what variables are increased by debits?
- assets
- expenses
- dividends
what variables are increased by credits?
- liabilities
- shares (CC)
- revenue
what is identical to A = L + E ?
A + E + D = L + S + R
what are characteristics of DR accounts?
- BB on L
- Increase on L
- Decrease on R
- EB on L
what are characteristics of CR accounts?
- BB on R
- Increase on R
- Decrease on L
- EB on R
when are journal entries done?
in real time
when are adjusted entires done?
at the quarter/yearly end
why are adjusted entries done later?
matching principle + some transactions don’t reflect true value
what are 5 types of adjusting entries?
prepaid + accrued expense & accrued + unearned revenue & depreciation
how are each adjusting entries categorized?
- prepaid + accrued expense = A
- accrued + unearned revenue = L
- depreciation = expense
how do you approach journal + adjusted entries?
account the initial transactions + changes to be factored by the year end
solutions to problem E2.6
- dr. AR (750)
cr. service revenue (750) - dr. utilities expense (520)
cr. AP (520) - dr. depreciation
cr. interest - dr. interest expense
cr. interest payable - dr. insurance expense (1000)
cr. prepaid insurance (1000) - dr. supplies expense (1100)
cr. supplies (1100)
solutions to problem E2.7 (tip: draw T charts)
- BB 800 (solve for x)
dr. 850
cr. 950
ED 700 - August 1
Backdate from Jan 1
400 Premium x 12 = 4800
2400/4800 = 6 months
(calculate when plan started from the prepaid insurance)
- BB 1500 (solve for x)
dr. 2500
cr 1800
ED 800 - BB 1150 (solve for x)
dr. 2000
cr. 1600
ED 750
(service revenue = received unearned revenue but earned it later)
how are accrual vs cash accounts affected?
- Sales revenue (affects accrual/cash partially)
- COGS (affects accrual)
- Inventory (affects accrual/cash partially)
- Wages (both affected)
- Utilities (affects accrual)
- Rental income (affects accrual)
