Double-entry Accounting System
4.3.18 Analysis of interest receivable / revenue adjusting entry
Adjustment No. 4. On July 31, Huske's Consultants loaned $3,000 to Jak Building Company. In return, Huske's Consultants received one-year, 8% note (see Event No.10). In this connection, Huske's Consultants needs to record $100 (i.e., $3,000 x [5 months / 12 months]) as interest revenue. The adjustment acts to increase assets and equity. The increase in assets (Interest Receivable) is recorded as a debit, and the increase in equity (Interest Revenue) is recorded as a credit:
Illustration 4-36: Effect of interest revenue in T accounts
Assets |
= |
Liabilities |
+ |
Equity |
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Interest Receivable |
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Interest Revenue |
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Debit |
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Credit |
This is an asset source transaction:
Illustration 4-37: Effect of interest revenue in the horizontal model
| Assets |
= |
Liabilities |
+ |
Equity |
Rev. |
- |
Exp. |
= |
Net Inc. |
Cash Flow |
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| 100 |
= |
n/a |
+ |
100 |
100 |
- |
n/a |
= |
100 |
n/a |
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4.3.19 Analysis of fixed assets depreciation adjusting entry
Adjustment No. 5. On June 31, office equipment costing $2,000 was purchased. The useful life of these assets is expected to be 2 years with a salvage value of $400. Huske's Consultants has to recognize as an expense the office equipment cost used during 2006. The amount to be recorded is $800 (i.e., [$2,000 - $400] / 2 years). The adjustment acts to decrease assets and equity. The decrease in assets (Accumulated Depreciation) is recorded as a credit, and the decrease in equity (Depreciation Expense) is recorded as a credit:
Illustration 4-38: Effect of depreciation expense in T accounts
Assets |
= |
Liabilities |
+ |
Equity |
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Accumulated Depreciation |
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Depreciation Expense |
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Credit |
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Debit |
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This is an asset use transaction:
Illustration 4-39: Effect of depreciation expense in the horizontal model
| Assets |
= |
Liabilities |
+ |
Equity |
Rev. |
- |
Exp. |
= |
Net Inc. |
Cash Flow |
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| (800) |
= |
n/a |
+ |
(800) |
n/a |
- |
(800) |
= |
(800) |
n/a |
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4.3.20 Analysis of salaries payable / expense adjusting entry
Adjustment No. 6. At the end of the period, Huske's Consultants accrued $600 salaries that will be paid off in the next accounting period (20X7). The adjustment acts to increase liabilities and decrease equity. The increase in liabilities (Salaries Payable) is recorded as a credit, and the decrease in equity (Salaries Expense) is as a debit:
Illustration 4-40: Effect of salaries expense in T accounts
Assets |
= |
Liabilities |
+ |
Equity |
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Salaries Payable |
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Salaries Expense |
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Credit |
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Debit |
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This is a claims exchange transaction:
Illustration 4-41: Effect of salaries expense in the horizontal model
| Assets |
= |
Liabilities |
+ |
Equity |
Rev. |
- |
Exp. |
= |
Net Inc. |
Cash Flow |
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| n/a |
= |
600 |
+ |
(600) |
n/a |
- |
(600) |
= |
(600) |
n/a |
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