Revenue
NetSolutions Trial Balance December 31, 2005 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense 2 2 2 2 20 1 065 220 000 400 000 800 00 00 00 00 00 00 900 00 360 00 25 000 00 4 000 00 16 340 00 4 275 00 1 600 00 985 00 800 00 455 00 42 600 00 42 600 00
Owner’s Equity
NetSolutions Trial Balance December 31, 2005 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense 2 2 2 2 20 1 065 220 000 400 000 800 00 00 00 00 00 00 900 00 360 00 25 000 00 4 000 00 16 340 00 4 275 00 1 600 00 985 00 800 00 455 00 42 600 00 42 600 00
NetSolutions Trial Balance December 31, 2005 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense 2 2 2 2 20 1 065 220 000 400 000 800 00 00 00 00 00 00 900 00 360 00 25 000 00 4 000 00 16 340 00 4 275 00 1 600 00 985 00 800 00 455 00 42 600 00 42 600 00
Assets
4 000 00 16 340 00 4 275 00 1 600 00 985 00 800 00 455 00 42 600 00 42 600 00
NetSolutions Trial Balance December 31, 2005 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense 2 2 2 2 20 1 065 220 000 400 000 800 00 00 00 00 00 00 900 00 360 00 25 000 00 4 000 00
Objectives
1. Explain how the matching concept relates to After studying this the accrual basis of accounting. 2. Explain why chapter, you should adjustments are necessary and be able adjusting entries. list the characteristics of to: 3. Journalize entries for accounts requiring adjustment. 4. Summarize the adjustment process and prepare an adjusted trial balance. 5. Use vertical analysis to compare financial statement items with each other and with industry averages.
The matching concept supports
reporting revenues and related expenses in the same period.
Paid $10,000 for an advertising campaign for a $10,000 product that will recorded as an be introduced in asset 2005. 2003. 2004 Sold the advertised $10,000 product. expensed in 2005 to match revenues 2005
Unadjusted trial balance
NetSolutions Trial Balance December 31, 2005 Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Accounts Payable Unearned Rent Chris Clark, Capital Chris Clark, Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense 2 2 2 2 20 1 065 220 000 400 000 800 00 00 00 00 00 00 900 00 360 00 25 000 00
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Under the accrual basis for the accounting period concept, revenues are reported in the income statement in the period in which they are earned.
Accrual Basis of Accounting
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Revenue Recognition Principle
• Dictates that revenue be recognized in the accounting period in which it is earned. • Revenue is earned when the service has been provided or when the goods are delivered (i.e., an exchange has taken place. • You are reasonably certain to collect the revenue.
Accounting period concept
• Accounting Period – A business can be divided into artificial time periods. The most commonly used time periods for public corporations is quarterlycept
Reporting Revenue and Expenses
TWO METHODS
Cash Basis of Accounting Accrual Basis of Accounting
Under the cash basis for the accounting period concept, revenues and expenses are reported in the income statement in the period in which cash is received or paid.
Chapter 3
The Matching Concept and the Adjusting Process