FINAL REVIEW NOTES
Balance sheet: Assets= liabilities +SE
Under SE: (Common stock and retained earnings +, -EXP, -DIVIDENDS)
Income Statement: Revenue- expenses
-You sell $100,000 of stock and receive cash
Dr Cash $100,000
CR Common Stock $100,00
-You borrow a $20,000 loan
Dr cash 20,000
Cr notes payable $20,000
-you pay your employees $2000 in wages
DR Wage exp $2000
CR Cash 2000
Accruals: get paid later for revenue and pay money later for expense
Deferrals: get paid upfront revenue and pay upfront for expense
ACCRUED REVENUE
-You sell $600 tshirts on account on nov 1st. payment received dec 1st
Nov 1st: DR ACC REC 600, CR REV 600
DEC 1ST: DR CASH 600, CR AR 600
ACCRUED EXPENSE
-your employees earn $6000 in October. You pay them on nov 15th
OCT 31ST: DR WAGES EXP 6000
CR WAGES PAYABLE 600
NOV 15TH: DR WAGES PAYABLE 6000
CR CASH
DEFERRED REVENUE
-you receive $5000 for a train ticket on Jan 1st. the ride is feb 1st
JAN 1ST: DR Cash 500
CR Unearned revenue 500
FEB 1ST: DR unearned rev 500
CR REV 500
DEFERRED EXPENSE
-you pay $60,000 a years worth of rent on Jan 1st
Jan 1st: dr prepaid rent 60,000, CR Cash 60,000
Oct 1: DR Rent expense 45,000, CR Prepaid rent 45,000
(60,000/12)=5,000/9
Bank cash balance: +deposits in transit, -outstanding check
Company balance: +interest earned, +bank collection, -NSF Checks, -Bank Service Charges
Direct method (for small companies):
Jason cant pay back $6000 of his purchases on account
DR Bad debt expense 6,000
CR AR Jason 6000
Accounting equation: assets=liabilities + SE
Assets: cash, accounts receivable notes receivable, supplies, equipment, prepaid expenses
Liabilities: accounts payable, notes payable unearned or deferred revenue
Stockholder’s equity: Retained earnings: revenue +, expenses -, - dividends
ADE (Assets, dividends, expense) (DR INCREASE, CR DECREASE)
ROL (Revenue, owner’s equity, dividends) (DR DECREASE, CR INCREASE)
Income statement:
Revenue
-expenses
__________
Net income or gross profit
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