Accounting Transactions: A Comprehensive Guide

Posted on Jul 31, 2024 in Latin

Account Receivable

  • Dr + CR -: Collection Dr Cash X Cr AR X

Accounts Payable

  • Bought machine for $300 on account. Dr Equiptment Cr Accounts Payable 300

Allowance for Doubtful Accounts

  • Dr + CR – :
  • Establish Dr Bad Debt Expense Cr Allowance for Doubtful Accounts
  • Write off: Dr Allowance Cr AR Allowance= Contra Asset.  Only affects Balance Sheet. 
  • Reverse: Dr AR X CR Allowance DrCash Cr AR or Dr Cash CR Allowance. way to indicate likelyhood of collecting the AR. GAAP- must appear on the BS as a deduction.  Should analyze at the end of the year.  (AGE)

Asset Sale

  • Dr Accumulated X Dr Loss X Dr Cash X Cr Equiptment 3X Cr Gains for sales proceeds exceeding the net book value.
  • Ex. Asset discarded after 10 years Dr Acc Dep. $10,000 Cr Equiptment $10,000.   sold for $500 Dr Acc Dep for 10k Dr cash $500 Cr Equiptment for 10k Cr Gain for $500.  6 years of Dep.  Dr acc Dep $6000, Cr Equiptment $10,000 dr Cash 4000.  Dr ACcc Dep 7k dr loss 3k  Cr equipment 10k

Depreciation

  • Appears on the Balance Sheet
  • Allocates costs to acuire a fixed asset’s use based on the asset’s historical cost, less Salvage Value: Residual amout tht an enterprise expects to recieve upon the Asset’s disposition at the end of USeful Life: Estimate how long asset will last.
  • Ex. Machine $100,000 Useful Life 10 years $15,000 SV.  $1,000 Ciost to remove $!,500 commision = $12,500 NSV Depreciable BASE value.  allocate $87,500.   Book Value- Cost- Acc. Dep Can’t depreciate land – only imporvements. 
  • Methods:
  • Units of Activity: Depreciation charege per unit= (cost-SV)/ Estimated Useful Life ex .$12,000-$2,000/ 20,000 hours.  = $.50 per hour If use 1,500*.50$ hours durnig period – Dep Expense $750
  • Straight Line: cost- SV/estimated uselife  or 12,000-2000/ 4 years Dr Expense $2500. 
  • Accelerated Methods: demoniator N(N+1)/2=donominator 4_3_2_1 = 10 Declining Balance: 150%*.25  or 200% _.25 HC *.25.  Dr Dep. Expense X Cr Acc Dep X. BALANCE SHEET APPERANCE: Asset $x.xxx (less accumlated depreciation $x net Asset $x,xxx) If initial estimates made in good faith- adjustment to be maed to retained earnings and not depreciation expense. Dr acc dep. cr retained eranings.   for the amount of the overstatement.  the comparison wouldbe 2700000/8 = 337,500/year. 3 years= 1,012,500.  the company used 5 years so accum depreciation through the end of 2011 would be 540 a year or 1,620,00 in total-  Dr accum dep for 607,500 cr retianed earnins capital for the same amount- this incrases ppe- since acc dep is a contra asset account . it is difficult to justify a change in accounting method such as the  manner of dep. an asset since its affects the comparability of your financial statements from year t year.  30%35% 20% would create a high accumulated depreciation which favors jaems.

Equiptment

  • cash $7000 Dr Equiptment 7000 cr Cash 7000- $3000 100 down: Dr Equiptment 3000 Cr cash 100 Cr accounts Payable $2900.

Interest

  • Pay loan payment of 535 35 intererst Dr Loan payable 500 dr interest expense 35 cr cash 535.
  • Buy 1 million dollars 30% upfront cash. Dr equiptment 1,000,000. cr cash 300,000 note payable 700,000 10% 2 years installment 7/1/12.   on 12/31/12 entry = Dr interest Expense 35k Cr Interest pyable 35,000 6/30/13- Dr notespayble $350k cr cash $350k Interests: Dr interest pyable $35k Dr Interest Expense 35k CR cash 70k 7/13 Dr interest exxpense 17,500 cr interest payable 17,500  dr notes pyable 350 k Dr interest payable 17.5 dr expense 17.5k cr cash 17.5k

Owner Contribues

  • 100$ Dr Cash cr Owners Equity

Prepaid Expenses

  • $180 for secretary 1 week not 2 weeks next period- initial entry- dr prepraid salary 180 cr cash 180. end of period dr salray expense 60 cr prepaid slary 60. 

Pruchased land

  • 1800 paid 600 down 1 year nte for %5 balance.  Dr land 1800 cr cash 600 cr note payable 1200 (nothing to do for interest yet)

Rent

  • aid 75$ cash to lanloard for rent fro july- Dr Rent Expense $75 cr cash $75Dr Bank loans cr cash – no effect on the balance sheet since it reduced assets as well as liabilities. 

Reversing a sale

: Dr Revenues and Cr loan Rec. Acount Rec .what ever.  if done in good faith argue the dr should go to sales returns- Reducing net slales- risk in someone takeing the position of reversing sham sale. Once the goods are returned they need to go back into inventory- the entry dr inventory and cr cost of goods sold.  we do not know the cost of the inventory that wsa returned so some estimation is necessary.  could use cogs / net revenues 55%. this entry increases an asset and decreases an expense- helps tkaes the sting out of a reversal.  710 Notes REceviable could be converted to AR if you argue that these were recorded as notes and given extended payments terms simply to avoid recocording an allowance for doubtful accounts. thus, the correcting entry would be Dr AR and R notes REc. Then argue that the new AR are highly risky cusstomers allowance is required for these. Dr bad debt expense Cr allowance.   This entry increases expenses an liabilities.  Doing this reverses the Interest Rec. and Interest income- which helps to reduce an asset and reducing an income amount. upon reflection percentage was too conservative and should be lowered.  Dr allowance cr bad debt expense to reverse AR contra asset.   increase asset and lowers expense . E&O Reserve – reprsents the amount of inventory that the company believes it not sealeable (obsolete) or more than they ccan sell over a defined future period (excess).  Dr cogs and CR E&O Reserves.  $75k was drawn out of thin air- unsupportable- reverse Dr E&O cr COGS- lowers liabilities and expenses.  Litigation Reserve- 751k too high based on the stage of litigation info provided by defense counsel- how much it would take ot maek it go away- may argue 15k too low hard to support a reserve higher than 50 k.  the amount be estimatable and probable to justify an accrual. Bonus- waived her bonus – dr salries payable cr salaries expense – lowers liabilites and expenses- Accrued bonus for james was a cookie jar reserve maed when the cmopany had higher than necessary earnings-  (generate james will not take th ebonus can record like the above .

Litigation loss reserve: a company must create a litigation loss if (1) a loss is probable (2) the amount of the expected loss is material and reasonably estimable.  Reasonably possible: chance of future event or events occuring is more than remort but less than likley- Remote: change of an adverse outcome is slight,.  If its probably is the amout estimable?  if a company determiens that  aloss is probable – the next amount of loss will be material and if it can be estimated . Establish a reserve policy and applyit ocnsistently. err on the side of disclosure when there is  ahcnace that a littigation closs could be considered reasoably possible.  FAS (5) requirements ar esatified- SEC view creation of reserves for an imporbable amount of loss to be a form of earnings managment- REverse a reserve only where a chance in fats makes the reserve unnecessary- relasing of reserves into income where no specific development or change justifies the relaease in- bad year can be problematic. to create Dr. litigtoin expense X Cr. reserve pendig litigation X Warrenty – dr warrenty expense X cr warranty reserve payable- x