TGS Year 1: Transaction 10

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Financial Accounting Fundamentals

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University of Virginia

Financial Accounting Fundamentals

381 оценки

This course will teach you the tools you'll need to understand the fundamentals of financial accounting. Concise videos, the financial records of a small business, and "your turn" activities guide you through the three most commonly used financial statements: the Balance Sheet, the Income Statement, and the Statement of Cash Flows. Beyond recording transactions, you'll learn how to prepare these financial statements, and read and analyze them to draw basic conclusions about a company's financial health. By the end of this course, you will be able to: - Use journal entries to record transactions - Prepare and use t-accounts to summarize transactions recorded during an accounting period - Describe the three most commonly used financial statements and how they fit together - Prepare these financial statements based on transactions recorded during an accounting period - Draw basic conclusions about a company's financial health

Из урока

The Income Statement, Revenue and Expense Transactions, and Adjusting Entries

Now that we’ve learned the fundamentals of recording transactions, we’re ready to dive into another financial statement: the Income Statement (IS). After learning about the Income Statement, we’ll record revenue and expense transactions, and summarize these transactions in a special account. Finally, we'll record adjusting entries in accordance with accrual accounting, prior to the preparation of the financial statements.

Adjusting Entries: A Tutorial9:53

Recording Adjusting Entries: Your Turn16:20

TGS Year 1: Transaction 93:17

TGS Year 1: Transaction 104:58

TGS Year 1: Transaction 11 and a Summary4:41

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Luann J. Lynch
Almand R. Coleman Professor of Business Administration
Darden School of Business

Let's go to the next one.

Record depreciation expense on the truck and the equipment.

Okay, record that the truck and

the equipment, or both assets, we're using those assets, or

the Garden Spot is using those assets to generate revenues each period.

And the Mary Jo had purchased each of these, she felt like she would use

the truck for five years and that she would use the equipment for five years.

In accounting terms, that's sometimes called useful life or

estimated useful life.

And so what we want to do is we want to allocate the cost of the truck and

allocate the cost of the equipment over the five years

that Mary Jo expects to use those assets.

So simply speaking, what we could do for

the truck is we could take the $12,000 historical cost or original cost.

Divide it by the estimated useful life.

And record $2,400 of depreciation expense each year.

And for the equipment, we could record.

We could take the $10,000 original or historical cost.

By that, by the five years, she expected to use the equipment, and

we would need to record an expense of $2,000 on each of those five years.

So let's do that.

At this point, we'll record on left-hand side the retained

earnings because we're recording an expense.

And again, we're going to call that depreciation expense,

because that's the official accounting term.

It's a decrease of a total of $4,400.

Now, I'm going to pause and say the depreciation expense is an official

accounting term, but we could just as easily think of it

as an expense to capture the cost of using the equipment.

So it's important to recognize that that's what we're doing here.

Then we're going to reduce the balance in the asset accounts

to represent that we've used up some of that asset to help us generate revenues.

We have two asset accounts.

We have the truck, and we have the equipment.

We're going to decrease the balance in each of those.

We're going to decrease the balance in the truck account by the $2,400

of depreciation that we calculated for it, and we'll reduce the balance in

the equipment account by the $2,000 in depreciation that we calculated for it.

So you'll notice that the $4,400 here

is equal to the total of the right side entries of $4,400 as well.

Let's post these to the T account, the left-hand to the retained earnings,

T account 4,400.

We'll make a notation that it's associated with Entry 10, and

we'll call it depreciation expense, or we'll note that it's depreciation expense.

Then the reduction in the truck,

the balance in the truck asset account will be on the right-hand side.

We'll make a notation that's associated with Entry 10 and

the reduction in the equipment account on the right-hand side, again, Entry 10.

For good measure, we should make sure that after we've recorded this entry,

that our accounting, or our balance sheet equation stays in balance.

Let's check on this one just to make sure it does.

Here we have, on the asset side, we have a decrease, and

the balance of the truck account of $2,400.

We have a decrease in the balance on the equipment account of $2,000,

and we have a reduction in retained earnings,

which is a reduction in owner's equity of $4,400.

So the total here is a reduction in assets of $4,400, and

the total on the right side is a reduction of $4,400.

So both sides are both down by $4,400.

So we can again be happy.

I know you've missed this,

we can be happy that we have an equation that's in balance.

Our assets continue to be equal to liabilities plus owner's equity.

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