Directions: Fill in the Cash Basis Income Statement and the Accrual Basis Income Statement given the transactions below. Use a separate line item on the statements for each transaction. If a transaction does not lead to a revenue or an expense do not put anything on the income statement. The accounting period ends on December 31. Show revenues as positives and expenses as negatives in the spreadsheet. The spreadsheet is set up to calculate net income for each year as revenues minus expenses. Transactions: 1 In January of Year 1, Hicks Company signed a contract for $720,000 to provide consulting services evenly over a 3 year period. They received one-half of the payment up front and will receive the remainder at the completion of the contract. 2 Hicks spent $5,000 in Year 1, $6,000 in Year 2, and $7,000 in Year 3 on research that they hope will lead to better consulting processes. 3 Hicks signed a three-year lease on office space for $6,000 per year. They were required to pay the entire amount up front. 4 Hicks ran an advertising campaign in Year 1 for $5,000. They paid for the advertising in Year 2. 5 Hicks purchased $21,000 of computer equipment and paid for it in Year 1. The computer equipment is expected to last for 3 years. 6 Employee salaries for work they completed in Year 1 was $8,000, for Year 2 $10,000, for Year 3 $12,000. Hicks paid Year 1 salaries on December 29 of Year 1, Year 2 salaries on January 2 of Year 3, and Year 3 salaries on December 30 of Year 3. Cash Basis Income Statement Year 1 Cash Basis Income Statement Year 2 Cash Basis Income Statement Year 3 Consulting Revenue R&D Rent Advertising
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
| Directions: Fill in the Cash Basis Income Statement and the Accrual Basis Income Statement given the transactions below. Use a separate line item on the statements for each transaction. If a transaction does not lead to a revenue or an expense do not put anything on the income statement. The accounting period ends on December 31. Show revenues as positives and expenses as negatives in the spreadsheet. The spreadsheet is set up to calculate net income for each year as revenues minus expenses. | |||
| Transactions: | |||
| 1 | In January of Year 1, Hicks Company signed a contract for $720,000 to provide consulting services evenly over a 3 year period. They received one-half of the payment up front and will receive the remainder at the completion of the contract. | ||
| 2 | Hicks spent $5,000 in Year 1, $6,000 in Year 2, and $7,000 in Year 3 on research that they hope will lead to better consulting processes. | ||
| 3 | Hicks signed a three-year lease on office space for $6,000 per year. They were required to pay the entire amount up front. | ||
| 4 | Hicks ran an advertising campaign in Year 1 for $5,000. They paid for the advertising in Year 2. | ||
| 5 | Hicks purchased $21,000 of computer equipment and paid for it in Year 1. The computer equipment is expected to last for 3 years. | ||
| 6 | Employee salaries for work they completed in Year 1 was $8,000, for Year 2 $10,000, for Year 3 $12,000. Hicks paid Year 1 salaries on December 29 of Year 1, Year 2 salaries on January 2 of Year 3, and Year 3 salaries on December 30 of Year 3. | ||
| Cash Basis Income Statement Year 1 | Cash Basis Income Statement Year 2 | Cash Basis Income Statement Year 3 | |
| Consulting Revenue | |||
| R&D | |||
| Rent | |||
| Advertising | |||
| Computer Equipment | |||
| Salaries | |||
| Net Income | - | - | - |
| Accrual Basis Income Statement Year 1 | Accrual Basis Income Statement Year 2 | Accrual Basis Income Statement Year 3 | |
| Consulting Revenue | |||
| R&D | |||
| Rent | |||
| Advertising | |||
| Salaries | |||
| Net Income | - | - | - |
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