Class Notes: Intermediate Accounting Chapter 3
Chapter 3 continued...
Every acct on adj trial bal is used only once in creating first 3 financial stmts.
Point of closing is to bring RE up to date - in doing that, we zero out temp accts.
4 kinds of closing entries:
1) close out Revenue - debit Rev CR Income Summ (normal credit bal) (only exists long enough for closing entries) - companies may be closing hundreds of rev or exp accts
2) close out Expense accts - list every single acct DR Income Summ CR Exp accts
3) DR Income Summ CR Retained Earnings
4) DR Retained earnings - return of equity, has nothing to do with production (“Income” Summ does)
CR Dividends (always has deb bal)
Ex3-14:
1) DR Revenue 340,000 CR Sales discounts 8000 CR Sales RtA 13000 CR Income Summ (340,000-8,000-13,000)
You can chose to close Sales disc and Sales RtA when closing expenses. However, they aren’t expenses-they are contrarevenue accts. If closing w/exp, distinguish that I closed both expenses and contra-revenue accts. Don’t close them as expenses.
2) DR Income Summ 302,000 CR C/G/S CR Ins Exp CR Rent Exp CR Salaries and Wages
Freight-in & freight-out (shipping exp-seller is paying cost to get merch out of their bldg and to customer-when seller pays freight, it’s an exp) CR Freight-out
3) DR Income Summ 17,000
CR Retained Earnings 17,000
Side-note: Current liab - current maturity of LT-debt, LT-debt bal that isn’t due is all that is shown as LT-debt. Any LT-debt that’s currently due must show up on bal sheet as current liab. (will study in 2303)
Next topic: Reversing entries
Not required...they are done to simplify a company’s processing of transactions. But accountant must know if it’s being done bc balances will look diff (?). Never made for non-cash entries. Most frequently used with accruals but can be done with cash rcpts/disbursements if company isn’t using their …
Supplies: on unadj trial bal, if I only see Supplies Exp then I know something is missing -- adj entry will put
Every acct on adj trial bal is used only once in creating first 3 financial stmts.
Point of closing is to bring RE up to date - in doing that, we zero out temp accts.
4 kinds of closing entries:
1) close out Revenue - debit Rev CR Income Summ (normal credit bal) (only exists long enough for closing entries) - companies may be closing hundreds of rev or exp accts
2) close out Expense accts - list every single acct DR Income Summ CR Exp accts
3) DR Income Summ CR Retained Earnings
4) DR Retained earnings - return of equity, has nothing to do with production (“Income” Summ does)
CR Dividends (always has deb bal)
Ex3-14:
1) DR Revenue 340,000 CR Sales discounts 8000 CR Sales RtA 13000 CR Income Summ (340,000-8,000-13,000)
You can chose to close Sales disc and Sales RtA when closing expenses. However, they aren’t expenses-they are contrarevenue accts. If closing w/exp, distinguish that I closed both expenses and contra-revenue accts. Don’t close them as expenses.
2) DR Income Summ 302,000 CR C/G/S CR Ins Exp CR Rent Exp CR Salaries and Wages
Freight-in & freight-out (shipping exp-seller is paying cost to get merch out of their bldg and to customer-when seller pays freight, it’s an exp) CR Freight-out
3) DR Income Summ 17,000
CR Retained Earnings 17,000
Side-note: Current liab - current maturity of LT-debt, LT-debt bal that isn’t due is all that is shown as LT-debt. Any LT-debt that’s currently due must show up on bal sheet as current liab. (will study in 2303)
Next topic: Reversing entries
Not required...they are done to simplify a company’s processing of transactions. But accountant must know if it’s being done bc balances will look diff (?). Never made for non-cash entries. Most frequently used with accruals but can be done with cash rcpts/disbursements if company isn’t using their …
Supplies: on unadj trial bal, if I only see Supplies Exp then I know something is missing -- adj entry will put