C3 - 1
Learning Objectives
Notes
The Matching Concept and the Adjusting Process 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 3
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 3
The Matching Concept and the Adjusting Process The Matching Concept and the Adjusting Process
Notes
C3 - 3
TWO METHODS
Reporting Revenue and Expense Reporting Revenue and Expense
Cash Basis of Accounting
Accrual Basis of Accounting
C3 - 4
Cash Basis of Accounting 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 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 The Matching Concept
The Matching Concept The Matching Concept
Assets Liabilities
Owner’s Equity
Debits = Credits
Expenses Revenues
C3 - 7
The Matching Concept The Matching Concept
The Matching Concept The Matching Concept
Assets Liabilities
Owner’s Equity
Debits = Credits
Expenses Revenues
Net Income
C3 - 8
The Matching Concept The Matching Concept
The Matching Concept 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 11
Cash Cash
2,065 2,065
12 12
Accounts Receivable Accounts Receivable
2,220 2,220
14 14
Supplies Supplies
2,000 2,000
15 15
Prepaid Insurance Prepaid Insurance
2,400 2,400
17 17
Land Land
20,000 20,000
18 18
Office Equipment Office Equipment
1,800 1,800
Assets 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 21
Accounts Payable Accounts Payable
900 900
23 23
Unearned Rent Unearned Rent
360 360
Liabilities Liabilities
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 31
Chris Clark, Capital Chris Clark, Capital
25,000 25,000
32 32
Chris Clark, Drawing Chris Clark, Drawing
4,000 4,000
Owner’s Owner’s
Equity 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 Chris Clark, Capital 25,000
32 Chris Clark, Drawing 4,000
41 41
Fees Earned Fees Earned
16,340 16,340
Revenue Revenue
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 Chris Clark, Capital 25,000
32 Chris Clark, Drawing 4,000
41 Fees Earned 16,340
51 51
Wages Expense Wages Expense
4,275 4,275
52 52
Rent Expense Rent Expense
1,600 1,600
54 54
Utilities Expense Utilities Expense
985 985
55 55
Supplies Expense Supplies Expense
800 800
59 59
Miscellaneous Expense Miscellaneous Expense
455 455
42,600 42,600
Expenses 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 Chris Clark, Capital 25,000
32 Chris Clark, 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
C3 - 15 NetSolutions
Expanded Chart of Accounts
Balance Sheet Income Statement
1. Assets 11 Cash
