INCOME SUMMARY

CHAPTER 1: ACCOUNTING AS AN INFORMATION

SYSTEM

1/ Accounting Equation

2/ Financial Statements

1/ Accounting Equation

Assets = Equities

Assets= Liabilities + Owner’s Equity

2. Financial Statement

1/ The Income Statement

2/ The Statement of Owner’s Equity

3/ The Balance Sheet

4/ The Statement of Cash Flow

(continued)

(concluded)

CHAPTER 2:

THE DOUBLE-ENTRY S Y S T E M

1.The T Account

2. Procedure Of Rec. Transaction

3. The Journal, General Journal

4. Trial Balance

Assets Equity

1. The T Account

1. The T Account (cont.)

THE T ACC. ILLUSTRATED:

Cash Account:

- O. Balance: $ 1,200

- Jan, 05: Received $ 300

- Jan, 07: Received $70

- Jan, 10: Paid $700

- Jan, 28: Received $130

C A S H

Bal. 1,200

Jan.05 300 Jan.10 700

Jan.07 70

Jan.28 130

500 700

Bal. 1,000

2. Procedure Of Rec. Transaction

- Analyze the transactions

- Journalizing

- Posting to the ledger

- Prepare Unadjusted trial balance

3. – The Journal, General Journal

3.1 THE GENERAL JOURNAL

General Journal Page 1

Date DescriptionPost Ref. Debit Credit

…2007

May 6 Office Supplies 2,000

AC. Payable 2,000

Purchase O.S

by on credit

3.2 The General Ledger

General LedgerAccounts Payable Ac. No. …

Date Item Post Ref. Dr. Cr.

Balance

Dr. Cr.

… … …. … … … … …2007

May 6 J1 2,000 2,300

7 J2 1,300 1,000

… … … … … … …

General Journal Page 1

Date Description Post Ref.

Debit Credit

…

2007

May

6 Office supplies 2,000

AC. Payable 2,000

Purchase O.S by

on credit

General LedgerAc. No. …

Date Item

Post Ref.

Dr. Cr.

Balance

Dr. Cr.

… … …. … … … 1,500 …

… … … … … … …

Office supplies2007May 2,000

J1

√1

2

3

4

6

6

3,5005

3.3 – Relationship between Journal and Ledger

TRIAL BALANCE – May 31, 2007

………………………….. ………………

………………

Accounts Payable $ 2,500

AXY, Capital 10,000

AXY, Withdrawals 1,400

Fees Earned 3,200

Telephone Expense 100

General LedgerCash Ac. No. …

Date Item

Post Ref.

Dr. Cr.

Balance

Dr. Cr.

2007 …. …. … … … 1,500

May ….

31 … … … … 2,000

Cash

$ 2,000

4. Trial Balance

CHAPTER 3:

BUSINESS INCOME – ADJUSTING ENTRIES

1/ The Adjustment Process

2/ The Adjusted Trial Balance

1/ The Adjustment Process

Deferrals1.1 - Apportioning Recorded Expenses

1.2 - Apportioning Recorded Revenues

Accruals1.3 – Unrecorded Revenues

1.4 – Unrecorded Expenses

1.1 – Apportioning Recorded Expenses

* PREPAID EXPENSESDebit Insurance Expense

Credit Prepaid Insurance * SUPPLIES EXPENSES

** Stock-takingDebit Supplies Expense

Credit Supplies

* DEPRECIATION EXPENSES** Straight Method

Debit Depreciation Expense

Credit Accu. Depre., Equip.

1.2 – Apportioning Recorded Revenues

* UNEARNED FEES

Debit Unearned Fees

Credit Fees Earned

1.3 – Unrecorded Revenues

* UNRECORDED FEES

Debit Fees Receivable

Credit Fees Earned

1.4 – Unrecorded Expenses

* UNRECORDED EXPENSES

Debit Office Wages Expense

Credit Wages Payable

2. – The Adjusted Trial Balance

• Posting of the adjusting entries to Ledger

• Preparing Trial Balance (Adjusted Trial Bal)

• Preparing Income Statement from Revenue Ac and Expense Ac

• Preparing Balance Sheet from Adj Trial Bal & Income Statement

Relationship of Adj Trial Balance to Income Statement

ADJUSTED TRIAL BALANCE

Cash $1,200

….

John, Capital $ 9,000

…

Ad Fees Earned 3,000

Art Fees Earned 1,600

Utility Expense 100

Wages Expense 900

Rent Expense 400

…

$18,810 $18,810

INCOME STATEMENTRevenues

Ad Fees Earned $3,000

Art Fees Earned 1,600

Total Revenues $4,600

Expenses

Utility Expense $100

Wages Expense 900

Rent Expense 400

Total Expenses $1,400

NET INCOME $3,200

Relationship of Ad Trial Balance to Balance Sheet

ADJUSTED TRIAL BALANCE

Cash $1,200

….

Office Equip. 4,200

Acc. Depr, Off E $70

…

$18,810 $18,810

BALANCE SHEETASSETS

Cash $1,200

. . .

Of. Equip $4,200

Less Accumulated

Depreciation 70 4,130

Total Assets $14,500

LIABILITIES

…

Total Liabilities $3,900

OWNER’S EQUITY

John, Capital, Jan 31, 07 10,600

Total Lia. & OE $14,500

STATEMENT OF OE

John, Capital, Jan 1, 07 ___

… $600

John, Capital, Jan 31, 07 $10,600

CHAPTER 4: COMPLETING THE ACOUNTING CYCLE

1/ Prepare a WORK SHEET & FINANCIAL

STATEMENTS

2/ Record CLOSING ENTRIES

3/ Prepare REVERSING ENTRIES

1/ Prepare a WORK SHEET & FINANCIAL STATEMENTS

Work Sheet

Work sheet

Revenues

Expenses

Income statement

WORK SHEET

+INCOME

STATEMENT

➮STATEMENT OF

OWNER’S EQUITY

Capital

Withdrawals Net IncomeWORK SHEET

+STATEMENT OF

OWNER’S EQUITY

➮ BALANCE SHEET

Assets

Liabilities Capital

FINANCIAL STATEMENTS

Record CLOSING ENTRIES

Dr. Revenues Cr. Income summary

Dr. Income summary Cr. Expenses

Dr. Net income Cr. Capital

Dr. Capital Cr. Withdrawals

Prepare REVERSING ENTRIES

(1) Accrued expenses

** Adjusting EntryJan 31 Wages Expense $180.

Wages Payable $180.** Reversing EntryFeb. 1Wages Payable $180.

Wages Expense $180.

Feb.9 Wages Expense $600.Cash $600.

Feb 9 Wages payable $180Wages expense $420 Cash $600

(2) Accrued revenues

** Adjusting Entry

Jan 31 Fees Receivable $200.

Advertising Fees Earned $200.

** Reversing Entry

Feb. 1Advertising Fees Earned $200.

Fees Receivable $200.

Feb.10 Accounts Receivable $300.

Advertising Fees Earned $300.

Feb.10 Accounts Receivable $300

Advertising Fees Earned $100

Fees Receivable $200

CHAPTER 5: ACCOUNTING for MERCHANDISING OPERATIONS

1/ Returns and allowances & Discounts

2/ Transportation Term

3/ Record Purchases of merchandising

(GROSS & NET METHOD)

4/ Record CLOSING ENTRIES

1/ Returns and allowances & Discounts

Sales:

Sales return and allowances

Dr. Sales return and allowances

Cr. Accounts receivable or Cash

Sales discounts

Jan 20 Dr. Accounts receivable $300

Cr. Sales $300

(terms 2/10, n/30)

Jan 29 Dr. Cash $294

Dr. Sales discounts $6

Cr. Accounts receivable $300

Purchases:

Purchases returns and allowances

Dr. Accounts payable

Cr. Purchases returns and allowances

Purchases discounts

Feb 2

Dr. Purchases $1,300

Cr. Accounts payable $1,300

(terms 2/10, n/30)

Feb 10

Dr. Accounts receivable $1,300

Cr. Purchases discounts $26

Cr. Cash $1,274

2/ Transportation Term

3/ Record Purchases of merchandising (Gross Method)

Transaction Debit Credit

Purchase mer. for resale

Purchase

(Gross Price)

- Cash

- AC Payable

Incur transportation

on mer.

Freight In - Cash

- AC Payable

Return mer. or

obtain a reduction

- Cash Purchase

(Gross Price)- AC Payable

Pay for mer. purchased on credit

AC Payable - Cash

- Purchases

Discounts

4/ Record Purchases of merchandising (Net Method)

Transaction Debit Credit

Purchase mer. for resale

Purchase

(Net Price)

- Cash

- AC Payable

Incur transport.

on mer.

Freight In - Cash

- AC Payable

Return mer. or

obtain a reduction

- Cash

Purchase

(Net Price)- AC Payable

Pay for mer. purchased on credit

- AC Payable

Cash- Purchases Discounts Lost

4/ Record CLOSING ENTRIES

Income SummaryExpensesMerchandise Inventory (Begin)

Sales Return & AllowancesSales DiscountsPurchasesFreight In

Merchandise Inventory (End)SalesPurchases Return&AllowancesPurchases Discounts

Income Summary

5/ Calculate COST OF GOODS SOLD

GOODS Available for Sale

Beginning

Merchandise Inventory

NET

PURCHASES

COST OF

GOODS SOLD

** Cost of Goods Sold:

Ending

Merchandise Inventory

6/ Income Statement

INCOME STATEMENT For the Year Ended …..

Revenues from Sales

Net Sales

Cost of Goods Sold

Cost of Goods Sold

Gross Margin from Sales

Operating Expenses

Selling Expenses

General & Administrative Expenses

Total Operating Expenses

Net Income

CHAPTER 6: ACCOUNTING SYSTEMS

SPECIAL-PURPOSE JOURNALS

Special-Purpose Journal

Save times Compare

2.1/ Relations between transactions and special-purpose journals

Transaction S-P Journal Abbre

Sales of mer on credit Sales Journal S

Purchases on credit Purchases J P

Receipts of cash Cash Receipts Journal

CR

Disbursements of cash Cash Payments Journal

CP

2.2/ Sales Journal

SALES JOURNAL

Date AC Debited Invoice Number

PostRef.

Dr AC Receivable Cr Sales

July 1 Peter Clark 721 750./

5 Michael Powers 722 500./

8 Peter Clark 724 335./

. . . . . . . . . . . . . . . . .

4,950./

- Only one line to record each transaction

- No explanation

SALES JOURNAL Page 1

Date AC Debited Invoice Number

PostRef.

Dr AC Receivable Cr Sales

Jul 1 Peter Clark 721 750./

5 Michael Powers 722 500./

8 Peter Clark 724 335./

. . . . . . . . . . . . . . . . .

4,950./

AC Receivable ……

Date

Post. Ref.

Dr Cr

Balance

Dr Cr

Jul 31 S1 4,950 4,950.

Sales ……….

Date

Post. Ref.

Dr Cr

Balance

Dr Cr

Jul 31 S1 4,950 4,950.

SALES JOURNAL Page 1

Date AC Debited Invoice Number

PostRef.

Dr AC Receivable Cr Sales

Jul 1 Peter Clark 721 750./

5 Michael Powers 722 500./

8 Peter Clark 724 335./

. . . . . . . . . . . . . . . . .

4,950./

Michael Powers ……

Date

Post. Ref. Dr Cr

Balance

Dr Cr

Jul 05 S1 500. 500.

Peter Clark ……

Date

Post. Ref. Dr Cr

Balance

Dr Cr

01 S1 750. 750.

Jul 08 S1 335. 1,085.

AC Receivable ……

Date

Post. Ref.

Dr Cr

Balance

Dr Cr

Jul 31 S1 4,950 4,950.

End of the month

Daily

DateAccount

Debited/ Credited

Post.

Ref.

Debits Credits

CashSales

discountsOther

AccountsAccounts

ReceivableSales

Other accounts

Jul 1 sales 1,200 1,200

8 Georgetta Jones 490 10 500

13 sales 1,400 1,400

16 Peter Clark 750 750

3,840 10 1,250 2,600

Georgetta Jones ……

Date

Post. Ref. Dr Cr

Balance

Dr Cr

Jul 08 CR1 500

Peter Clark ……

Date

Post. Ref. Dr Cr

Balance

Dr Cr

…. … …. ….. ….. 850 …..

Jul 16 CR1 100

Cash ……

Date

Post. Ref.

Dr Cr

Balance

Dr Cr

Jul 31 CR1 3,840 3,840

AC Receivable ……….

Date

Post.Ref.

Dr Cr

Balance

Dr Cr

Jul 31 S1 850

31 CR1 1,250 400

500

750

Cash Receipts JournalPage 1