Real Account vs Nominal Account 

Real is a permanent account. 

Nominal accounts are temporary.  

Nominal accounts are the income statement accounts. (Revenues and expenses)

1) Identification and measurement

2) Journalization

3) Posting

4) Trial balance prep

5) Adjustments

6) Adjusted trial

7) Statement prep

8) Closing

9) PCTB

10) Reversing

Deferals (prepayments): Prepaid expenses, Unearned reveneues.

Accruals: Accrued revenues, Accrued expenses

overstates. 

It records assets or liabilites that haven't been earned

Supplies expense (DR-15,000)

Supplies (CR-15,000)

Adjusting supplies to correct balance and placing in the expense account. 

Bought one year ins for 6000 on Oct 1, debit prepaid ins. 

Oct 31, what is the adjusting entry

Insurance expense (DR-500)

Prepaid insurance (CR-500) 

Take out of prepaid the earned amount. 

Assets

Depre expense

debit (decrease) 

credit (increase)

to show what has been earned in that period

An accrued revenue is____

Performed 2000 worth of services but not yet billed to clients. 

What is the entry..

Service performed but not yet billed to client or cash not gotten yet. 

A/R (DR-increase)

Service rev (CR-increase)

Interest

Rent

Taxes

Salaries

S&W expense (DR - $6000)

S&W Payable (CR - $6000)

_Assets

Liabilities

Equity

RE off of trial (Begin)

Dividends 

RE (begin)

Add: Net income (IS)

Less: Dividends

New RE balance. (Goes on BS)

Income statement

Statement of RE

Balance Sheet. 

Income statement provides Net income for Smt of RE, and Stmt of RE provides new RE balance for Balance sheet

Name of C

Smt name

Date

Revenues

• x
• x
• Total Rev

Expenses 

• x
• x
• x
• Total Expense

Net Income (REV-EXP)

Name of Co

Smt name

Date

Assets (in order of liquidity) 

Liability and Equity (N/P & A/P first)

Must equal same balance

Anything that subtracts from a number.

"Less accumulated depreciation" 

"Less Allowance for doubful accounts"

Name of C

Smt Name (ex. BS, IS)

Date

Income statement

Income summary

Debit

(Crediting expenses to zero, debiting IS)

Credit

(Debit revenues to zero, credit IS)

1) Close revenues to IS

2) Close expenses to IS

3) Close IS to RE

4) Close Dividends to RE

A, L, E

Balance sheet items

Structure of the classified Income statement

Name of CO

Smt name

Date

Sales

COGS ()

Gross Profit

Selling expenses

• x
• x
• x 
• Total selling exp

Admin Expenses

• x
• x
• x 
• Total admin expense 

Income from operations

Other rev and gains

Other exp and losses 

Income before income taxes

income taxes 

Net income

Name of Co

Smt name

Date

Current Assets

• Total

Property plant and equipment

• Total

Total Assets =

Current Liabilites 

• Total

Long-term Liabilities

• Total

Stockholder equity

• Common stock
• RE
• Total

Total Liabilities and SE

Depre expense (DR - 6700)

Acc depre (CR - 6700) 

(Adjustments)

Ins exp (DR - 360)

Prepaid Ins (CR - 360) 

(Adjustments)

Prepaid rent - (DR -500)

Rent expense (CR - 500) 

(Adjustments) 

Prop tax expense (DR -2000)

Pro tax payable (CR - 2000)

Provide financial information about the reporting entity that is useful to

in making decisions in their capacity as capital providers.

1. Securities and exhange commisions. (SEC)
2. American Institute of Certified Public Accountants (AICPA)
3. FInancial Accounting Standards board (FASB)

(Securities and Exchange Commissions)

1. "Legal athority to dictate to accounting" Ward
2. Acc and reporting for public companies
3. Encouraged private standard setting body
4. requires public compaies to adhere to gaap
5. Enforce authority

Committee of Acc Procedures

• 1939-1959
• Issied 51 bulletins
• problem-by-problem approach didn't work. 

Accounting Principles Board 

• 1959-1973
• Issued 31 acc principle board opinions
• wheat committee recomm adopted in 1973

• Italian monk
• Created DR-CR system
• Published first text book
• "First person to write down the basics of accounting"
• "Father of accounting"
• Did not create accounting

Committee on Accounting Procedures. (1939-1959)

The problem-by-problem approach failed to provide the needed structured body of accounting principles. 

Securities and Exchange Commission

- To help develop and standardize financial information presented to stockholders. 

1) Accounting Standards Updates

2) Financial Accounting Concepts

1. Identify topics 
2. Research and analysis (pros and cons)
3. Public Hearing
4. Exposure Draft
5. Board evaluates responses

1. Objective "Why"
2. Qualitative + Elements "Bridge"
3. Assumptions, Principles, and Contraints "How"

The accounting info must be capable of making a difference in a decision. 

1. Predictive value
2. Confirmatory value
3. Materiality

1. Predictive value
2. Confirmatory Value
3. Materiality

1. Completeness
2. Neutrality
3. Free from error

Annual depreciation rates are buildings (4%) and equipment (10%). Salvage vaule is estimated to be (10%) of cost. Do the entry for June 1-August 31.

Balance sheet

Buildings - 140,000

Equipment - 16,000