1 / 11

Chapter 3 Adjusting the Accounts

Chapter 3 Adjusting the Accounts. Part 1 of 3. Concepts to Be aware of:. Time Period Concept A business lifecycle can be divided into artificial time periods. Time periods less than a yr. Interim Periods Revenue Recognition Service Sector – earned when service is preformed

arch
Télécharger la présentation

Chapter 3 Adjusting the Accounts

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 3Adjusting the Accounts Part 1 of 3

  2. Concepts to Be aware of: Time Period Concept • A business lifecycle can be divided into artificial time periods. • Time periods less than a yr. Interim Periods Revenue Recognition • Service Sector – earned when service is preformed • Manufacturing Sector – earned when goods are delivered

  3. Revenues earned this month expenses incurred in earning the revenue are offset against.... Cont.... Matching Principle • dictates that efforts (expenses) be matched with accomplishments (revenues). Why is this important?

  4. Accrual vs. Cash Accounting Accrual Basis of Accounting • Follows all GAAP Principles • All revenues and expenses are accounted for when they happen. Cash Basis of Accounting • Are only recorded when cash is received (revenue) or paid (expenses) Example Work: E3-2

  5. Why use adjustments? • Adjusting entries are needed to ensure that revenue recognition and matching principle GAAP concepts are taken into account. • Keeps statements up-to-date. • Some accounts are allowed to become “inaccurate” between fiscal periods. • Adjustments help ensure that statements are brought up-to-date.

  6. Types of Adjustments

  7. Prepayments Prepaid Expenses: • Expenses that are paid before they are consumed • These are considered an ASSETS (WHY?) • Adjusting Entry for Prepaid supplies: Prepaid Supplies Expense XXX Supplies XXX NOTICE: we are not using the cash account!

  8. Example of Supplies Exp • A physical inventory count is done we found that only $1500 worth of supplies are left, when on the books it is recorded at $2000. Supplies Expense $500 Supplies $500

  9. Example for Insurance: Insurance was purchased on Sept 1 for $1800, and the end of the fiscal year is Dec 31. How do we figure out how much we have used up for the fiscal year?

  10. Prepayments cont... Unearned Revenue: • Revenues that are paid for before the work is actually completed. • These are considered a LIABILITY • Adjustment Entry for Unearned Rev: Unearned Rev. XXX Service Rev. XXX NOTICE: we are not using the cash account!

  11. Work for this Section Brief Exercise: • 3-3, 3-4 Exercise: • 3-3

More Related