Introduction to Accounting PDF

‫بسم هللا الرحمن الرحيم‬ 2019-2018 ‫الفرقة األولى بكالريوس دراسات مصرفية ومالية‬ Introduction to Accounting What is accounting Accounting is an information system that identifies, records, and communicates the economic events of an organization to the inter...

‫بسم هللا الرحمن الرحيم‬ 2019-2018 ‫الفرقة األولى بكالريوس دراسات مصرفية ومالية‬ Introduction to Accounting What is accounting Accounting is an information system that identifies, records, and communicates the economic events of an organization to the interested parties. 1- Information system is a system which provide information in accounting reports called financial statements which are the balance sheet, the income statement and the cash flow statement 2- Identify, means to recognize and select the economic activities of a particular organization that are measured in cash units 3- Records means keeping a systematic records of the economic events measured in cash units 4- Communicate means to present the financial information sumerized through the financial statements. 5- Interested parties are those who use the accounting data Who uses accounting Creditors Investors Auditors Management Government Customers Labor Suppliers Generally Accepted Accounting Principles (GAAP) Generally accepted accounting principles are accounting standards that are generally accepted and universally practiced. The standards are recognizes as a guide to how to report the economic events in the financial reports. Cost principle: States that assets should be recorded at their cost at the time of they are acquired. The advantage of this principle is that it is reliable, objective and can be verified. Revenue recognition States that the revenue should be recognized in the accounting period in which it is earned. 1 Matching States that: expenses to be matched with revenues in the period in which efforts are made to generate the revenue. Accounting Assumptions Accounting Assumptions were made when developing the GAAP and they provide a foundation for the accounting process Monetry unit assumption Requires that only transactions data that can be expressed in term of money to be included in the accounting records. This assumption enables accounting to measure the economic event that means the records show only facts that can be expressed in monetary term. An important part of this assumption is that the unit of measure remain contant over the time. Economic entity assumption An economic entity can be any organization but we only consider business entity which either produce or sell goods or services. This assumption requires that for accounting purposes the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities. Going concern assumption Assumes that an entity will continue in operation long enough to carry out its existing objective and commitments. Time preiod assumption States that the economic life of the entity can be divided into time prriods usually one calender year. ‫ـــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــ ـــــــــــــــــــــــــــــــــــ‬ Accounting Profession Financial accountant Record the daily transactions and prepare the financial statements and the related information Government accountant Record the daily transactions and prepare the financial statements of local, state and federal government to provide information to legislators and citizens. Cost accountant Determine the cost of producing specific products Managerial accountant Assists management in quantifying the goals concerning revenues cost of goods sold and operating expenses Tax accountant Prepare tax return and do the tax planning for the company 2 Certified public accountant (Auditor) Who holds an accounting professional certificate, he examine the financial statements of the companies and express an opinion as to the fairness of their presentation to the users. Internal auditor Reviews the company's operations to see if they comply with the management policies and evaluates the efficiency of the operations. Meaning of assets , liabilities and owner's equity Assets are the resources of the entity they are used in carrying out the activities of the entity such production or consumption. All asset have the capacity to provide future services or economic benefit from its use, which results in cash inflow to the entity. There are three types of assets: Fixed assets are tangible assets that have a relatively long life such as land,buildings, cars , machinary, equipments and furniture. The assets are not for trading but are for use by the entity. Currrent assets: are assets the are acquired for trading and that are expected to to be realized in cash or sold or consumed in the business within short period such as cash, inventory (goods held for sale) and receivables. Intangible assets: Nonphysical right such a trademark and copy right. Liabilities Are existing debts and obligations. Current Liabilities The amount owed to creditor for the goods and service provided to the entity to be paid in the short term. Long term liabilities The amount owed to creditor for goods and service provided to the entity to be paid in the long run. Owner's equity Are the resources invested in the entity by the owner. Investment by the owner: Are the assets the owner puts in the entity Revenues Are the gross increase in the owner's equity resulting from business activities entered for the purpose of earning income. 3 Withdrawal by the owner: Are called drawings they occur when the owner withdraw cash or any other assets from the entity. Expenses Are the cost of consumed assets or services used to in the process of earning revenues. Classroom exercise 1- Indicate whether each of the following items is an asset (A) or a liability (L) or a part of owner's equity(OE) --------(a) Account receivable --------(b) Office supplies --------(c) Salaries payable --------(d)Equipment 2- Identify each of the following transaction by the type of owner's equity transaction by marking each as investment (I) withdrawal (W) Revenue (R) expenses (E) or not an owner's equity (NOE) -------1- Received cash for providing services -------2- Took assets for personal use -------3- transferred personal assets to the business -------4- Paid cash for Benzene for the owner's car -------5- provide service and received from the customer a promise of payment -------6- Received cash from the customer in 5 above Basic accounting equation The two basic elements of any business are First:what it owns that is the resources which are called assets Second what it owes that is the claims of others (liabilities) and the rights of the owner ( owner's equity) What the entity owns = What the entity owes Resource = The claims of others + Rights of the owner The relation between the assets and the liabilities and the owner's equity can be expressed as an equation as follows: Assets = liabilities + owner's equity Assets must equal the sum of liabilities and owner's equity because: 4 Owner provides Economic Resources Buy Assets Creditor provide Omer open a shop he put 100,000 SDG cash as capital and bought good for the shop for 150,000 SDG he paid 100,000 SDG and the rest on credit that is he will pay after 6 month Goods 150,000 Capital 100,000 Creditor 50,000 Assets (goods) = Liabilities (creditor) + Owner's equity(capital) 150,000 = 50,000 + 100,000 Classroom exercise Presented below is the basic accounting equation. Determine the missing amounts Assets = Liabilities + Owner's equity a) 80,000 = 50,000? + b) ? = 45,000 + 70,000 c) 94,000 = ? + 62,000 Transactions Analysis Transaction: are the economic events of an entity that affect the finacial position of the entity and has to be recorded by the entity. There are external transactions which involve economic events between the entity and some outside the entity and internal transaction which involve economic events that occur within the entity. Each economic event has to be analyzed to see if it affects the financial position that is the component of the accounting equation which means the asset or liability or the owner's equity are affected. Example: Events Purchase a car Answer the phone pay the rent Criterion Is the financial position (the assets, liability and Owner's equity) changed? Record( yes or no) yes record no don’t record yes record 5 Service Entity Order the service Perform the service pay the cash Don't record Record Record Trading entity Order the goods deliver the goods pay the cash Don't record Record Record Accounting Cycle Transaction Analysis Recording Communication (1) Identification A - Analysis B - Effect on the basic equation C - Debit and Credit (2) Recording process Journalizing Posting to accounts Summarizing (3) Communication Income statement Balance Sheet Application of the accounting Cycle (1) Identification A -Analysis B - Effect on the basic equation C - Debit and Credit Any transaction that affect the financial position have increased or decreased the main components of the equation that is Assets, Liabilities and owners equity. The debit and credit account have to be determined to finish the first part of the accounting cycle 6 Any transaction as seen before affect the different components of the basic accounting equation but do not disturb the balance of the equation. Once the transaction affected the financial position it should be recorded in the accounting books. The two important questions are: How transactions which affect the financial position are recorded. Where do we record? Accounting books and double Entry System: We record in accounting books using the double entry system. The accounting books are the journal and the ledger. (1) Journalizing Journalizing is recording the transaction data in the journal. To record in the journal we use a system based on the accounting basic equation is called the double entry system which is based on the equality of the debit and credit that is every transaction is recorded with equal debits and credits. The fundamental rule of the double entry system is: The journal is the book of original entry. A complete entry consist of: First the date in the first column. Second the title of the accounts affected by the transaction with an explanation of the type of transaction. Third we enter in the third column the reference that is the number of of the account to which the entry is posted so we leave it empty until the posting phase. Fourth during the identification process we decided the debit and credit accounts in the transaction. We record the amount of the debit accounts in the debit column and we record the amount of the credit accounts in the credit column. Therefore the journal shows the debit and credit effect of each transaction Debit Credit theory 1. Assets normally have debit balance , in case of increasing will remain debit , in case of decreasing will become credit. 2. liabilities normally have credit balance , in case of increasing will remain credit , in case of decreasing will become debit. 3. Owners equity (Capital) normally have credit balance , in case of increasing will remain credit , in case of decreasing will become debit. 4. Expenses normally have debit balance 5. Revenue normally have credit balance 7 Example (1) : Record the following transactions in the Journal Transaction (1) : Beginning of the entity Nur decided to open a computer programming services which he named Soft- byte. On March 1st 2017 he invested SDG 15,000. Debit and Credit : In transaction (1) the Cash increased by SDG 15,000 so it is Debit Nur Capital increased by SDG 15,000 so it is Credit. Transaction (2) : Purchase equipment for cash Soft-byte purchased a computer SDG 7,000 cash Debit and Credit : The equipment increased by 7,000 so it is debit the cash decreased by 7,000 so it is credit Transaction (3) : Purchase supplies on credit Soft-byte purchase supplies paper for SDG 1,600 from Marwa Book shop Marwa bookshop agreed that soft-byte pay the bill next month. Debit and Credit : The supplies increased so it is debit and the account payable increased supplies so it is credit Transaction (4) : Services provided for cash Soft-byte received SDG 1,200 cash from customer for a programming services it has provided. Debit and Credit : The cash increased by 1,200, so it is debit the owner's equity increased by the revnue 1,200 so it is credit Transaction (5) : Purchase of advertising on credit Soft-byte received a bill of SDG 250 from Al-Sahafa newspaper for advertising Al-Sahafa newspaper agreed that soft-byte pay the bill later. Debit and Credit : 1 The owner's equity decreased by the expenses so it is debit and the account payable increased it is credit Transaction (6) : Service provided for cash and credit Soft-byte provide programming services for customers by SDG 3,500. Soft-byte received SDG 1,500 cash and the rest was billed on account to the customers. Debit and Credit : The cash increased by 1,500 so it is debit a the account receivable also increased by 2,000 so it is debit the owner equity increased by 3,500 so it is credit Transaction (7) : Payment of expenses At the end of the month Soft-byte paid expenses in cash : SDG 600 rent , SDG 900 salaries for the employees , SDG 200 for electricity. Debit and Credit : expenses normally debit the cash decreased by the money so it is credit Transaction (8) : Payment of account payable Soft-byte pays the SDG 250 to Al-Sahfa the advertising bill. Debit and Credit : the account payable decreased by 250 so it is debit the cash decreased by 250 so it is credit Transaction (9) : Receipt of cash on account The sum of SDG 600 was received from customers who were previously bill for service in transaction (6). Debit and Credit : The cash increased by SDG 600 so it is debit while the account receivable decreased by the money so it is Credit Transaction (10) : Withdrawal of cash by the owner Nur withdraw SDG 1,300 cash from the entity for his personal use. Debit and Credit : the owner equity decreased by SDG 1,300 cash so the owner's equity is debit 2 while the cash decreased by the money so it is credit. Accounting Journal Date Account title and explanation Ref. Debit Credit 1/3/2017 Cash 15,000 Nur capital 15,000 Investment by the owner 6/3/2017 Equipment 7,000 Cash 7,000 Purchase of equipment cash 8/3/2017 Supplies 1,600 Account payable 1,600 Purchase paper and office supplies 12/3/2017 Cash 1,200 Revenues 1,200 Revenues received cash for programming services 15/3/2017 Advertising expenses 250 Account payable 250 Advertising expenses on account 17/3/2017 Cash 1,500 Account receivable 2,000 Revenues 3,500 Revenues received cash And on account 18/3/2017 Rent 600 Salaries 900 Electricity 200 Cash 1,700 Cash payment of rent, salaries and electricity 20/3/2017 Account payable 250 Cash 250 Payment to El-sahfa newspaper for advertising 24/3/2017 Cash 600 Account receivable 600 Cash payment from a customer 31/3/2017 Withdrawal 1,300 Cash 1,300 Owner withdraw cash for his personal use It is important to use correct and specific account titles in Journalizing if the entry involves only two accounts one debit and one credit it is considered a simple entry. 3 When the entry require three or more accounts it is referred to as a compound entry see for example the entries of 17/3/2017 and the 18/3/2017 Example (2) : After graduation Salah opened a veterinary clinic called it V.C. He began his practice from the first of February 2017 February 1 Salah deposited SDG 2,000 in the account of the practice in the bank February 3 paid SDG 300 cash for two month rent. February 9 purchased medical supplies for SDG 200 cash February 12 purchase equipment for SDG 400 paid cash SDG 100 and the rest on credit. February 15 delivered a calf for a fee of SDG 35 February 18 paid partial payment to of SDG 50 on the equipment purchased on February 12 February 28 paid cash SDG 40 for electricity bill. Required: Record the above entries in the Journal Accounting Journal Date Account title and Reference Debit Credit explanation 1/2/2017 Cash 2,000 Capital 2,000 Salah deposit 2000d. in the clinic bank account 3/2/2017 Prepaid rent 300 Cash 300 Paid cash two month rent 9/2/2017 Medical supplies 200 Cash 200 Purchase medical supplies 12/2/2017 Equipment 400 Account payable 300 Cash 100 Purchase of equipment 15/2/2017 Cash 35 Delivery revenue 35 Collect cash for delivery of calf 18/2/2017 Account payable 50 Cash 50 Partial payment for equipment 27/2/2017 Electricity expenses 40 Cash 40 4  Payment of electricity bill Example (3): Nader opened a dry cleaning Shop he named NC on April 2018. During the first month the following transactions took place: april 1 invested SDG 20,000 in the business april 2 Purchased Washer and dryers for SDG 25,000 paying SDG 10,000 cash and signed a SDG 15,000 6 month note payable april 3 Paid SDG 1,200 for one year insurance policy april 4 received a bill for SDG 200 from Alsahfa newspaper for advertising the opening of business. april 10- Withdrew SDG 700 cash for personal use april 29 Paid SDG 1,000 cash for store rent for the month of april april 31 Total cash received for performing laundry services for the month of april was SDG 6,200 cash. Required: Journalize March transactions Accounting Journal Date Account title and explanation Reference Debit Credit 1/3/2017 Cash 101 20,000 Jalal Capital 301 20,000 Owner investment SDG 20,000 cash 2/3/2017 Laundry equipment 110 25,000 Cash 101 10,000 Notes Payable 201 15,000 Purchase equipment for cash and note payable 3/3/2017 Prepaid insurance 130 1,200 Cash 101 1,200 Paid one year insurance policy 4/3/2017 Advertising expenses 410 200 Account payable 201 200 Received a bill from Alsahfa for advertising 10/3/2017 Jalal Withdrawal 410 700 Cash 101 700 Withdraw cash for personal use 29/3/2017 Rent Expenses 420 1,000 Cash 101 1,000 Paid September rent 31/3/2017 Cash 101 6,200 Service Revenue 501 6,200 5 Received revenue for services performed 6 Ledger: The ledger is the principle book of accounts can be a paper a card or a computer file. The ledger contains a number of accounts for assets, liabilities, owner's equity, revenues and expenses in which there is kept all changes in the specific account. Each account is kept separate in an individual account and the ledger should be arranged in the order in which the accounts are presented in the financial statements beginning with the assets then the liabilities and the owner's equity and lastly the revenues and expenses. An account is an individual accounting record of the increases and the decreases (changes) in assets, liabilities, owner's equity, revenues and expenses the results from the transaction that were recorded in the journal Where the sum of all debits must equal the sum of all credit. The account resembles a T shape the left side is the debit and the right side is the credit and at the end of a certain period we calculate the balance which is a summary of all transactions which affected the account this apply to all accounts and this the form we will use. There is another form called the three column form seen below in which there is the debit column and the credit column and the balance column which is calculated after each transaction. Types of accounts Types of Accounts Examples Real accounts Equipment, buildings, land... Personal accounts Account receivable and account payable Nominal accounts Expenses and revenue The recording in the accounts is carried out by a procedure called Posting which is the procedure of transferring the journal entries to the accounts in the ledger. Posting involves 1- Writing the date and the reference which the journal page where the transaction was recorded 2- In the ledger in the appropriate account enter in the debit column the amount debited in the journal 3-In the ledger in the appropriate account enter in the credit column the amount credited in the journal 4- Now we return to the journal write the page number of the accounts to which the transaction was posted Chart of accounts Chart of accounts is a list of all the accounts of the entity each account has a number that identify its location in the ledger. The numbering system use to identify the accounts usually starts with the balance sheet accounts and then the income statement accounts. Example of chart of accounts: Soft-byte Chart of accounts 1 Balance sheet accounts: Assets Liabilities Owner's Equity Cash 101 Account payable 201 Capital 301 Account receivable 110 Drawings 310 Supplies 120 Equipment 125 Income statement accounts: Expenses Revenues Advertising 401 Programming services 501 Rent 402 Salaries 403 Electricity 404 Balance of the account: The balance of an account is the difference between the total of debit side of the account and the total of the credit side of the account. The balance appears on the side with smaller amount so it balances the account so the two sides are equal. The balance is carried down Trial Balance Trial Balance is a list of accounts and their balances at a given time usually it is the end of the accounting period. The accounts are listed in the order in which they appear in the ledger debit balances are listed in the left column and the credit balances are listed in the right column. The main purpose of the trail balance is to prove (check) that all debit balances are equal to the credit balances after posting all the transaction from the journal. If the debit balances are not equal to the credit balances there is an error in journalizing or posting. Another Purpose of the trial balance helps in preparing the Financial statements. The steps in preparing the trial balance: 1- List all accounts in the ledger and their balances 2- Total the debit and credit column 3- Prove the equality of the two columns Limitation of trial balance: The trial balance is a necessary check point for uncovering certain types of mistakes or errors before preparing the financial statements as was mentioned above. The trial balance does not prove that all transactions have been recorded or that the ledger is correct. Errors may exist although the trial balance sides are equal such errors can be: 1- The transaction is not journalized 2- A correct journal entry was not posted 3- A journal entry is posted twice 4- in correct accounts were used in journalizing or posting 2 5- Off setting errors are made when recording the amount of the transaction. Accounting Journal Date Account title and explanation Ref. Debit Credit 1/1/2017 Cash 15,000 Nur capital 15,000 Investment by the owner 6/1/2017 Equipment 7,000 Cash 7,000 Purchase of equipment cash 8/1/2017 Supplies 1,600 Account payable 1,600 Purchase office supplies 12/1/2017 Cash 1,200 Revenues 1,200 Revenues received cash 15/1/2017 Advertising expenses 250 Account payable 250 Advertising expenses on account 17/1/2017 Cash 1,500 Account receivable 2,000 Revenues 3,500 Revenues received cash And on account 18/1/2017 Rent 600 Salaries 900 Electricity 200 Cash 1,700 Cash payment of rent, salaries and electricity 20/1/2017 Account payable 250 Cash 250 Payment to El-sahfa newspaper for advertising 24/1/2017 Cash 600 Account receivable 600 Cash payment from a customer 31/1/2017 Withdrawal 1,300 Cash 1,300 Owner withdraw cash for his personal use Required: Post the following journals to ledger accounts, and prepare the trial balance Soft-byte ledger No 101 Cash 3 Date Explanation Ref Debit Date Explanation Ref Credit 1/1/2017 Capital J1 15,000 6/1/2017 Equipment J1 7,000 12/1/2017 Revenues J1 1,200 18/1/2017 Rent J1 600 17/1/2017 Revenues J1 1,500 18/1/2017 Salaries J1 900 24/1/2017 Account J1 600 18/1/2017 Electricity J1 200 receivable 20/1/2017 Account J1 250 payable 31/1/2017 Withdrawal J1 1300 Balance 8,050 carried down Total 18,300 Total 18,300 Balance brought 8,050 down No 110 Account Receivable Date Explanation Ref Debit Date Explanation Ref Credit 17/1/2017 Revenue J1 2,000 24/1/2017 Cash J1 600 Balance 1,400 carried down Total 2,000 Total 2,000 Balance brought 1400 down 110 Supplies Date Explanation Ref Debit Date Explanation Ref Credit 8/1/2017 Account payable J1 1,600 Balance 1,600 carried down Total 1,600 Total 1,600 Balance brought 1,600 down 125 Equipment Date Explanation Ref Debit Date Explanation Ref Credit 6/1/2017 Cash 7,000 Balance 7,000 carried down Total 7,000 Total 7,000 Balance brought 7,000 down 201 Account Payable Date Explanation Ref debit Date Explanation Ref Credit 20/1/2017 Cash 250 8/1/2017 Supplies J1 1,600 4  Balance carried 1600 15/1/2017 Advertising 250 down Total 1,600 Total 1,600 Balance 1,600 brought down 301 Nur Capital Date Explanation Ref debit Date Explanation Ref Credit Balance carried 15,000 1/1/2017 Cash J1 15,000 down Total 15,000 Total 15,000 Balance 15,000 brought down 310 Drawing Date Explanation Ref Debit Date Explanation Ref Credit 31/1/2017 Cash J1 1,300 Balance 1,300 carried down Total 1,300 Total 1,300 Balance brought 1,300 down 401 Advertising Expenses Date Explanation Ref Debit Date Explanation Ref Credit 15/1/2017 Account payable J1 250 Balance 250 carried down Total 250 Total 250 Balance brought 250 down 402 Rent Date Explanation Ref Debit Date Explanation Ref Credit 18/1/2017 Cash J1 600 Balance 600 carried down Total 600 Total 600 Balance brought 600 down 403 Salaries Date Explanation Ref Debit Date Explanation Ref Credit 5  18/1/2017 Cash JI 900 Balance 900 carried down Total 900 Total 900 Balance brought 900 down 404 Electricity Date Explanation Ref debit Date Explanation Ref Credit 18/1/2017 Cash J1 200 Balance 200 carried down Total 200 Total 200 Balance brought 200 down 401 Revenues ( Programming services) Date Explanation Ref debit Date Explanation Ref Credit 12/1/2017 Cash J1 1,200 Balance carried 4,700 17/1/2017 Cash and 3,500 down receivable Total 4,700 Total 4,700 Balance 4,700 brought down Soft-byte Trial Balance 31/12/2017 Names of accounts Debit Credit Cash 8,050 Account receivable 1,400 Supplies 1,600 Equipment 7,000 Account payable 1,600 Capital 15,000 Drawing 1,300 Advertising expenses 250 Salaries 900 Electricity 200 Rent 600 Revenues 4,700 Total 21,300 21,300 Example (2) : 6 Required: Post the following journals to ledger accounts, and prepare the trial balance Accounting Journal V.C. Date Account title and Reference Debit Credit explanation 1/2/2017 Cash 2,000 Capital 2,000 Salah deposit SDG 2,000 in the clinic bank account 3/2/2017 Prepaid rent 300 Cash 300 Paid cash two month rent 9/2/2017 Medical supplies 200 Cash 200 Purchase medical supplies 12/2/2017 Equipment 400 Account payable 300 Cash 100 Purchase of equipment 15/2/2017 Cash 35 Delivery revenue 35 Collect cash for service 18/2/2017 Account payable 50 Cash 50 Partial payment for equipment 27/2/2017 Electricity expenses 40 Cash 40 Payment of electricity bill No 101 Cash Date Explanation Ref Debit Date Explanation Ref Credit 1/2/2017 Capital J1 2,000 3/2/2017 Prepaid rent J1 300 15/2/2017 Delivery revenue J1 35 9/2/2017 M. supplies J1 200 J1 12/2/2017 Equipment J1 100 18/2/2017 A. Payable J1 50 31/2/2017 Electricity J1 40 Balance 1,345 carried down Total 2,035 Total 2035 Balance brought 1,345 down No 110 Medical Supplies 7 Date Ref Debit Date Explanation Ref Credit 9/2/2017 Cash J1 200 Balance 200 carried down Total 200 Total 200 Balance brought 200 down 125 Equipment Date Explanation Ref Debit Date Explanation Ref Credit 12/2/2017 Cash and 400 Balance 400 Receivable carried down Total 400 Total 400 Balance brought down 400 201 Prepaid rent Date Explanation Ref Debit Date Explanation Ref Credit Cash 300 8/2/2017 Balance J1 300 carried down Total 300 Total 300 Balance brought 300 down 301 Account Payable Date Explanation Ref Debit Date Explanation Ref Credit 18/2/2017 Cash 50 12/2/2017 Equipment 300 down Balance 250 carried Total 300 Total 300 Balance 250 brought down 310 Electricity Date Explanation Ref Debit Date Explanation Ref Credit 28/2/2017 Cash J1 40 Balance 40 carried down Total 40 Total 40 Balance brought down 40 Delivery Revenue 8 Date Explanation Ref Debit Date Explanation Ref Credit 18/2/2017 Balance carried J1 35 Cash 35 down Total 35 Total 35 35 Balance brought down Capital Date Explanation Ref Debit Date Explanation Ref Credit Balance carried 2,000 1/2/2017 Cash 2,000 down Total 2,000 Total Balance 2,000 brought down Salah VC clinic Trial Balance 28/2/2017 Names of accounts Debit Credit Cash 1,345 Medical Supplies 200 Equipment 400 Account payable 250 Capital 2,000 Electricity 40 Prepaid Rent 300 Delivery Revenues 35 Total 2,285 2,285 Example (3): 9 Required: Post the following journals to ledger accounts, and prepare the trial balance Accounting Journal Date Account title and explanation Reference Debit Credit 1/3/2017 Cash 101 20,000 Jalal Capital 301 20,000 Owner investment SDG 20,000 cash 2/3/2017 Laundry equipment 110 25,000 Cash 101 10,000 Notes Payable 201 15,000 Purchase equipment for cash and note payable 3/3/2017 Prepaid insurance 130 1,200 Cash 101 1,200 Paid one year insurance policy 4/3/2017 Advertising expenses 410 200 Account payable 201 200 Received a bill from Alsahfa for advertising 10/3/2017 Jalal Withdrawal 410 700 Cash 101 700 Withdraw cash for personal use 29/3/2017 Rent Expenses 420 1,000 Cash 101 1,000 Paid September rent 31/3/2017 Cash 101 6,200 Service Revenue 501 6,200 Received revenue for services performed No 101 Cash Date Explanation Ref Debit Date Explanation Ref Credit 1/3/2017 Capital J1 20,000 2/3/2017 Equipment J1 10,000 31/3/2017 Service revenue J1 6,200 3/3/2017 Prepaid J1 1,200 insurance 10/3/2017 Jalal Drawing J1 700 Rent J1 1,000 Balance c\d 13,300 Total 26,200 Total 26,200 Balance b\d 13,300 No 110 Laundry Equipment 10 Date Ref Debit Date Explanation Ref Credit 2/3/2017 Cash and N.. Payable J1 25,000 Balance c\d 25,000 Total 25,000 Total 25,000 Balance b\d 25,000 130 Prepaid Insurance Date Explanation Ref Debit Date Explanation Ref Credit 12/3/2017 Cash J1 1,200 Balance c\d 1,200 Total 1,200 Total 1,200 Balance b\d 1,200 201 Account Payable Date Explanation Ref Debit Date Explanation Ref Credit Balance c\d 200 4/3/2017 Advertising J1 200 Total 200 Total 200 Balance b\d 200 210 Notes Payable Date Explanation Ref Debit Date Explanation Ref Credit Balance c\d 15,000 2/3/2017 Equipment J1 15,000 Total 15000 Total 15,000 Balance b\d 15,000 401 Advertising Date Explanation Ref Debit Date Explanation Ref Credit 4/3/2017 Account payable 200 Balance c\d 200 Total 200 Total 200 Balance b\d 200 520 Rent Date Explanation Ref Debit Date Explanation Ref Credit 29/3/2017 Cash J1 1,000 Balance c\d 1,000 Total 1,000 Total 1,000 Balance b\d 1,000 510 Drawing Date Explanation Ref Debit Date Explanation Ref Credit 10/3/2017 Cash J1 700 Balance c\d 700 Total 700 Total 700 Balance b\d 700 No 501 Capital 11 Date Explanation Ref Debit Date Explanation Ref Credit Balance c\d 20,000 1/3/2017 Cash J1 20,000 Total 20,000 Total 20,000 Balance b\d 20,000 No 501 Laundry Revenues Date Ref Debit Date Explanation Ref Credit 2/3/2017 Balance 6,200 31/3/2017 Cash J1 6,200 Total 6,200 Total 6,200 Balance b\d 6,200 Trial Balance Names of accounts Debit Credit Cash 13,300 Equipment 25,000 Prepaid insurance 1,200 Account payable 200 Notes Payable 15,000 Advertising expenses 200 Rent 1,000 Withdrawal 700 Capital 20,000 Service Revenues 6,200 Total 41,400 41,400 12 Financial statements Financial statements are the final product of the accounting process and they are the means of communicating information to the users. They are prepared from the summarized accounting data. The company law of 1925 require companies to keep accounting books and produce financial statement at least once a year. There are four important financial statements: 1- Balance sheet 2- Income statement 3- Owner's equity statement 4- Cash flow statement Income statement Is a financial statement that summarizes the amount of revenue earned and the expenses incurred over the accounting period. This statement main purpose is to measure the profit or loss of the entity that is if it succeeded and has a profit or failed has a loss. This statement can be in the form of a T account and is called profit and loss account, it contain the same information. Example : From the following trial balance prepare the income statement at the end of January 2017 Soft-byte Trial Balance 31/1/2017 Names of accounts Debit Credit Cash 8,050 Account receivable 1,400 Supplies 1,600 Equipment 7,000 Account payable 1,600 Capital 15,000 Drawing 1,300 Advertising expenses 250 Salaries 900 Electricity 200 Rent 600 Revenues 4,700 Total 21,300 21,300 1  Soft-byte Income Statement For the month ended January 31, 2017 Revenues Programming services 4,700(1200+3500) Expenses Advertising 250 Rent 600 Salaries 900 Electricity 200 (1,950) Net income 2,750 Profit & Loss Account For the month ended January 31, 2017 Expenses Revenue Advertising 250 Programming services 4,700 Rent 600 Salaries 900 Electricity 200 Net profit 2,750 Total 4,700 Total 4,700 Balance Sheet Is a financial statement that shows the financial position of an entity at a certain date. The balance sheet present assets that is equal to liabilities and owner equity. The balance sheet is in the shape of a T account that shows the assets on one side and the claims (liabilities and owner's equity) on the other side. It is call also a statement of financial position in which the assets are listed first and the liabilities and the owner's equity below. Example: From the following trial balance prepare the income statement at the end of January 2017 2  Soft-byte Trial Balance 31/1/2017 Name of account Debit Credit Cash 8,050 Account receivable 1,400 Supplies 1,600 Equipment 7,000 Account payable 1,600 Capital 15,000 Drawing 1,300 Advertising expenses 250 Salaries 900 Electricity 200 Rent 600 Revenues 4,700 Total 21,300 21,300 Soft-byte Balance sheet January, 31 2017 Assets Liabilities & owner equity Equipment 7,000 Owner' equity Supplies 1,600 Nur's capital 16,450 (15000-1300+2750) Account receivable 1,400 Cash 8,050 Account payable 1,600 Total 18,050 Total 18,050 Soft- byte Statement of Financial Position January, 31 2017 Assets Equipment 7,000 Supplies 1,600 Account receivable 1,400 Cash 8,050 Total 18,050 Owner's equity 16,450 Liabilities Account payable 1,400 Total 18,05 3 Example From the following trial balance prepare: 1. The income statement and profit and loss account at the end of February 2017 2. Balance sheet and statement of financial position as at 28 February 2017 Salah VC clinic Trial Balance 28/2/2017 Names of accounts Debit Credit Cash 1,345 Medical Supplies 200 Equipment 400 Account payable 250 Capital 2,000 Electricity 40 Prepaid Rent 300 Revenues 35 Total 2,285 2,285 Salah VC clinic Income Statement For the month ended February 28, 2017 Revenue 35 Expenses Electricity 40 Net loss (5) Salah VC clinic Profit & Loss Account For the month ended February 28, 2017 Expenses Revenue Electricity 40 Revenue 35 Net loss 5 Total 40 Total 40 Salah VC clinic Balance sheet February, 28 2017 Assets Liabilities & owner equity Equipment 400 Owner' equity Medical Supplies 200 Capital 2,000 Prepaid Rent 300 - Loss (5) Cash 1,345 Account payable 250 Total 2,245 Total 2,245 4  Salah VC clinic Statement of Financial Position February, 28 2017 Assets Equipment 400 Medical Supplies 200 Prepaid Rent 300 Cash 1,345 Total 2,245 Owner's equity Capital 2,000 - Loss (5) Liabilities Account payable 250 Total 2,245 Example From the following trial balance prepare 1. The income statement and profit and loss account at the end of March 2017 2. Balance sheet and statement of financial position as at 31 March 2017 Jalal DC Trial Balance 31/3/2017 Names of accounts Debit Credit Cash 13,300 Equipment 25,000 Prepaid insurance 1,200 Account payable 200 Notes Payable 15,000 Advertising expenses 200 Rent 1,000 Withdrawal 700 Capital 20,000 Service Revenues 6,200 Total 41,400 41,400 5  Jalal DC Income Statement For the month ended March 31, 2017 Revenues Services Revenue 6,200 Expenses Advertising expenses 200 Rent 1,000 (1,200) Net income 5,000 Jalal DC Profit & Loss Account For the month ended March 31, 2017 Expenses Revenue Advertising expenses 200 Services Revenue 6,200 Rent 1,000 Net profit 5,000 Total 6,200 Total 6,200 Jalal DC Balance sheet March, 31 2017 Assets Liabilities & owner equity Equipment 25,000 Owner' equity Prepaid insurance 1,200 Capital 20,000 Cash 13,300 Net income 5,000 Withdrawal (700) Liabilities Account payable 200 Notes payable 15,000 Total 39,500 Total 39,500 6  Jalal DC Statement of Financial Position March, 31 2017 Assets Equipment 25,000 Prepaid insurance 1,200 Cash 13,300 Total 39,500 Owner's equity Capital 20,000 Net income 5,000 Withdrawal (700) 24,300 Liabilities Account payable 200 Notes payable 15,000 15,200 Total 39,500 Homework exercise Sara graduated from Law school University of Khartoum and set up her own law practice In December, 31, 2017. The following transactions were completed during the month of January: 1-To establish the practice Sara invested in the entity by placing SDG 2,000 in a bank account. 2- Purchased Law library for SDG 900 cash 3- Employed a secretary for SDG 600 per month 4- Purchased office supplies from Sudan bookshop for SDG 400 on credit 5- A client paid SDG 500 for completing a contract 6- Sent a bill to clients for legal services with the amount of SDG 1,950 7- Paid to Sudan bookshop half of the amount owed for office supplies 8- Received SDG 1,250 from the client previously billed (No.5) 9- Paid rent for SDG 200 electricity for SDG 400 secretary salary SDG 600 10- Withdraw SDG 400 cash for personal use. Required: 1. Prepare journal entries to record the above transactions 2. Post journal entries to ledger accounts 3. Prepare trial balance as at 31/12/2017 4. Prepare income statement for the month ended at 31/12/2017 5. Prepare profit and loss account for the month ended at 31/12/2017 6. Prepare balance sheet as at 31/3/2017 7. Prepare statement of financial position as at 31/12/2017 7 Adjusting The Accounts Adjusting the accounts Timing issues Basic of adjusting entry Adjusted trial balance and financial statement  Timing issues Time period assumption Accrual -vs cash basis Recognizing revenues and expenses  Time period assumption No adjustment would be necessary if we could wait to prepare the financial statements until the entity finishes its operation. Time period assumption states that the economic life of the entity can be divided into time periods called accounting period. According to this assumption the net income of any accounting period must be the result of the revenues of that period less the expenses of the same period. The accounting period is called the fiscal year. Most of the accounting entities use the calendar year that begin in January and end in December as their fiscal year Accrual -vs cash basis Under the accrual basis the transactions that change an entity financial statements are recorded in the period in which the event occur. Example: using the accrual basis to determine the income means recognizing the revenue when earned or when the service is performed therefore recorded. It also means the expenses are recognized when they are incurred and therefore recorded. Under the Cash basis revenue are recorded only when the cash is received and the expenses are recorded when the cash is paid. The cash basis is not in accordance with the generally accepted accounting principles so most companies use the accrual basis while only small companies with often few account payable and receivable use cash basis. Recognizing revenues and expenses An important principle Revenue recognition states that the revenue should be recognized in the accounting period in which it is earned or at the time the service is performed. Under this principle in Soft byte example , when the programming services was performed for SDG 3,500 the customer paid only SDG 1,500 cash and did not pay the rest of the amount but the whole revenue was recorded and not when the rest of the cash was paid.  Basic Adjusting entries In order for the revenue to be recorded in the period in which they are earned and the expenses to be recognizes in the period in which they are incurred, adjusting entries has to be made at the end of the accounting period. Adjusting entries are needed to ensure the revenue recognition and matching principle is followed.  The balances in the trial balance may not contain up- to-date and complete data because: 1.Some event are not journalizes daily because it is inexpedient to do so, for example the office supplies 2.Some expenses are not journalizes during the period because they expire with the passage of time for example rent insurance 3.Some items may be unrecorded for example a telephone bill which will not be received until the next accounting period ❖The adjusting entries are need every time financial statement is prepared. ❖The starting point is an analysis of each account in the trial balance to determine whether it is complete and up-to-date. ❖The analysis requires a thorough understanding of the company's operation and the interrelationship between the accounts. ❖It also requires inventory, supplies and spare part count, require making schedules of insurance policies, rental agreement and other contractual agreement.  Types of adjusting entries The adjusting entries are classified either as prepayments or accruals: (i)Prepayments 1. Prepaid expenses are expenses paid in cash and recorded as assets before they are used or consumed 2. Unearned revenues are cash received and recorded as liabilities before there venue is earned. (ii) Accruals 1. Accrued expenses are expenses incurred, but not yet paid in cash or recorded. 2. Accrued revenues are earned revenue, but not paid in cash or recorded.  Types of adjusting entries The adjusting entries are classified either as prepayments or accruals: (i)Prepayments 1. Prepaid expenses are expenses paid in cash and recorded as assets before they are used or consumed 2. Unearned revenues are cash received and recorded as liabilities before there venue is earned. (ii) Accruals 1. Accrued expenses are expenses incurred, but not yet paid in cash or recorded. 2. Accrued revenues are earned revenue, but not paid in cash or recorded.  A adjusting entries for prepayments Prepayment are either prepaid expenses or unearned revenue, the adjusting entry require to record the part of the prepayment that represent the expenses incurred or the revenue earned in the current accounting period. If the analysis showed the need of adjustment, that means the assets and the liabilities are overstated and the expenses and revenue are understated.  Prepaid expenses Prepaid expenses are expenses paid in cash and recorded as assets before they are used or consumed. When the cost was paid an asset account is debited to show that the service or the benefit will be received in future. Prepayment often occurs in regard of insurance, supplies advertising and rent. Prepaid expense expires either with the passage of time for example rent and insurance or by consumption like supplies. The expiration of the prepaid expenses does not need an entry; an adjustment is made at the end of the year for two purposes: ❖First to record the expenses that applies to the current accounting period. ❖ Second: To show the unexpired cost in the asset account. Before the adjustment entry , the asset is overstated and the expense is understated, but the if adjusting entry is made, it results in debiting (increase) the expense and crediting (decrease) the asset account.  Example: Supplies can be medical supplies or office supplies or art supplies. When office supplies were purchased 10/6/2017 for SDG 1,200 cash the entry will be: Date Account title and Referenc Debit Credit explanation e 10/6/2017 Office supplies 1,200 110 Cash 101 1,200 Purchase office supplies On the 31/12/2017, the trial balance shows balance of office supplies on the debit column SDG 1,200. An inventory count showed that only office supplies SDG 300 are still remained. Thus the cost of supplies used is SDG 900 (1200-300). The adjusting entry will be: Date Account title and explanation Reference Debit Credit 31/6/2017 Office supplies expenses 420 900 Office supplies 110 Record supplies used 900  420 Office supplies expenses Date Explanatio Ref Debit Date Explanation Ref Credit n 31/12/201 Office 900 Balance 900 7 supplies carried down Total 900 Total 900 Balance 900 brought down 110 office supplies Date Explanatio Ref Debit Date Explanation Ref Credit n 10/6/2017 Cash 1,200 31/6/2017 Office supplies J1 900 expenses Balance carried 300 down Total 1200 Total 1,200 Balance 300 brought down  Depreciation Every entity acquire productive facilities like building, equipment, furniture, cars and many different types of assets, all of which provide services for a number of years. According to the cost principle, the assets are recorded at cost, and provide services during the period of the asset useful life. According to the matching principle a part of the cost of this long-lived asset should be reported as an expense during each period of the asset useful life.  Depreciation is the allocation of the cost of the asset to expense over the asset useful life in a rational systematic manner. Accounting considers the cost of the asset as a prepayment for the services provided by the asset. Therefore as other prepayment the expired cost is expensed and the unexpired cost is reported as asset at the end of the period.  Depreciation is an estimate rather than a factual measure of the expire cost because the useful life cannot be known with certainty as the asset useful life depends on factors such as obsolescence, the actual use and deterioration due to the elements. All the assets must be depreciated at the end of each accounting period. Depreciation can be computed in different way to be studied later  Example Mazin Co, has an office equipment cost SDG 12,000 the depreciation was estimated to be SDG 120 every year of the office equipment's useful life. At the end of the period an adjustment has to be made to record the expired part of the office equipment Date Account title and explanation Referenc Debit Credit e 31/12/2017 Depreciation expenses 450 120 Accumulated deprecation 140 120 To record yearly depreciation 450 Depreciation expenses Date Explanatio Ref Debit Date Explanation Ref Credit n 31/6/2006 Accumulate 120 Balance c/d J4 120 d depreciation Total 120 Total 120 Balance 120 b/d Accumulated depreciation –Office equipment 250 Date Explanation Re. Debit Date Ref Credit 31/12/200 Balance c/d J4 120 31/12/20 Depreciatio J3 120 5 1 n expenses Total 120 Total 120 Balance 120 b/d The accumulated depreciation is a contra asset account, it represent the expired part of the cost of the asset it is always credit. In the balance Sheet, the accumulated depreciation does not appear on the capital and liabilities side but appear on the assets side subtracted from the asset. This shows both the original cost of the equipment SDG 12,000 , the part of the equipment cost that has expired during the year due to the service of the asset SDG 120, and the amount of SDG 11,880 is referred to as the book-value Balance sheet presentation on assets side with the fixed assets: Office equipment 12,000 120 Less accumulated depreciation 11,880 The balance of 120 depreciation expense will appear in the income statement  Unearned revenue (deferred revenue): ❖ Unearned revenue is cash received and recorded as liabilities before the revenue is earned. ❖ When the payment is received and for the services that will be provided in a future ❖ accounting period an account unearned revenue (liability) is credited to recognize that an obligation exist. ❖When the service is performed then the revenue is earned, an adjusting entry is made for unearned revenue to record the revenue that has been earned and the Liability that remain. ❖The result of the adjusting entry for unearned revenue result in an in a decrease in the liability (debit) and increase in the revenue (credit)  Example: On 1/12/2017 Ismail accounting office received SDG 6,000 cash to perform auditing services expected to be completed by 1/3/2018 Date Account title and explanation Reference Debit Credit 1/12/2017 Cash 101 6,000 Unearned revenue 201 6,000 Record cash received for performing audit service Analysis shows that the audit need 3 month to complete, that means that every month revenue of SDG 2,000 (6,000/3). By the end of the year revenue of the month of December is earned. An adjusting entry will be as follows Date Account title and explanation Reference Debit Credit 31/12/2017 Unearned revenue 201 2,000 Auditing revenue 501 2,000 To adjust revenue earned from audit service  201 Un earned revenue Date Explanation Ref Debit Date Explanation Ref Credit 31/12/201 Auditing J4 2,000 1/12/201 Cash J3 6,000 7 revenue 7 Balance c/d 4,000 Total 6,000 Total 6,000 Balance b/d 4,000 501 Audit revenue Date Explanatio Ref Debit Date Explanation Ref Credit n Balance c/d 2,000 31/12/20 Unearned J4 2,000 17 revenue Total 2,000 Total 2,000 Balance b/d 2,000 If the adjusting entry is not made, revenue of the year will be understated and the net income will be understated, the liabilities and the owner's equity will be understate The balance of SDG 4,000 unearned revenue appears in the balance sheet on the owner equity and liabilities side with the short term liabilities The balance of SDG 2,000 audit revenue will appear in the income statement  Class work I: The ledger of Sámi Agency on December 2015 included the following balances: Name of accounts Debit Credit Prepaid Insurance 3,600 Office Supplies 2,800 Office Equipment 25,000 Accumulated Depreciation of Office Equipment 5,000 Unearned revenue 9,200 Analysis of the accounts shows the following: 1- Insurance policy covers 3 years which began from 1/1/2015 2- Supplies on hand total SDG 800 3-The office equipment depreciates SDG 200 per month 4-One half of the unearned revenue was earned in the month of March Prepare the adjusting entries at the end of year 1-The amount expires at the end of the year = 3,600/3 = SDG 1,200 per year 2-Supplies expenses (used during the year) = 2,800 – 800 = 2,000 3- The depreciation during the year = 200 x 12 = 2,400 4- The earned revenue = 9,200/2 = 4,600 Date Account title and explanation Reference Debit Credit 31/12/2015 Insurance expense 1,200 Prepaid Insurance 1,200 To recordthe expired insurance 31/12/2015 Office supplies expenses 2,000 Office supplies 2,000 To record the supplies used 31/12/2015 Depreciation expenses 2,400 Accumulated Depreciation of 2,400 Office To record yearly depreciation 31/12/2015 Unearned revenue 4,600 Service revenue 4,600 To record the revenue earned Adjusting entries for Accruals The second type of adjusting entries is the accruals. The adjusting entries of the accruals are required to record the revenue earned and the expenses incurred in the current year that have not been recognized through daily entries. An accrual adjustment is needed when various accounts are under stated therefore the revenue and the asset accounts and the expenses and the related liability account. The adjusting entries will Increase both a balance sheet and an income statement account.  Accrued revenue: Revenues that are earned but not received in cash or recorded as account receivable at the balance sheet date are Accrued revenue. (1)Accrued revenue is accumulated with the passing of time as in the case of rent revenue, so is not recorded because they do not involve daily transactions. (2)Accrued revenue also result from services performed but are neither billed nor collected like commission or fees. They are unrecorded because only a part of the total service is provided. The adjusting entries are required for two purposes: 1 Shows the receivable that exist at the balance sheet date. 2 Record the revenue that has been earned during the period.  Example: At the end of the year, M&S advertising agency earned SDG 2,000 for advertising services Analysis showed this revenue was not billed and so was not recorded. The adjusting entry will be : Date Account title and explanation Reference Debit Credit 31/12/2017 Account receivable 2,000 Advertising revenue 2,000 To record revenue for service provided If the adjusting entry is not made, the assets and the owner's equity will be understated on the balance sheet and the revenue will be understated in the income statement. The asset account receivable balance of SDG 2,000 will appear in the balance sheet and the balance of SDG 2,000 will appear in the income statement  Accrued expenses Accrued expenses are Expenses that are incurred but not paid or recorded at the end of the period are called accrued expenses. Rent expenses, salaries and taxes are example of accrued expenses. An adjusting entry is needed for two purposes: ❖ To record the obligation that exists at the balance sheet date. ❖ To recognize the expenses that applies to the current period. The adjusting entry for accrued expenses results in a debit (increase) to an expenses account and a credit (increase) to a liability account.  Accrued salaries: Salaries are paid to employee after performing services to the entity usually at the end of the month. M&S pay his two employees the sum of SDG 5,000 at the beginning of every month. At December 31/2016 the salaries of the month of December are to be paid at 1/1/2017 so an adjustment is necessary. Date Account title and Referenc Debit Credit explanation e 31/12/201 Salaries expenses 5,000 6 Salaries payable 5,000 To record accrued salaries 430 Salaries expense Date Explanation Ref Debit Date Explanation Ref Credit Salaries J4 5,000 Balance c/d J3 5,000 payable Total 5,000 Total 5,000 Balance b/d 5,000 240 Salaries payable le Date Explanation Ref Debit Date Explanation Re Credit Balance c/d 5,000 31/6/200 Salaries J4 5,000 6 expense Total 5,000 Total 5,000 Balance b/d 5,000  Problem Julie brown started her own consulting firm, Astromech consulting, on May 1, 2017 The trial balance at May 31 is as follows: Account Number Account Name Debit Credit 101 Cash 6,500 110 Accounts Receivable 4,000 120 Prepaid Insurance 3,600 130 Supplies 1,500 135 Office Furniture 12,000 200 Accounts Payable 3,500 230 Unearned Service Revenue 3,000 300 J. Brown , Capital 19,100 400 Service Revenue 6,000 510 Salaries Expense 3,000 520 Rent Expense 1,000 31,600 31,600 Other Data : 1. 500 SDG of Supplies have been used during the month 2.Travel expense incurred but not paid on May 31, 2017 SDG 200 3.The insurance policy is for 2 years 4. 1,000 SDG of the balance in the unearned service revenue account remains unearned at the end of the month 5.May 31 is a Wednesday, and employees are paid on Fridays, Astromech consulting has two employees, who are paid 500 SDG each for a 5-Day work week 6.The office furniture has a 5-year life with no salvage value. It is been depreciated at 200 SDG per month for 60 months 7. Invoices representing 2,000 SDG of services performed during the month hav not been recorded as of May 31  Instructions : A. prepare the adjusting entries for the month of May. Use J4 as the page number for your journal B. Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as beginning account balances and place a check mark in the posting reference column C. Prepare an adjusted trial balance at May 31.2017 Adjusting Entries: 1 Supplies remained at the end of the month = 1,500 - 500 = 1,000 2 Insurance expense= 3,600 /24 =150 per month 3 The employee worked 3days of the week only so salaries payable = 500 /5x3daysx 2 employees = 600 4 Revenue was not recorded an has to be made adjustment  Journal Date Account title and explanation Reference Debit Credit 31/5/2002 Supplies expenses 560 500 (a) Supplies 130 500 To record supplies used 31/5/2002 Travel expenses 550 200 (b) Travel payable 210 200 To record travel expenses 31/5/2002 Insurance expenses 540 150 (c) Prepaid insurance 120 150 To record insurance expenses 31\5\2002 Unearned revenue 2,000 (d) Revenue 2,000 To record earned revenue 31/5/2002 Salaries expenses 510 600 (e) Salaries payable 220 600 To record accrued salaries 31//2002 Depreciation expenses 530 200 (f) Accumulated depreciation 136 200 Office Furniture To record depreciation expenses 31/5/2002 Account receivable 110 2,000 (g) service revenue 230 2,000 To record earned service revenue 101 Cash Date Explanation Ref Debit Date Explanation Ref Credit 31/5/2017 Beginning J4 6,500 Balance c\d 6,500 Balance Total 6,500 Total 6,500 Balance b\d 6,500 6,500 110 Account receivable Date Explanation Ref Debit Date Explanation Ref Credit 31/5/2017 Beginning 4,000 31/5/2017 Balance c/d J4 6,000 Balance 31/5/2017 service J4 2,000 revenue Total 6,000 Total 6,000 Balance b/d 6,000 120 Prepaid Insurance Date Explanation Ref Debit Date Explanation Ref Credit 31/5/2017 Beginning 3,600 31/5/2017 Insurance expenses J4 150 Balance Balance c/d 3,450 Total 3,600 Total 3,600 Balance b/d 3,450 130 Supplies Date Explanation Ref Debit Date Explanation Ref Credit 31/5/2017 Beginning 1,500 31/5/2017 Supplies expenses 500 Balance Balance c/d 1,000 Total 1,500 Total 1500 Balance b/d 1,000  135 Office furniture Date Explanation Ref Debit Date Explanation Ref Credit 31/5/2017 Beginning 12,000 Balance c/d 12,000 Balance Total 12,000 Total 12,000 Balance b/d 12,000 136 Accumulated depreciation- Office furniture Date Explanation Ref Debit Date Explanation Ref Credit Balance c/d 200 31/5/2017 Depreciation J4 200 expense Total 200 Total 200 Balance b/d 200 200 Account payable Date Explanation Ref Debit Date Explanation Ref Credit Balance c/d 3,500 31/5/2017 Beginning Balance 3,500 Total 3,500 Total 3,500 Balance b/d 3,500 210 Travel payable Date Explanation Ref Debit Date Explanation Ref Credit Balance c/d 200 31/5/2017 Travel expenses J4 200 Total 200 Total 200 Balance b/d 200 220 Salaries payable Date Explanation Ref Debit Date Explanation Ref Credit Balance c/d 600 31/5/2017 Salaries expenses 600 Total 600 Total 600 Balance b/d 600 230 Unearned revenue Date Explanation Ref Debit Date Explanation Ref Credit 31\5\2017 Revenue 2,000 31/5/2017 Balance b\d 3,000 Balance c\d 1,000 Total 3,000 Total 3,000 Balance b\d 1,000 300 Julia Brown Capital Date Explanation Ref Debit Date Explanation Ref Credit Balance c\d 19,100 31/5/2017 Beginning Balance 19,100 Total 19,100 Total 19,100 Balance b\d 19,100 400 Service Revenue Date Explanation Ref Debit Date Explanation Ref Credit Balance c/d 10,000 31/5/2017 Beginning Balance 6,000 31/5/2017 Unearned revenue 2,000 31/5/2017 Account receivable 2,000 Total 10,000 Total 10,000 Balance b/d 10,000 510 Salaries expenses Date Explanation Ref Debit Date Explanation Ref Credit 31/5/2017 Beginning Balance 3,000 Balance c/d 3,600 Salaries Payable J4 600 Total 3,600 Total 3,600 Balance b/d 3,600 520 Rent expenses Date Explanation Ref Debit Date Explanation Ref Credit 31/5/2017 Beginning 1,000 Balance c/d 1,000 Balance Total 1,000 Total 1,000 Balance b/d 1,000 530 Depreciation expense Date Explanation Ref Debit Date Explanation Ref Credit 31/5/2017 A. depreciation 200 Balance c\d 200 Total 200 Total 200 Balance b\d 200 540 Insurance expenses Date Explanation Ref Debit Date Explanation Ref Credit 31/5/2017 Prepaid insurance 150 Balance c/d 150 Total 150 Total 150 Balance b/d 150 520 Rent expenses Date Explanation Ref Debit Date Explanation Ref Credit 31/5/2017 Beginning 1,000 Balance c/d 1,000 Balance Total 1,000 Total 1,000 Balance b/d 1,000 530 Depreciation expense Date Explanation Ref Debit Date Explanation Ref Credit 31/5/2017 A. depreciation 200 Balance c\d 200 Total 200 Total 200 Balance b\d 200 540 Insurance expenses Date Explanation Ref Debit Date Explanation Ref Credit 31/5/2017 Prepaid insurance 150 Balance c/d 150 Total 150 Total 150 Balance b/d 150  Adjusted Trial Balance Name of Account Debit Credit Cash 6,500 Account receivable 6,000 Prepaid insurance 3,450 Supplies 1,000 Office furniture 12,000 Accumulated Depreciation 200 Account payable 3,500 Travel payable 200 Salaries payable 600 Unearned revenue 1,000 Capital 19,100 Service revenue 10,000 Salaries expenses 3,600 Rent expenses 1,000 Depreciation expenses 200 Insurance expenses 150 Travel expenses 200 Supplies expenses 500 Total 34,600 34,600  Prepare: ❖Income statement ❖Balance sheet Astromech Income statement For the month of May Revenues Service revenue 10,000 Expenses Salaries 3,600 Rent expenses 1,000 Supplies expense 500 Travel expenses 200 Insurance expens 150 Depreciation 200 expenses 5,650 Net 4,350 income  Astromech Balance Sheet May 2017 Assets Liabilities and Owner's Equity Fixed Assets Owner's Equity Office Furniture 12,000 Capital 19,100 Less 200 Add net income 2,350 Accumulat ed depr