2C: Subsidiary Ledgers
Subsidiary ledgers contain a group of subsidiary accounts associated with particular general ledger control accounts. Subsidiary ledgers are commonly
used for accounts receivable, accounts payable, plant and equipment, and investments.
For example, there will be a subsidiary ledger for accounts receivable that keeps track of the increases
and decreases in the accounts receivable balance for each of the company’s customers purchasing
goods and services on credit.
After all of the postings are made from the appropriate journals, the balance in the accounts receivable control account should equal the sum of
the balances in the accounts receivable subsidiary ledger accounts.
2 - 21
Appendix 2C: Special Journals
Special journals are used to capture the dual effect of repetitive types of transactions in
debit/credit form.
Special journals simplify the recording process in the following ways:
1. Journalizing the effects of a particular transaction is made more efficient through the use of specifically designed formats.
2. Individual transactions are not posted to the general ledger accounts but are accumulated in the special journals and a summary posting is made on a periodic basis.
3. The responsibility for recording journal entries for the repetitive types of transactions is placed on individuals who have specialized training in handling them.
2 - 22
Example of a Special Journal:
Cash receipts journals record all cash receipts, regardless of the source. Every entry in the cash receipts journal
produces a debit to the cash account with the credit to