Professional Documents
Culture Documents
Income Statement
Depicts the
revenue and
Statement of Cash Flows expenses for a
designated
period of time.
Introduction to Financial
Statements
Balance Sheet
Income Statement
A business
entity is
Vagabond separate from
Travel the personal
Agency
affairs of its
owner.
Assets
2-23
On May 2, JJ’s purchased a riding lawn
mower for $2,500 cash.
JJ's Lawn Care Service
Balance Sheet
May 2, 2009
Assets Owners' Equity
Cash $ 5,500 Capital Stock $ 8,000
Tools & Equipment 2,500
2-24
On May 8, JJ’s purchased a $15,000 truck.
JJ’s paid $2,000 down in cash and issued a
note payable for the remaining $13,000.
JJ's Lawn Care Service
Balance Sheet
May 8, 2009
Assets Liabilities and Owners' Equity
Cash $ 3,500 Liabilities:
Tools & Equipment 2,500 Notes Payable $ 13,000
Truck 15,000 Owners' Equity:
Capital Stock 8,000
2-25
On May 11, JJ’s purchased some repair
parts for $300 on account.
2-26
Jill realized she had purchased more repair parts than
needed.
On May 18, JJ’s was able to sell half of the repair parts to
ABC Lawns for $150, a price equal to JJ’s cost. JJ’s will
receive the cash within 30 days.
JJ's Lawn Care Service
Balance Sheet
May 18, 2009
Assets Liabilities and Owners' Equity
Cash $ 3,500 Liabilities:
Accounts Receivable 150 Notes Payable $ 13,000
Tools & Equipment 2,650 Accounts Payable 300
Truck 15,000 Total Liabilities $ 13,300
Owners' Equity:
Capital Stock 8,000
2-27
On May 25, ABC Lawns pays JJ’s $75 as a
partial settlement of its accounts
receivable.
JJ's Lawn Care Service
Balance Sheet
May 25, 2009
Assets Liabilities and Owners' Equity
Cash $ 3,575 Liabilities:
Accounts Receivable 75 Notes Payable $ 13,000
Tools & Equipment 2,650 Accounts Payable 300
Truck 15,000 Total Liabilities $ 13,300
Owners' Equity:
Capital Stock 8,000
2-28
On May 28, JJ’s pays $150 of its accounts
payable.
JJ's Lawn Care Service
Balance Sheet
May 28, 2009
Assets Liabilities and Owners' Equity
Cash $ 3,425 Liabilities:
Accounts Receivable 75 Notes Payable $ 13,000
Tools & Equipment 2,650 Accounts Payable 150
Truck 15,000 Total Liabilities 13,150
Owners' Equity:
Capital Stock 8,000
2-29
On May 29, JJ’s recorded lawn care
services provided during May of $750. All
clients were paid in cash.
JJ's Lawn Care Service
Balance Sheet
May 29, 2009
Assets Liabilities and Owners' Equity
Cash $ 4,175 Liabilities:
Accounts Receivable 75 Notes Payable $ 13,000
Tools & Equipment 2,650 Accounts Payable 150
Truck 15,000 Total Liabilities 13,150
Owners' Equity:
Capital Stock 8,000
Retained Earnings 750
Total $ 21,900 Total $ 21,900
2-30
On May 31, JJ’s purchased gasoline for the
lawn mower and the truck for $50 cash.
JJ's Lawn Care Service
Balance Sheet
May 31, 2009
Assets Liabilities and Owners' Equity
Cash $ 4,125 Liabilities:
Accounts Receivable 75 Notes Payable $ 13,000
Tools & Equipment 2,650 Accounts Payable 150
Truck 15,000 Total Liabilities 13,150
Owners' Equity:
Capital Stock 8,000
Retained Earnings 700
Total $ 21,850 Total $ 21,850
Other Information:
•Industry
•Competitors
•National economy
The Need for Adequate Disclosure
Evaluating Evaluating
Profitability Liquidity
Accounts are
Cash individual records
showing increases
Accounts and decreases.
Payable
Cash
Receipts are 5/1 8,000 5/2 2,500 Payments are
on the debit
side. 5/25 75 5/8 2,000 on the credit
side.
5/29 750 5/28 150
5/31 50
5/31 4,125 The balance is the
difference between the
Bal. debit and credit entries
in the account.
Debit and Credit Entries
Debits and credits affect accounts as follows:
A = L + OE
ASSETS LIABILITIES EQUITIES
Debit Credit Debit Credit Debit Credit
for for for for for for
Increase Decrease Decrease Increase Decrease Increase
Double Entry AccountingThe Equality of
Debits and Credits
A = L + OE
Debit Credit
=
balances balances
Will
Capital
Capital
Stock
Stock
Will
Cash
Cash
increases
increase
increases
increase$8,000
or
$8,000
or decrease?
with a debit.
with
decrease?
a credit.
3-49
May 2: JJ’s purchased a riding lawn mower
for $2,500 cash.
Tools
Will
& Tools
Equipment
&
Will
CashCash
decreases
increase
Equipment
increases increase
$2,500
$2,500
or decrease?
with a credit.
or
with
decrease?
a debit.
3-50
May 8: JJ’s purchased a $15,000 truck. JJ’s paid
$2,000 in cash and issued a note payable for the
remaining $13,000.
Cash
5/1 8,000 5/2 2,500
Truck
5/8 2,000
5/8 15,000
Notes Payable
5/8 13,000
3-51
May 11: JJ’s purchased some repair parts
for $300 on account.
Tools
Will
& Tools
Equipment
& Accounts Payable
Will Accounts
Equipment
increases $300
increase
with increasesincrease
Payable $300 withor
a
or decrease?
a debit. credit.
decrease?
3-52
May 18: JJ’s sold half of the repair parts to
ABC Lawns for $150, a price equal to JJ’s cost.
ABC Lawns agrees to pay JJ’s within 30 days.
Tools
Will
& Tools
Equipment
& Accounts Receivable
Will Accounts
decreases
Equipment$150
increase
with increases $150
Receivable with a
increase
or adecrease?
credit. debit.
or decrease?
3-53
The Journal
In an actual accounting system, transactions
are initially recorded in the journal.
GENERAL JOURNAL
Posting simply
means updating the
ledger accounts for
the effects of the
transactions
recorded in the
journal.
Posting Journal Entries to the
Ledger Accounts
GENERAL JOURNAL
Cash
Date Debit Credit Balance
2009
May 1 8,000 8,000
Posting Journal Entries to the
Ledger Accounts
GENERAL JOURNAL
Capital Stock
Date Debit Credit Balance
2009
May 1 8,000 8,000
Posting Journal Entries to the
Ledger Accounts
GENERAL JOURNAL
A = L + OE
Increase Decrease Increase
A = L + OE
Capital Retained
Stock Earnings
The costs of
goods and Decreases
services used up owner’s equity.
in the process of
earning revenue.
The Matching Principle: When To
Record Revenue
Matching Principle
Revenue should be
recognized at the
time goods are sold
and services are
rendered.
The Matching Principle: When To
Record Expenses
Matching Principle
Expenses should be
recorded in the
period in which they
are used up.
The Accrual Basis of Accounting
Current Future
Accounting Period Accounting Period
OR