Impact of Adjusting Entries

1. Impact of Adjusting Entries Spencer Barr, Amy Collmeyer, Xi Dai, Kevin Steitz, Kathryn Young

2. Introduction • Definition of adjusting entry • Deferral • Accrual • Concepts • Revenue Recognition Principle • Matching Principle • Impact of adjusting entry • Assignment

3. Part A • On December 1, 2011, Johnson received a $45,000 payment for services to be rendered equally over a four-month period. Service revenue was credited. Assets = Liabilities + Stockholders’ Equity (0) (-) (+)

4. Part A cont. • On December 31, 2011, the company paid a local radio station $16,000 for 40 radio ads that were to be aired, 20 per month, throughout January and February of 2012. Prepaid advertising was debited. Assets = Liabilities + Stockholders’ Equity (0) (0) (0) *No adjusting journal entry!* But…

5. Part A cont. • Employee salaries for the month of December 2011 totaling $8,400 will be paid on January 5, 2012. Assets = Liabilities + Stockholders’ Equity (0) (+) (-)

6. Part A cont. • On September 31, 2011, Johnson Corp. borrowed $60,000 from a local bank. A note was signed with principal and 6% interest to be paid on September 1, 2012. Assets + Liabilities + Stockholders’ Equity (0) (+) (-)

7. Part A cont. • On December 31, 2011, it was determined that $8,000 of the recorded accounts receivable would prove to be uncollectible. Assets = Liabilities + Stockholders’ Equity (-) (0) (-)

8. Part B • Total assets on December 31, 2011

9. Part B cont. • Total liabilities on December 31, 2011

10. Part B cont. • Net income for 2011

11. Part B cont. • Total retained earnings on December 31, 2011

12. Part B cont. • Total stockholders’ equity on December 31, 2011

13. Conclusion