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Good morning g or I guess good afternoon if you're watching this at home or good evening
or good middle
of the night I'm not sure when you folks at home watch these. So whatever time of day
it is I hope
you're having a great day or night. Wanted to dive right into the homework today were
going to spend
more time on AJEs today. And were getting pretty near to being done with chapter three
and we will start
chapter four predictably after chapter three, and chapter four goes pretty quickly it seems
like we just
took a test doesn't it? But I like to always give a week's notice for the next test so
it will be coming
up after today at least three lectures more, and then we will take the test maybe four
but I just want to
give you will get more specific to you all face to facers, and then of course you at
home have your due
dates for the tests emailed to you but I wanted to let you know that okay so be aware of that
okay? And
I'll get more accurate information as we move along. Ok let's dive into those three handouts
I think I
gave you handouts on unearned revenue accrued expenses and accrued revenues is that correct?
So let's go
ahead and take a look at those and I believe last period I put the answers on the screen
real quick for
you to copy down kind of just check figure. In that first situation on November first
we collected six
thousand dollars rent in advance debiting cash and crediting unearned rent revenue and
they were paying
one year rent in advance so if they were paying six thousand dollars for one year basically
our rent is
five hundred dollars per month right? So basically between November first and December thirty
first of
two thousand and eleven we have earned two months of rent right? At five hundred so we
can move a
thousand out of unearned rent revenue we debit that since that's a liability and we credit
the revenue
and you might have said rent revenue or just revenue or just whatever. Okay so that is
the first one
please asks questions as we go along if you have them. Company B this company is an exterminator
or
something like that they charge seventy five dollars a month for a complete house treatment.
Now one
customer paid company b three hundred dollars on September twelfth an advance of any treatments
now we
have not yet provided the service have we? So we have to at that point record to the
debit with cash and
record to unearned revenue now at the year end the company performed three total treatments
ok when they
gave us three hundred if we charge seventy per treatment then they basically paid for
four treatments
correct? And we have provided three by the end of the year. So we could take three times
seventy five
and move two hundred and twenty five dollars from unearned revenue into revenue or earned
revenue ok.
Company C here we have on September first a client paid us twenty four thousand for
six months of rent
revenue. Thus we are charging we are renting a building to them its four thousand dollars
per month. We
recorded that amount as unearned rent revenue adjustments need to be made at the end of
the year. Okay
well we have earned four months of that four thousand dollars per month of that unearned
rent revenue
right? So we can move sixteen thousand dollars into revenue so we can decrease our unearned
rent revenue.
Any questions on that? Alright let's jump on over to accrued expenses accrued expense
and of course I'm
not answering the key question specifically but I guess we kind of where I hope those
kind of help what
the AJE will be. Alright company D salaries expenses of fifteen thousand five hundred
have been incurred
by our companies' employees but they haven't been paid as of December thirty first. So
I say what amount
of liability and expense is not recognize in the company's books but needs to be? Well
that fifteen five
right so we have to book that as salaries expense and as salaries payable cause that
is a liability that
we owe isn't it and we need to show it on our books so that readers are aware of that
liability the
liability can be quite large for some companies. Now make sure you don't put accounts payable
don't put
accounts payable it should be salaries payable accounts payable is more for transactions
with vendors ok.
Another common accrued expense in regards to interest expense. Company E on December
thirty first the
company owes two hundred and fifty dollars of interest on an online on a on line of credit
loan. Now we
don't have to pay that interest until sometime in January but we know that as of December
thirty first we
owe two hundred and fifty dollars' worth of interest. So that interest in payable is not
in the books it
needs to be so this is our journal entry. We debit interest expense we credit interest
payable now we do
not credit notes payable it is not notes payable or something like that it is definitely interest
payable
okay. On the test people make the mistake people credit notes payable and I lovingly
take off a point
ok. Okay company F the company has a mortgage payable and has incurred but not recorded
interest expense
eight seventy five for the year ended of twelve thirty one of two thousand and eleven. We
must pay the
interest on January seventh. Okay what amount of liability as of twelve thirty one is not
on the books
but needs to be eight seventy five and there is our journal entry ok. Now some people might
incorrectly
pro rate it did somebody do that? But they tell us specifically the amount that we owe
as of twelve
thirty one two thousand and eleven they tell us the liability and that is eight seventy
five. Now this
is a good example of why I don't like people to have an like an account called like interest
cause look
there is and interest expense account there's interest payable account there's another interest
expense
account another interest payable for that company you're going to see in the set of
accrued revenues
you're going to actually have an interest receivable and an interest revenue right so
I don't like when
people are doing there journal entries and they just have an account called rent or interest
you see what
I'm saying because it is too vague so go ahead and tell us if it's rent expense or is it
rent revenue is
it interest expense is it interest revenue is it interest payable is it interest receivable
always fill
out the title of the account properly ok. Any questions on the accrued expenses handout
if not lets jump
over to the accrued revenues. Okay company G the company has completed consulting services
of nineteen
thousand for the client but this client has not paid the company we have not even billed
them. Now we
completed the services so the revenue is earned doesn't it doesn't matter they haven't paid.
So we have
to show that accounts receivable on the books and we have to show that as revenue for the
nineteen
thousand cause that's revenue we earned in two thousand and eleven and that's a receivable
in two
thousand and eleven okay you with me? Alright company H the company has earned but not yet
recorded
three ninety of interest that it has earned from investments in a ninety day certificate
of deposit for
the year ended of twelve thirty one two thousand and eleven. Now how much have we earned that
hasn't
been recorded three ninety this is the entry look there is interest receivable and interest
revenue
alright. Now sometimes people get confused between is this interest revenue or is this
interest expense?
Just read the problem real carefully because sometimes a company will pay interest and
there's sometimes
a company receives interest. So you have to know is the some sort of an investment or
is it some sort of
liability. Sarah you have a question? Yes um would accept accounts receivable or is
it specifically
interest? That's a great question than you for asking that accounts receivable I probably
wouldn't take
off a point for it but interest receivable is probably a better account, accounts receivable
is more for
like customers kind of like again the interest payable versus the accounts payable. Alright
company I
think is the last one of these handouts the company collects monthly rent from their tenant
in their
building now this time we are the land lord right. One tenant whose rent is thirteen thousand
a month
they haven't paid us their rent for December. What did I say? Thank you always point out
when I say or
write errors let me read it again. The company collects monthly rent from their tenants in
their
building one tenant whose rent is thirteen hundred dollars per month haven't paid us
for the rent in
December. So have we earned that thirteen hundred? Yes so we debit rent receivable and
credit rent
revenue here I would probably be a little bit more allowable for if you put accounts
receivable but
that's the AJE . Now remember the rule the REAL rule right cause sometimes people will
do something
weird like they'll debit rents receivable and they'll credit rent payable ok well that's
an asset and a
liability that's not going to be that way isn't it? You always adjust a revenue or a
expense and an asset
or a liability cool? Any questions on that hand out ok before I forget chapter three I actually have the
connect assignment in two parts part a and part b ok so I just assigned the part a and
after this lecture
you should probably prioritize that ok so after this lecture you should be equipped
to do chapter three
connect assignment part a alright? Awesome ok let's jump over now to those quick studies
that I assigned
I believe it was quick study two three two quick study three-three on page one eighteen
is that correct?
Ok so dig those out alright on July first two thousand and elven Baxter company paid eighteen hundred
dollars for six months of insurance coverage no adjustments have been made to the pre-paid
insurance
account and it is now December thirty first two thousand and eleven in other words this
company do not do
monthly AJEs they only do annual AJEs. Prepare the journal entry reflect expiration of the
insurance ok
so how much of that insurance in quote used up it. Actually all of it hasn't it so it
has all been used
up so the journal entry would be as follows ok it's a debit to insurance expense a credit
to pre-paid
insurance questions? Next one quick study three two b Terrill company has a supplies
account balance of
one thousand on January one two thousand and eleven. During two thousand and a elven it
purchased three
thousands of supplies as of December thirty first of two thousand and eleven a supplies
inventory
thirteen of supplies available. So how much was used up? How much was used up folks? Twenty
seven
hundred right? So the journal entry is as follows questions Jake? Well the one but on the last
one it
says July first two thousand and eleven to December thirty first and that's five months
is it not?" July
through December that's six months "well are you including" we are including July cause
it's the
beginning of July cause that's basically what we got the beginning of July, August, September,
October,
November, December it's alright common mistake. "On the second one office supplies available
I kind of
get that confused" available is like that's what is remaining that's what is on hand that
we haven't
used up ok that's how many beers are left in the refrigerator. Available alright cool
good question any
other on quick study three point two are these getting any easier at all I'm going to AJE
you to death
because I love you ok so the way you learn these things is to keep doing them and doing
them and doing
them. Even when we are in chapter four I might occasionally give you some chapter three homework
ok
just, because I want you to do them so hopefully its getting a little easier isn't it? Quick
study three
point three Carlos Company purchases equipment on January first two thousand and eleven.
The equipment
is expected to last five years and be worth five thousand at the end of that time so that
five thousand
is what we call the residual value or the salvage value. Prepare the entry record he
one year
depreciation of five thousand dollars of equipment well we could have actually figured that out
right?
We could have taken the cost of thirty thousand minus the salvage value of five thousand divide
by five
years and gotten five thousand dollars per year but they went ahead and told us because
they were being
nice. So the journal entry depreciation expense accumulated depreciation for five thousand
you don't
need to put all that explanation ok. "Do we need to write like equipment?" Nah that's
alright you
could have just put say depreciation expense and accumulated depreciation. "is that mostly
the
categories of what just the depreciation expense and accumulated depreciation is that the only
things
you're going to write like is there anything else you can write there?" Well you could
write the
explanation but I usually don't require "I mean like you have different insurance expenses
and all that
stuff would have different receivables you can't really have that with depreciation can
you? Not so much
receivables under depreciation so for depreciation those are the two accounts you are going to
see ok.
Kara? I might be reading it wrong but it said to prepare for one year's depreciation so
wouldn't you do
thirty thousand minus five thousand and then divide it by twelve months?" no cause what
they're saying
they don't do depreciation entire each month they just do them for one year at a time ok
so I mean if you
did divide it by its five thousand per year so they can certainly do them on a monthly
basis, but they
are just saying no we only do them once a year ok cool. Any others? Ok quick study three-three
b Chavez
Company purchased forty thousand dollars' worth of land the land is expected to last
indefinitely what
depreciation of adjustment of any should be made with respect to the land account as of
January thirty
first two thousand and eleven. What did you get we don't depreciate land do we? Trick
question, "could
the value go up though?" ok good question let me come back to it for a second. But we
do not depreciate
land I think I mentioned that last lecture didn't I? we do not depreciate land and we'll
talk more about
this in chapter ten but when we say land I don't we just mean acreage I don't mean things
like parking
lots or if I do a lot of landscaping and do a lot of improvements no I'm just talking
land is just
acreage bunnies running around on it tumble weeds blowing by ok we don't depreciate land.
Your question
was a good question Sarah what was your restate your question? "Well the value of the land
could go up?"
That's correct but remember and I'll go back to you I'm glad you asked that but remember
depreciation is
not our attempt to write our assets down to whatever their market value are or to write
up to their
market value ok. Depreciation is spreading out the expense over a reasonable amount of
time ok the
building you're sitting in right now is fully depreciated for JCCC that means the book value
of this
building is zero is this building worth zero certainly not. Common confusion depreciation
is not our
attempts to write it up or down the market value great question. Alright any questions
on those quick
studies? Alright lets jump over to was exercise three five is the next one ok cool. Exercise three five
this is the one that was kind of more of a algebra one than an accounting one wasn't
it? So what they
told us they want us to figure out the missing amounts in each of the four separate situations
so the
four items of info are supplies available at the prior yearend which is the same thing
as the supplies as
the current year beginning, supplies purchased, supplies available at the current yearend,
and then the
supplies expense and the supplies expense would be the amount of supplies we used up
ok. Now in each
situation they give us three amounts and one unknown correct? So we can always solve the
equation if
there is one unknown right form algebra so let's take a look at the first situation and
remember we can
do a t account can't we? This will be the beginning balance this would be the ending
balance this would
be the supplies purchased right? And this will be the supplies used up and this is thus
how much we are
going to expense cool? So let's go ahead and do the first one they tell us that the beginning
balance
was three hundred is that correct? And how much did we purchase twenty one hundred is
that right? And
then they tell us our ending balance is that correct and what is that? Seven fifty and
this is our
unknown right? We only have one unknown right we always know that plus that minus that equals
that ok m
not going to do each one of these in this much detail but algebraically that would mean
three hundred
plus twenty one hundred minus our question mark equals seven fifty right? And if you
I you don't know
how to solve that right there that's probably more of a math resource center algebra sort
of question ok?
But if we do that our question mark equals what did you get sixteen fifty and just plug
that in make sure
it works so go three hundred plus twenty one hundred minus sixteen fifty does that equal
seven fifty yes
it does. Ok so the answer to those I'm just going to put them up there the answer to each
one of those
after is solved the same way ok you can do a t account I think the shaded boxes is what
you had to figure
out wasn't it so that just kind of practice as far as knowing how to back into the numbering
in the t
account alright keep it on the Elmo if you would. Alright any questions on any of those?
Did anybody
get all four of those questions right ok good, about half of you alright any question on
that? I think
we are almost all done going through the homework aren't we? The only one we have left is three
four C
is that right and that's usually one that's kind of tricky for people. Did you guys get
it? Anybody?
Alright let's take a look this is the first time we've done one of these kind of a accrued
salaries one
so like I said I didn't know if you didn't totally get this but I like you to struggle
with it a little
bit and then we will work it out in class. Alright even we are only doing C we need to
read the heading
don't we? The following three separate situations require AJEs to prepare financial statements
as of
April thirtieth now you always want to know what date does it needed to be adjusted to
what date are the
financial statements at and they're at April thirtieth it's not always twelve thirty one.
For each
situation prepare both the April thirty adjusting journal entry and the subsequent entry during
May to
record the payment of the accrued expense ok. So let's hop down to C total weekly salaries
expense for
all employees is nine thousand dollars this amount is paid at the end of day Friday of
each work week ok
April thirty falls on Tuesday of the year which means that the employees have work two
days since the
last pay day the next pay day is May the third. Let's kind of I like to when we're first learning
these
look at a calendar and visually represent this so they tell us that this is a calendar
Sunday, Monday,
Tuesday, Wednesday Thursday, Friday, Saturday ok they tell us that lets see April thirty
falls on a
Tuesday is that right? So let's just say this is April thirtieth correct? This is twenty
nine twenty
eight twenty seven twenty six twenty five twenty four twenty three twenty two twenty
one April is one of
those months that only have thirty days right? So Wednesday is thus may the first correct?
And this is
may the second third fourth fifth sixth seventh eighth ok fine. Now what else do they tell
us they tell
us that let me get my other pens here we are doing financial statements as of the end of
day April
thirtieth sometimes I like to draw a line there ok now what do they tell us is our weekly
payroll our
weekly payroll is nine thousand dollars is that correct? Ok and when do we pay we paid
at the end of ay
on Friday at the end of each work week right? So we like paid the on Friday April twenty
sixth for this
work week correct? Now it's the end of the day April thirtieth now if nine thousand is
our weekly
payroll what is our daily pay roll if they worked five day work week? Eighteen hundred
dollars a day
correct? So what happened here they didn't work on Sunday Monday our employees worked
and got eighteen
hundred correct? Tuesday our employees worked and earned eighteen now are we going to pay
them at the
end of the day Tuesday no but we owe them do we not don't we owe them some money as
of the end of that
day how much money do we owe our employees? Thirty six hundred dollars ok we owe them
for those two days
we're not going to pay them early they are not getting a check on April thirtieth we
are not going to pay
them until Friday right but as the end of the day which is April thirtieth our employees
have earned
eighteen hundred plus eighteen hundred which is thirty six hundred dollars ok. So our AJE
are four
thirty AJE is a debit to salaries expense for how much and what do we credit? Salaries
payable or salary
payable. That is our AJE for those two work days correct? Does that make sense? Now let
me answer a
question that I usually get asked over and over again ok so try to engage so I only have
to answer this
once people say what's the difference between salaries and wages? No salaries is like if
you work
somewhere and you get paid fifty thousand dollars a year that's your salary, wages is
like if you're a
hourly employee and you get paid fifteen bucks an hour ok. So if I had a restaurant chances
are like all
the servers and the cooks and stuff would be wages because they get paid hourly but
maybe the manager has
a forty thousand dollars per year ok. I always look to see if it says salaries or if it says
wages. Ok
I preferred that if it said salaries that you said salaries expense and salaries payable
and if it said
wages that you said wages expense and wages payable. On the test I'm not sure that I would
mark it off
but that's the difference between salaries and wages. Now the also if you read the instructions
they
want us to make the journal entry this is not going to be a AJE this is just going to
be a regular
journal entry isn't it? They want us to make the journal entry when we actually pay in
regards to this
accrued expense so when do we pay we pay on Friday is that correct? So this is our May
third JE this is
not an AJE and we know that because we're not making it on the last day of the period.
Now how much cash
do we pay out to our employees how much? Nine thousand causes we didn't pay them on Tuesday
didn't we?
As a matter of fact they don't know that we made this JE they don't know or they don't
care ok so we
credit cash for nine thousand dollars now how much is that nine thousand dollars has
not been expensed
but needs to be? How much of that nine thousand dollars has not yet been expensed but needs
to be? How
much? How many days' worth? Three that day that day and that day so three times eighteen
hundred is
what fifty four hundred so we debit salary expense for fifty four hundred dollars cool. Now this journal
entry does this balance? Does the debits and credits equal. Is that a problem? Actually
it's not for
this type of JE it doesn't need to balance. I'm lying! All JEs have to balance ok scared
you there
didn't I this doesn't equal right? This side need looks like it need thirty six hundred
worth of help
doesn't it what do we debit we debit salaries payable cause we just paid off that liability
haven't we?
Ok I'm going to make a little note this is not a an AJE it's just a journal entry I want to say a few
things about this but first are there question in regards to this one? Any questions I want
you to see
what we did here it's a beautiful thing remember the matching principle we need to match expenses
in the
periods they helped create revenue do you see by doing this AJE we put two days or thirty
six hundred
dollars' worth on the April income statement ok right? Where they belong where its matched
properly and
then we put the other three days of salary expense that's going to be on Mays income
statement isn't it?
Remember an AJE does two thing it brings and asset or a liability to its proper balance
and it records an
expense or a revenue you see how these entries accomplished all of that do you see that make
sense? Ok
let's have you do one of these let's try to do another one now that you kind of know how
to do it lets do
quick study three point five and we'll play that snazzy jazzy JCCC have you guys listened
to the music?
The music the intro music to the lectures you really should listen to it sounds just
like a sitcom or
something it's like bah-duh-dah I feel like a Seinfeld episode or something, but anyways
they're going to
play this music but I want you to do quick study three point five for you at home you
do it as well ill
give you a few minutes to do that. It wants you to make the AJE and I want you to also
don't go away
from me yet I want you to also make the journal entry when the person actually gets paid.
So the same
thing we just did so do the AJE and the journal entry when they actually get paid alright
I'll see you in
a few. Music (37:30-44:00) alright I hope you're done if not just push pause and you
can get it done and
then turn us on for you folks at home. Somebody ask if this is on the test I'm glad they asked
that yes
I always have one of these problems on the tests it's not even a multiple choice I always
put one of
these problems on the test so you'll want to know how to do this. Ok let's take a look
quick study three
five Marsha employs one college student in the summer for her coffee shop the student
works the five week
days and is paid on the following Monday ok. Motor adjusts her books monthly if needed
so note that to
show salaries earned but unpaid at month end the student work to the last week of July
Friday is August
the first if the student earned a hundred dollars a day what AJE must they make on July
thirty one to
quickly record accrued salaries expense for July. Ok so here is our situation let's take
a look this is
our situation right here do they tell us if its wages or salaries and think they say salaries
don't they?
Ok so I like to use whatever they told us to do our particular situation I think they
told us that
Friday is august first so Thursday is July thirty first and that's what they're doing
their books as of
so they're doing their books as of the end of this day now how much is our daily payroll
there is only
one employees this time so how much is our daily payroll hundred bucks what's our weekly
payroll ok now
they were paid on Monday July twenty eighth for this work week right? So those days are
paid for there is
no accrual there now they work this day right? And earned a hundred dollars they worked this
day and
earned a hundred they worked this day and earned a hundred they worked this day and
earned a hundred
didn't they? So how much do we owe as of July thirty first but not yet have it paid out?
Four hundred
right so the July thirty first AJE is we debit salary expense for how much? Four hundred
and what do I
credit for four hundred salaries payable that's our AJE made on the last day of the period
there's no
cash in there or anything like that correct? Ok any questions on that take a look at that?
question of the problem is it saying that they didn't work in august or was it their
last week or is it
saying that" I don't think its saying they didn't work in August the student worked in
the last week of
July so they worked that whole week Friday is August first now what day do they actually
get paid?
Monday what's the date though? Ok so they are going to get paid on August fourth for
this work week and
it sounds like they worked August first so the journal entry that we make for the payment
on August the
fourth that Monday how much cash do we pay out? We pay out the cash of five hundred right?
We didn't
pay them on this day there is no cash going out is there. How many of those days have
not been expensed
but needs to be? One the hundred dollars right here so we debit salary expense what gets
debited for
four hundred salary payable cause we have now taken care of that liability we have extinguished
so to
speak. In black this is not your AJE this is the subsequent journal entry for payment.
Alright does that
make sense? Is that what you all got? That is great any other questions on that? any
other questions ok
let me go ahead and give you your homework and I'll let you go. Let me see what I want
you to do here we
are starting to finish up here folks starting finish up I want you to do
I'll put this up on the Elmo in
a second but I want you to read page one oh nine and do quick study three point one-one
on profit margin
I want you to do exercise three-three, and exercise three six. So here's your homework
right there read
page one oh nine do quick study three eleven, and do exercise three-three and exercise three
six sound
like a winner well you guys next time bye-bye.