CHAPTER 5 – THE EXPANDED LEDGER



CHAPTER 5 – THE EXPANDED LEDGER

1. Define key terminology: Revenue, Expenses, Drawings

Revenue Recognition Principle (Accounting Principle)

Read 5.1 and answer review questions #1, 2, 6, 9-12, 18 p. 140 (t), p.78 (w)

ASSETS = LIABILITIES + OWNER’S EQUITY

Complete Ex. 1, 2, 4, 5 pp. 150-152 (t), p. 86-90 (w)

2. The Income Statement: definition and example on handout

Time Period Concept:

Matching Principle:

Chart of Accounts:

|E. Boa, LLB |

|CHART OF ACCOUNTS |

|Assets |No. |Equity |No. |

|Bank |105 |E. Boa, Capital |305 |

|A/R – H. Geroux |110 |E. Boa, Drawings |310 |

|A/R – J. Magill |115 | | |

|A/R – E. Parsons |120 |Revenue | |

|Supplies |125 |Fees Earned |405 |

|Office Equipment |130 | | |

|Automobile |135 |Expenses | |

| | |Advertising Expenses |505 |

|Liabilities | |Car Expense |510 |

|A/P – OK Supply |205 |Rent Expense |515 |

|A/P – Computer Outlet |210 |Sundry Expense |520 |

|Bank Loan |215 |Wages Expense |525 |

Trial Balance with expanded Owner’s Equity accounts – see example p. 144 (t)

Complete exercises 1, 2, 3 p. 141-142 (t), pp. 79-81 (w)

3. Expanded Owner’s Equity Section of the Balance Sheet (3 examples)

Report Form Balance Sheet

Complete Ex. 1, 3, p. 157-158 (t), p. 91-92 (w)0

EXPANDING THE OE SECTION OF THE BALANCE SHEET:

1. NET INCOME > DRAWINGS = INCREASE IN CAPITAL

E. Boa, Capital, June 1 12276.53

Net Income 1709.07

Drawings 1500.00

Increase in Capital 209.07

E. Boa, Capital, June 30 12485.60

2. NET INCOME < DRAWINGS = DECREASE IN CAPITAL

E. Boa, Capital, January 1 20376.64

Net Income 10594.03

Drawings 15376.70

Decrease in Capital 4782.67

E. Boa, Capital, December 31 15593.97

3. NET LOSS + DRAWINGS = DECREASE IN CAPITAL

E. Boa, Capital, January 1 31216.40

Net Loss 5147.62

Drawings 19400.00

Decrease in Capital 24547.62

E. Boa, Capital, June 30 6668.78

REPORT FORM BALANCE SHEET:

For each of the following set up the Owner’s Equity section of the balance sheet.

1. Despite drawings of $2,000 in the first 6 months of 2013, and a net income of $3,200, “Bright Stop Ltd.” Was still in good shape at the end of June. The year had opened boasting a capital account of $39,000.

2. Ms. S. Henessey invested $13,000 in her new business of “wicker Imports” September 1, 2013. After 3 months of operation her accountant advised her that she had withdrawn $4,800 and earned a net income of $2,400.

3. The experimental self-service dry cleaning operation run by one of the Markus Brothers proved unsuccessful in the trial year. “Markus Cleaners” showed a net loss of $3,300 despite the enthusiastic initial capital investment of $20,000. A mere $1,300 in drawings had been made during the year.

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