John J. Wild, Financial Accounting: Information for Decisions, 8th Edition
VISUAL #3-1
ACCRUAL BASIS ACCOUNTING
(Follows GAAP)
Requires that the
Income Statement
(for a period)
report
GAAP
Revenue
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John J. Wild, Financial Accounting: Information for Decisions, 8th Edition
3-14
VISUAL #3-2
DEFERRALS
The converse of statements in Visual #3-1 also applies.
Revenue not earned or expense not incurred results in Deferrals*
John J. Wild, Financial Accounting: Information for Decisions, 8th Edition
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John J. Wild, Financial Accounting: Information for Decisions, 8th Edition
VISUAL #3-3
ADJUSTMENTS
TYPE
GENERALIZED*
ENTRY
AMOUNT
1A. Prepaid (deferred)
expenses—initially recorded as
assets
Dr. _________ Expense
Cr. the Asset* acct.
Amount used, or
consumed, or expired
1C. Prepaid (deferred)
Dr. the Asset** acct.
Cr. ________ Expense
Amount left, or
not consumed, or
2A. Unearned revenues—
(revenue received in advance)
initially record as liability
(unearned account)
Dr. Unearned ________
Cr. the Revenue** acct.
Amount earned to date
Dr. _________ Expense
Amount accrued
2B. Unearned revenues—
(revenue received in advance)
initially recorded as a revenue
(alternate treatment—
Dr. the Revenue** acct.
Cr. Unearned________
Amount still not
earned
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John J. Wild, Financial Accounting: Information for Decisions, 8th Edition
Alternate Demonstration Problem #1
Chapter Three
On July 1, 2017, Howard M. Tenant, Inc., rents office space from John Q.
John J. Wild, Financial Accounting: Information for Decisions, 8th Edition
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Solution: Alternate Demonstration Problem #1
Chapter 3
Tenant
Landlord
7/1/17
Prepaid Rent …………….
2,400
Cash ………………………..
2,400
Cash
2,400
Unearned Rent
Rev. ………………..
2,400
12/31/17
Rent Expense …………..
Unearned Rent Rev.
Prepaid Rent ……..
Rent Revenue
Rent Expense …………..
1,200
Unearned Rent Rev.
1,200
*Prepaid Rent …….
1,200
Rent Revenue
1,200
12/31/19
*Rent Expense ………….
Unearned Rent Rev.
Prepaid Rent ……..
Rent Revenue
An Alternative Solution (Based on the Appendix)
Tenant
Landlord
7/1/17
Rent Expense …………..
2,400
Cash ………………………..
2,400
Cash ………………….
2,400
Rent Rev. ………….
2,400
12/31/17
*12/31/18
Rent Expense …………..
1,200
Unearned Rent Rev.
1,200
Prepaid Rent ……..
1,200
Rent Revenue
1,200
*12/31/19
Rent Expense …………..
Unearned Rent Rev.
Prepaid Rent ……..
Rent Revenue
John J. Wild, Financial Accounting: Information for Decisions, 8th Edition
Alternate Demonstration Problem #2
Chapter Three
The trial balance of Large Company, Inc., at the end of its annual
accounting period is as follows:
LARGE COMPANY, INC.
Trial Balance
December 31, 2017
Cash ………………………………………………………………..
$ 4,000
Accounts Receivable………………………………..
400
Supplies …………………………………………………………
Equipment ………………………………………………………
Accumulated Depreciation—Equipment ……………
$ 2,000
Retained earnings …………………………………………..
Dividends ………………………………………………………..
Revenue ………………………………………………………….
Salaries Expense ……………………………………………..
Totals ………………………………………………………………
$54,000
$54,000
Additional information:
1. Expired insurance, $400.
John J. Wild, Financial Accounting: Information for Decisions, 8th Edition
Solution: Alternate Demonstration Problem #2
Chapter 3
1.
Insurance Expense …………………………………….
400
Prepaid Insurance ………………………………..
400
Supplies Expense ………………………………………
Supplies ………………………………………………
Depreciation Expense Equip. ……………………..
Accumulated Depreciation Equip. …………
Salaries Expense ……………………………………….
Salaries Payable …………………………………..
Accounts Receivable …………………………………
Revenue ……………………………………………..
500