C3 - 1
Learning Objectives
Power Notes
The Matching Concept and the Adjusting Process
1,The Matching Concept
2,Nature of the Adjusting Process
3,Recording Adjusting Entries
4,Summary of Adjustment Process
5,Financial Analysis and Interpretation
Chapter F3
C3
C3 - 2
Reporting Revenue and Expense
The Matching Concept
Trial Balance,Chart of Accounts
Deferrals and Accruals
Summary of Adjustments
Vertical Analysis
Slide # Power Note Topics
3
6
9
20
36
41
Note,To select a topic,type the slide # and press Enter.
Chapter F3
The Matching Concept and the Adjusting Process
Power Notes
C3 - 3
TWO METHODS
Reporting Revenue and Expense
Cash Basis of Accounting
Accrual Basis of Accounting
C3 - 4
Cash Basis of Accounting
Revenue reported when cash is received
Expense reported when cash is paid
Does not properly match revenues and
expenses
C3 - 5
Accrual Basis of Accounting
Revenue reported when earned
Expense reported when incurred
Properly matches revenues and expenses
in determining net income
Requires adjusting entries at end of period
It just sounds mean – it really isn’t
C3 - 6
The Matching Concept
Assets
Liabilities
Owner’s
Equity
Debits = Credits
Expenses Revenues
C3 - 7
The Matching Concept
Assets
Liabilities
Owner’s
Equity
Debits = Credits
Expenses Revenues
Net
Income
C3 - 8
The Matching Concept
Assets
Liabilities
Owner’s
Equity
Debits = Credits
Net income is determined by properly
matching expenses and revenues.
Expenses Revenues
Net
Income
matching
C3 - 9
NetSolutions
Unadjusted Trial Balance
December 31,2002
11 Cash 2,065
12 Accounts Receivable 2,220
14 Supplies 2,000
15 Prepaid Insurance 2,400
17 Land 20,000
18 Office Equipment 1,800
Assets
C3 - 10
NetSolutions
Unadjusted Trial Balance
December 31,2002
11 Cash 2,065
12 Accounts Receivable 2,220
14 Supplies 2,000
15 Prepaid Insurance 2,400
17 Land 20,000
18 Office Equipment 1,800
21 Accounts Payable 900
23 Unearned Rent 360Liabilities
C3 - 11
NetSolutions
Unadjusted Trial Balance
December 31,2002
11 Cash 2,065
12 Accounts Receivable 2,220
14 Supplies 2,000
15 Prepaid Insurance 2,400
17 Land 20,000
18 Office Equipment 1,800
21 Accounts Payable 900
23 Unearned Rent 360
31 Capital Stock 25,000
33 Dividends 4,000
Stockholders’
Equity
C3 - 12
NetSolutions
Unadjusted Trial Balance
December 31,2002
11 Cash 2,065
12 Accounts Receivable 2,220
14 Supplies 2,000
15 Prepaid Insurance 2,400
17 Land 20,000
18 Office Equipment 1,800
21 Accounts Payable 900
23 Unearned Rent 360
31 Capital Stock 25,000
33 Dividends 4,000
41 Fees Earned 16,340Revenue
C3 - 13
NetSolutions
Unadjusted Trial Balance
December 31,2002
11 Cash 2,065
12 Accounts Receivable 2,220
14 Supplies 2,000
15 Prepaid Insurance 2,400
17 Land 20,000
18 Office Equipment 1,800
21 Accounts Payable 900
23 Unearned Rent 360
31 Pat King,Capital 25,000
32 Pat King,Drawing 4,000
41 Fees Earned 16,340
51 Wages Expense 4,275
52 Rent Expense 1,600
54 Utilities Expense 985
55 Supplies Expense 800
59 Miscellaneous Expense 455
42,600 42,600
Expenses
C3 - 14
NetSolutions
Unadjusted Trial Balance
December 31,2002
11 Cash 2,065
12 Accounts Receivable 2,220
14 Supplies 2,000
15 Prepaid Insurance 2,400
17 Land 20,000
18 Office Equipment 1,800
21 Accounts Payable 900
23 Unearned Rent 360
31 Capital Stock 25,000
33 Dividends 4,000
41 Fees Earned 16,340
51 Wages Expense 4,275
52 Rent Expense 1,600
54 Utilities Expense 985
55 Supplies Expense 800
59 Miscellaneous Expense 455
42,600 42,600
C3 - 15
NetSolutions
Expanded Chart of Accounts
Balance Sheet Income Statement
1,Assets
11 Cash
12 Accounts Receivable
14 Supplies
15 Prepaid Insurance
17 Land
18 Office Equipment
19 Accumulated Depreciation
2,Liabilities
21 Accounts Payable
22 Wages Payable
23 Unearned Rent
3,Stockholders’ Equity
31 Capital Stock
32 Retained Earnings
33 Dividends
4,Revenue
41 Fees Earned
42 Rent Revenue
5,Expenses
51 Wages Expense
52 Rent Expense
53 Depreciation Expense
54 Utilities Expense
55 Supplies Expense
56 Insurance Expense
59 Miscellaneous Expense
C3 - 16
NetSolutions
Expanded Chart of Accounts
Balance Sheet Income Statement
1,Assets
11 Cash
12 Accounts Receivable
14 Supplies
15 Prepaid Insurance
17 Land
18 Office Equipment
19 Accumulated Depreciation
2,Liabilities
21 Accounts Payable
22 Wages Payable
23 Unearned Rent
3,Stockholders’ Equity
31 Capital Stock
32 Retained Earnings
33 Dividends
4,Revenue
41 Fees Earned
42 Rent Revenue
5,Expenses
51 Wages Expense
52 Rent Expense
53 Depreciation Expense
54 Utilities Expense
55 Supplies Expense
56 Insurance Expense
59 Miscellaneous Expense
C3 - 17
NetSolutions
Expanded Chart of Accounts
Balance Sheet Income Statement
1,Assets
11 Cash
12 Accounts Receivable
14 Supplies
15 Prepaid Insurance
17 Land
18 Office Equipment
19 Accumulated Depreciation
2,Liabilities
21 Accounts Payable
22 Wages Payable
23 Unearned Rent
3,Stockholders’ Equity
31 Capital Stock
32 Retained Earnings
33 Dividends
4,Revenue
41 Fees Earned
42 Rent Revenue
5,Expenses
51 Wages Expense
52 Rent Expense
53 Depreciation Expense
54 Utilities Expense
55 Supplies Expense
56 Insurance Expense
59 Miscellaneous Expense
C3 - 18
NetSolutions
Expanded Chart of Accounts
Balance Sheet Income Statement
1,Assets
11 Cash
12 Accounts Receivable
14 Supplies
15 Prepaid Insurance
17 Land
18 Office Equipment
19 Accumulated Depreciation
2,Liabilities
21 Accounts Payable
22 Wages Payable
23 Unearned Rent
3,Stockholders’ Equity
31 Capital Stock
32 Retained Earnings
33 Dividends
4,Revenue
41 Fees Earned
42 Rent Revenue
5,Expenses
51 Wages Expense
52 Rent Expense
53 Depreciation Expense
54 Utilities Expense
55 Supplies Expense
56 Insurance Expense
59 Miscellaneous Expense
C3 - 19
NetSolutions
Expanded Chart of Accounts
Balance Sheet Income Statement
1,Assets
11 Cash
12 Accounts Receivable
14 Supplies
15 Prepaid Insurance
17 Land
18 Office Equipment
19 Accumulated Depreciation
2,Liabilities
21 Accounts Payable
22 Wages Payable
23 Unearned Rent
3,Stockholders’ Equity
31 Capital Stock
32 Retained Earnings
33 Dividends
4,Revenue
41 Fees Earned
42 Rent Revenue
5,Expenses
51 Wages Expense
52 Rent Expense
53 Depreciation Expense
54 Utilities Expense
55 Supplies Expense
56 Insurance Expense
59 Miscellaneous Expense
C3 - 20
Adjustments – Deferrals and Accruals
Current Period Future Period
Cash Received Revenue Recorded Deferrals
Revenues
C3 - 21
Adjustments – Deferrals and Accruals
Current Period Future Period
Cash Received Revenue Recorded Deferrals
Accruals Revenue Recorded Cash Received
Revenues
C3 - 22
Adjustments – Deferrals and Accruals
Current Period Future Period
Cash Received Revenue Recorded Deferrals
Current Period Future Period
Cash Paid Expense Recorded
Expenses
Accruals Revenue Recorded Cash Received
Revenues
Deferrals
C3 - 23
Adjustments – Deferrals and Accruals
Current Period Future Period
Cash Received Revenue Recorded Deferrals
Current Period Future Period
Expense Recorded Cash Paid
Cash Paid Expense Recorded
Expenses
Accruals Revenue Recorded Cash Received
Revenues
Deferrals
Accruals
C3 - 24
Adjustments – Deferred Expense
P1....,2,400
Cash
Prepaid Insurance
Insurance Expense
P1....,2,400
On December 1,NetSolutions purchased insurance
for 24 months at a cost of $2,400.
Adjustment A1 – Record
insurance used for December,
$100.
Expenses
Assets
Example P1 – Purchase initially recorded as an asset.
C3 - 25
Adjustments – Deferred Expense
P1....,2,400
Cash
Prepaid Insurance
Insurance Expense
P1....,2,400
On December 1,NetSolutions purchased insurance
for 24 months at a cost of $2,400.
Adjustment A1 – Record
insurance used for December,
$100.
A1....,100
A1.....100 Expenses
Assets
A1
Example P1 – Purchase initially recorded as an asset.
A1
C3 - 26
Adjustments – Deferred Expense
P2....,2,400
Cash
Prepaid Insurance
Insurance Expense
P2....,2,400
On December 1,NetSolutions purchased insurance
for 24 months at a cost of $2,400.
Adjustment A2 – Record
insurance unused as of
December 31.
Expenses
Assets
Example P2 – Purchase initially recorded as an expense.
C3 - 27
Adjustments – Deferred Expense
P2....,2,400
Cash
Prepaid Insurance
Insurance Expense
P2....,2,400
On December 1,NetSolutions purchased insurance
for 24 months at a cost of $2,400.
Adjustment A2 – Record
insurance unused as of
December 31.
A2....,2,300
A2.....2,300 Expenses
Assets
A2
Example P2 – Purchase initially recorded as an expense.
A2
C3 - 28
Adjustments – Deferred Revenue
Cash
Unearned Rent
Rent Revenue
S1....,360
On December 1,NetSolutions received cash of $360 for
three months’ rent beginning December 1.
Adjustment A3 – Record rent
earned for December.
S1....,360
Revenues
Liabilities
Example S1 – Sale initially recorded as a liability.
C3 - 29
Adjustments – Deferred Revenue
A3....,120
Cash
Unearned Rent
Rent Revenue
S1....,360
On December 1,NetSolutions received cash of $360 for
three months’ rent beginning December 1.
Adjustment A3 – Record rent
earned for December.
S1....,360
A3.....120 Revenues
Liabilities
A3
Example S1 – Sale initially recorded as a liability.
A3
C3 - 30
Adjustments – Deferred Revenue
Cash
Unearned Rent
Rent Revenue
S2....,360
On December 1,NetSolutions received cash of $360 for
three months’ rent beginning December 1.
Adjustment A4 – Record rent
unearned as of December 31.
S2.....360 Revenues
Liabilities
Example S2 – Sale initially recorded as revenue.
C3 - 31
Adjustments – Deferred Revenue
A4....,240
Cash
Unearned Rent
Rent Revenue
S2....,360
On December 1,NetSolutions received cash of $360 for
three months’ rent beginning December 1.
Adjustment A4 – Record rent
unearned as of December 31.
A4....,240
S2.....360 Revenues
Liabilities
A4
Example S2 – Sale initially recorded as revenue.
A4
C3 - 32
Adjustments – Accrued Expense
Wages Payable
Wages Expense
NetSolutions received employee services for the last two
days of December amounting to $250,to be paid later.
Adjustment A5 – Record accrued wages of $250.
Bal.....4,275 Expenses
Liabilities
C3 - 33
Adjustments – Accrued Expense
Wages Payable
Wages Expense
NetSolutions received employee services for the last two
days of December amounting to $250,to be paid later.
Adjustment A5 – Record accrued wages of $250.
A5....,250
Bal.....4,275 Expenses
Liabilities
A5
A5
A5.....250
C3 - 34
Adjustments – Accrued Revenue
Accounts Receivable
Fees Earned
As of December 31,NetSolutions provided 25 hours of
services at $20 per hour to be billed next month.
Adjustment A6 – Record accrued fees earned of $500.
Bal....16,340 Revenues
Assets
Bal.....2,220
C3 - 35
Adjustments – Accrued Revenue
Accounts Receivable
Fees Earned
As of December 31,NetSolutions provided 25 hours of
services at $20 per hour to be billed next month.
Adjustment A6 – Record accrued fees earned of $500.
A6....,500
Bal....16,340 Revenues
Assets
A6
A6
A6.....500
Bal.....2,220
C3 - 36
Summary of Adjustments
Deferred
Expenses
Expenses
Assets
A1 A2
Buying Side
Rearranging
the Debits
C3 - 37
Summary of Adjustments
Deferred
Expenses
Expenses
Assets
A1 A2
Deferred
Revenues
Revenues
Liabilities
A3 A4
Buying Side Selling Side
Rearranging
the Debits
Rearranging
the Credits
C3 - 38
Summary of Adjustments
Expenses
Liabilities
A5
Accrued
Expenses
Buying Side Selling Side
Adding a New
Transaction
C3 - 39
Summary of Adjustments
Expenses
Liabilities
A5
Revenues
Assets
A6
Accrued
Expenses
Buying Side Selling Side
Adding a New
Transaction
Adding a New
Transaction
Accrued
Revenues
C3 - 40
Summary of Adjustments
Deferred
Expenses
Expenses
Assets
A1 A2
Expenses
Liabilities
A5
Deferred
Revenues
Revenues
Liabilities
A3 A4
Revenues
Assets
A6
Accrued
Expenses
Buying Side Selling Side
Rearranging
the Debits
Adding a New
Transaction
Rearranging
the Credits
Adding a New
Transaction
Accrued
Revenues
C3 - 41
Financial Analysis and Interpretation
Objective,Use vertical analysis to compare financial
statement items with each other and with industry averages.
Comparative Income Statements
For the Years Ended December 31,2003 and 2002
Fees earned $ 187,500 100.0% $ 150,000 100.0%
Operating expenses:
Wages expense $ 60,000 32.0% $ 45,000 30.0%
Rent expense 15,000 8.0
2003 2002
Amount Percent Amount Percent
Vertical Analysis,
Wages expense $ 60,000
Fees earned $ 187,500 = 32.0%
C3 - 42
Note,To see the topic slide,type 2 and press Enter.
Power NotesChapter F3
The Matching Concept and the Adjusting Process
This is the last slide in Chapter F3,
Learning Objectives
Power Notes
The Matching Concept and the Adjusting Process
1,The Matching Concept
2,Nature of the Adjusting Process
3,Recording Adjusting Entries
4,Summary of Adjustment Process
5,Financial Analysis and Interpretation
Chapter F3
C3
C3 - 2
Reporting Revenue and Expense
The Matching Concept
Trial Balance,Chart of Accounts
Deferrals and Accruals
Summary of Adjustments
Vertical Analysis
Slide # Power Note Topics
3
6
9
20
36
41
Note,To select a topic,type the slide # and press Enter.
Chapter F3
The Matching Concept and the Adjusting Process
Power Notes
C3 - 3
TWO METHODS
Reporting Revenue and Expense
Cash Basis of Accounting
Accrual Basis of Accounting
C3 - 4
Cash Basis of Accounting
Revenue reported when cash is received
Expense reported when cash is paid
Does not properly match revenues and
expenses
C3 - 5
Accrual Basis of Accounting
Revenue reported when earned
Expense reported when incurred
Properly matches revenues and expenses
in determining net income
Requires adjusting entries at end of period
It just sounds mean – it really isn’t
C3 - 6
The Matching Concept
Assets
Liabilities
Owner’s
Equity
Debits = Credits
Expenses Revenues
C3 - 7
The Matching Concept
Assets
Liabilities
Owner’s
Equity
Debits = Credits
Expenses Revenues
Net
Income
C3 - 8
The Matching Concept
Assets
Liabilities
Owner’s
Equity
Debits = Credits
Net income is determined by properly
matching expenses and revenues.
Expenses Revenues
Net
Income
matching
C3 - 9
NetSolutions
Unadjusted Trial Balance
December 31,2002
11 Cash 2,065
12 Accounts Receivable 2,220
14 Supplies 2,000
15 Prepaid Insurance 2,400
17 Land 20,000
18 Office Equipment 1,800
Assets
C3 - 10
NetSolutions
Unadjusted Trial Balance
December 31,2002
11 Cash 2,065
12 Accounts Receivable 2,220
14 Supplies 2,000
15 Prepaid Insurance 2,400
17 Land 20,000
18 Office Equipment 1,800
21 Accounts Payable 900
23 Unearned Rent 360Liabilities
C3 - 11
NetSolutions
Unadjusted Trial Balance
December 31,2002
11 Cash 2,065
12 Accounts Receivable 2,220
14 Supplies 2,000
15 Prepaid Insurance 2,400
17 Land 20,000
18 Office Equipment 1,800
21 Accounts Payable 900
23 Unearned Rent 360
31 Capital Stock 25,000
33 Dividends 4,000
Stockholders’
Equity
C3 - 12
NetSolutions
Unadjusted Trial Balance
December 31,2002
11 Cash 2,065
12 Accounts Receivable 2,220
14 Supplies 2,000
15 Prepaid Insurance 2,400
17 Land 20,000
18 Office Equipment 1,800
21 Accounts Payable 900
23 Unearned Rent 360
31 Capital Stock 25,000
33 Dividends 4,000
41 Fees Earned 16,340Revenue
C3 - 13
NetSolutions
Unadjusted Trial Balance
December 31,2002
11 Cash 2,065
12 Accounts Receivable 2,220
14 Supplies 2,000
15 Prepaid Insurance 2,400
17 Land 20,000
18 Office Equipment 1,800
21 Accounts Payable 900
23 Unearned Rent 360
31 Pat King,Capital 25,000
32 Pat King,Drawing 4,000
41 Fees Earned 16,340
51 Wages Expense 4,275
52 Rent Expense 1,600
54 Utilities Expense 985
55 Supplies Expense 800
59 Miscellaneous Expense 455
42,600 42,600
Expenses
C3 - 14
NetSolutions
Unadjusted Trial Balance
December 31,2002
11 Cash 2,065
12 Accounts Receivable 2,220
14 Supplies 2,000
15 Prepaid Insurance 2,400
17 Land 20,000
18 Office Equipment 1,800
21 Accounts Payable 900
23 Unearned Rent 360
31 Capital Stock 25,000
33 Dividends 4,000
41 Fees Earned 16,340
51 Wages Expense 4,275
52 Rent Expense 1,600
54 Utilities Expense 985
55 Supplies Expense 800
59 Miscellaneous Expense 455
42,600 42,600
C3 - 15
NetSolutions
Expanded Chart of Accounts
Balance Sheet Income Statement
1,Assets
11 Cash
12 Accounts Receivable
14 Supplies
15 Prepaid Insurance
17 Land
18 Office Equipment
19 Accumulated Depreciation
2,Liabilities
21 Accounts Payable
22 Wages Payable
23 Unearned Rent
3,Stockholders’ Equity
31 Capital Stock
32 Retained Earnings
33 Dividends
4,Revenue
41 Fees Earned
42 Rent Revenue
5,Expenses
51 Wages Expense
52 Rent Expense
53 Depreciation Expense
54 Utilities Expense
55 Supplies Expense
56 Insurance Expense
59 Miscellaneous Expense
C3 - 16
NetSolutions
Expanded Chart of Accounts
Balance Sheet Income Statement
1,Assets
11 Cash
12 Accounts Receivable
14 Supplies
15 Prepaid Insurance
17 Land
18 Office Equipment
19 Accumulated Depreciation
2,Liabilities
21 Accounts Payable
22 Wages Payable
23 Unearned Rent
3,Stockholders’ Equity
31 Capital Stock
32 Retained Earnings
33 Dividends
4,Revenue
41 Fees Earned
42 Rent Revenue
5,Expenses
51 Wages Expense
52 Rent Expense
53 Depreciation Expense
54 Utilities Expense
55 Supplies Expense
56 Insurance Expense
59 Miscellaneous Expense
C3 - 17
NetSolutions
Expanded Chart of Accounts
Balance Sheet Income Statement
1,Assets
11 Cash
12 Accounts Receivable
14 Supplies
15 Prepaid Insurance
17 Land
18 Office Equipment
19 Accumulated Depreciation
2,Liabilities
21 Accounts Payable
22 Wages Payable
23 Unearned Rent
3,Stockholders’ Equity
31 Capital Stock
32 Retained Earnings
33 Dividends
4,Revenue
41 Fees Earned
42 Rent Revenue
5,Expenses
51 Wages Expense
52 Rent Expense
53 Depreciation Expense
54 Utilities Expense
55 Supplies Expense
56 Insurance Expense
59 Miscellaneous Expense
C3 - 18
NetSolutions
Expanded Chart of Accounts
Balance Sheet Income Statement
1,Assets
11 Cash
12 Accounts Receivable
14 Supplies
15 Prepaid Insurance
17 Land
18 Office Equipment
19 Accumulated Depreciation
2,Liabilities
21 Accounts Payable
22 Wages Payable
23 Unearned Rent
3,Stockholders’ Equity
31 Capital Stock
32 Retained Earnings
33 Dividends
4,Revenue
41 Fees Earned
42 Rent Revenue
5,Expenses
51 Wages Expense
52 Rent Expense
53 Depreciation Expense
54 Utilities Expense
55 Supplies Expense
56 Insurance Expense
59 Miscellaneous Expense
C3 - 19
NetSolutions
Expanded Chart of Accounts
Balance Sheet Income Statement
1,Assets
11 Cash
12 Accounts Receivable
14 Supplies
15 Prepaid Insurance
17 Land
18 Office Equipment
19 Accumulated Depreciation
2,Liabilities
21 Accounts Payable
22 Wages Payable
23 Unearned Rent
3,Stockholders’ Equity
31 Capital Stock
32 Retained Earnings
33 Dividends
4,Revenue
41 Fees Earned
42 Rent Revenue
5,Expenses
51 Wages Expense
52 Rent Expense
53 Depreciation Expense
54 Utilities Expense
55 Supplies Expense
56 Insurance Expense
59 Miscellaneous Expense
C3 - 20
Adjustments – Deferrals and Accruals
Current Period Future Period
Cash Received Revenue Recorded Deferrals
Revenues
C3 - 21
Adjustments – Deferrals and Accruals
Current Period Future Period
Cash Received Revenue Recorded Deferrals
Accruals Revenue Recorded Cash Received
Revenues
C3 - 22
Adjustments – Deferrals and Accruals
Current Period Future Period
Cash Received Revenue Recorded Deferrals
Current Period Future Period
Cash Paid Expense Recorded
Expenses
Accruals Revenue Recorded Cash Received
Revenues
Deferrals
C3 - 23
Adjustments – Deferrals and Accruals
Current Period Future Period
Cash Received Revenue Recorded Deferrals
Current Period Future Period
Expense Recorded Cash Paid
Cash Paid Expense Recorded
Expenses
Accruals Revenue Recorded Cash Received
Revenues
Deferrals
Accruals
C3 - 24
Adjustments – Deferred Expense
P1....,2,400
Cash
Prepaid Insurance
Insurance Expense
P1....,2,400
On December 1,NetSolutions purchased insurance
for 24 months at a cost of $2,400.
Adjustment A1 – Record
insurance used for December,
$100.
Expenses
Assets
Example P1 – Purchase initially recorded as an asset.
C3 - 25
Adjustments – Deferred Expense
P1....,2,400
Cash
Prepaid Insurance
Insurance Expense
P1....,2,400
On December 1,NetSolutions purchased insurance
for 24 months at a cost of $2,400.
Adjustment A1 – Record
insurance used for December,
$100.
A1....,100
A1.....100 Expenses
Assets
A1
Example P1 – Purchase initially recorded as an asset.
A1
C3 - 26
Adjustments – Deferred Expense
P2....,2,400
Cash
Prepaid Insurance
Insurance Expense
P2....,2,400
On December 1,NetSolutions purchased insurance
for 24 months at a cost of $2,400.
Adjustment A2 – Record
insurance unused as of
December 31.
Expenses
Assets
Example P2 – Purchase initially recorded as an expense.
C3 - 27
Adjustments – Deferred Expense
P2....,2,400
Cash
Prepaid Insurance
Insurance Expense
P2....,2,400
On December 1,NetSolutions purchased insurance
for 24 months at a cost of $2,400.
Adjustment A2 – Record
insurance unused as of
December 31.
A2....,2,300
A2.....2,300 Expenses
Assets
A2
Example P2 – Purchase initially recorded as an expense.
A2
C3 - 28
Adjustments – Deferred Revenue
Cash
Unearned Rent
Rent Revenue
S1....,360
On December 1,NetSolutions received cash of $360 for
three months’ rent beginning December 1.
Adjustment A3 – Record rent
earned for December.
S1....,360
Revenues
Liabilities
Example S1 – Sale initially recorded as a liability.
C3 - 29
Adjustments – Deferred Revenue
A3....,120
Cash
Unearned Rent
Rent Revenue
S1....,360
On December 1,NetSolutions received cash of $360 for
three months’ rent beginning December 1.
Adjustment A3 – Record rent
earned for December.
S1....,360
A3.....120 Revenues
Liabilities
A3
Example S1 – Sale initially recorded as a liability.
A3
C3 - 30
Adjustments – Deferred Revenue
Cash
Unearned Rent
Rent Revenue
S2....,360
On December 1,NetSolutions received cash of $360 for
three months’ rent beginning December 1.
Adjustment A4 – Record rent
unearned as of December 31.
S2.....360 Revenues
Liabilities
Example S2 – Sale initially recorded as revenue.
C3 - 31
Adjustments – Deferred Revenue
A4....,240
Cash
Unearned Rent
Rent Revenue
S2....,360
On December 1,NetSolutions received cash of $360 for
three months’ rent beginning December 1.
Adjustment A4 – Record rent
unearned as of December 31.
A4....,240
S2.....360 Revenues
Liabilities
A4
Example S2 – Sale initially recorded as revenue.
A4
C3 - 32
Adjustments – Accrued Expense
Wages Payable
Wages Expense
NetSolutions received employee services for the last two
days of December amounting to $250,to be paid later.
Adjustment A5 – Record accrued wages of $250.
Bal.....4,275 Expenses
Liabilities
C3 - 33
Adjustments – Accrued Expense
Wages Payable
Wages Expense
NetSolutions received employee services for the last two
days of December amounting to $250,to be paid later.
Adjustment A5 – Record accrued wages of $250.
A5....,250
Bal.....4,275 Expenses
Liabilities
A5
A5
A5.....250
C3 - 34
Adjustments – Accrued Revenue
Accounts Receivable
Fees Earned
As of December 31,NetSolutions provided 25 hours of
services at $20 per hour to be billed next month.
Adjustment A6 – Record accrued fees earned of $500.
Bal....16,340 Revenues
Assets
Bal.....2,220
C3 - 35
Adjustments – Accrued Revenue
Accounts Receivable
Fees Earned
As of December 31,NetSolutions provided 25 hours of
services at $20 per hour to be billed next month.
Adjustment A6 – Record accrued fees earned of $500.
A6....,500
Bal....16,340 Revenues
Assets
A6
A6
A6.....500
Bal.....2,220
C3 - 36
Summary of Adjustments
Deferred
Expenses
Expenses
Assets
A1 A2
Buying Side
Rearranging
the Debits
C3 - 37
Summary of Adjustments
Deferred
Expenses
Expenses
Assets
A1 A2
Deferred
Revenues
Revenues
Liabilities
A3 A4
Buying Side Selling Side
Rearranging
the Debits
Rearranging
the Credits
C3 - 38
Summary of Adjustments
Expenses
Liabilities
A5
Accrued
Expenses
Buying Side Selling Side
Adding a New
Transaction
C3 - 39
Summary of Adjustments
Expenses
Liabilities
A5
Revenues
Assets
A6
Accrued
Expenses
Buying Side Selling Side
Adding a New
Transaction
Adding a New
Transaction
Accrued
Revenues
C3 - 40
Summary of Adjustments
Deferred
Expenses
Expenses
Assets
A1 A2
Expenses
Liabilities
A5
Deferred
Revenues
Revenues
Liabilities
A3 A4
Revenues
Assets
A6
Accrued
Expenses
Buying Side Selling Side
Rearranging
the Debits
Adding a New
Transaction
Rearranging
the Credits
Adding a New
Transaction
Accrued
Revenues
C3 - 41
Financial Analysis and Interpretation
Objective,Use vertical analysis to compare financial
statement items with each other and with industry averages.
Comparative Income Statements
For the Years Ended December 31,2003 and 2002
Fees earned $ 187,500 100.0% $ 150,000 100.0%
Operating expenses:
Wages expense $ 60,000 32.0% $ 45,000 30.0%
Rent expense 15,000 8.0
2003 2002
Amount Percent Amount Percent
Vertical Analysis,
Wages expense $ 60,000
Fees earned $ 187,500 = 32.0%
C3 - 42
Note,To see the topic slide,type 2 and press Enter.
Power NotesChapter F3
The Matching Concept and the Adjusting Process
This is the last slide in Chapter F3,
