The document discusses adjusting entries in accounting. It explains that adjusting entries are necessary under the accrual basis of accounting to properly recognize revenues and expenses in the correct periods, as revenues should be recorded when earned and expenses recorded when incurred rather than when cash is paid or received. The major types of adjusting entries are for deferrals, such as prepaid expenses and unearned revenues, and for accruals. The document provides examples of adjusting entry journal entries for prepaid expenses and unearned revenues.
This document provides an overview of accounting for receivables. It defines different types of receivables like accounts receivable and notes receivable. It explains how companies recognize, value, and dispose of both accounts receivable and notes receivable. Specific topics covered include recognizing revenue on credit sales, estimating and recording allowance for doubtful accounts, accounting for uncollectible accounts, determining maturity dates and interest on notes, and presenting receivables on financial statements. The document aims to help students understand the key accounting concepts and entries related to receivables.
This document discusses inventory classification and costing methods. It begins by explaining how companies classify inventory into raw materials, work in process, and finished goods. The document then discusses how companies determine inventory quantities by taking physical counts and considering goods in transit. It also explains different inventory cost flow methods like FIFO, LIFO, and average costing and their effects on financial statements. Finally, it discusses how inventory errors can affect income statements and balance sheets in both the current and subsequent periods.
Consolidated accounts or Group AcccountsWarui Maina
Lecture notes on Consolidated accounts or Group Accounts. They have illustrations, are brief and simple to understand. Excellent for revision and quick review for CPA, B.Com, Finance and Accounting students.
The document provides an overview of the development of accounting principles and professional practice. It discusses how the environment of accounting has evolved over time to meet changing demands and influences. Three key influences are: 1) recognizing scarce resources, 2) current concepts of property rights and equity, and 3) measuring information for absentee investors. The document also describes the objectives of financial reporting, key qualitative characteristics of accounting information, elements of financial statements, and basic principles of accounting including measurement, revenue/expense recognition, and full disclosure.
Here are the steps to analyze and post a journal entry:
1. Analyze the journal entry to determine the accounts involved and whether each account increased or decreased.
2. Determine if each account is an asset, liability, equity, revenue or expense account based on the general ledger chart of accounts.
3. Translate increases in asset and expense accounts and decreases in liability, equity and revenue accounts into debits, and increases in liability, equity and revenue accounts and decreases in asset and expense accounts into credits.
4. Record the debits and credits in the appropriate general ledger accounts.
Posting
Question
LO 6
The document discusses auditing procedures for accounts receivable and cash balances. It outlines management assertions that auditors need to test, including existence, completeness, valuation, rights and obligations, and presentation and disclosure. The document then describes objectives and procedures for testing each assertion, such as confirmation, cutoff testing, and analytical procedures. It also discusses risks like earnings manipulation and provides examples of ways companies have manipulated earnings through premature revenue recognition or channel stuffing. Finally, it covers computer-assisted techniques for testing accounts receivable balances and aging.
1. The document provides an overview of chapter 1 of the textbook "Financial Accounting" which covers topics such as what accounting is, who uses accounting data, ethics in accounting, accounting standards, and the basic accounting equation.
2. It defines accounting as identifying, recording, and communicating the economic events of an organization to interested users. Accounting data is used by internal and external users such as managers, investors, creditors, and more.
3. Ethics, accounting standards set by bodies like FASB and IASB, and measurement principles like historical cost are also introduced as important foundations of accounting.
This document provides an overview of accounting for receivables. It defines different types of receivables like accounts receivable and notes receivable. It explains how companies recognize, value, and dispose of both accounts receivable and notes receivable. Specific topics covered include recognizing revenue on credit sales, estimating and recording allowance for doubtful accounts, accounting for uncollectible accounts, determining maturity dates and interest on notes, and presenting receivables on financial statements. The document aims to help students understand the key accounting concepts and entries related to receivables.
This document discusses inventory classification and costing methods. It begins by explaining how companies classify inventory into raw materials, work in process, and finished goods. The document then discusses how companies determine inventory quantities by taking physical counts and considering goods in transit. It also explains different inventory cost flow methods like FIFO, LIFO, and average costing and their effects on financial statements. Finally, it discusses how inventory errors can affect income statements and balance sheets in both the current and subsequent periods.
Consolidated accounts or Group AcccountsWarui Maina
Lecture notes on Consolidated accounts or Group Accounts. They have illustrations, are brief and simple to understand. Excellent for revision and quick review for CPA, B.Com, Finance and Accounting students.
The document provides an overview of the development of accounting principles and professional practice. It discusses how the environment of accounting has evolved over time to meet changing demands and influences. Three key influences are: 1) recognizing scarce resources, 2) current concepts of property rights and equity, and 3) measuring information for absentee investors. The document also describes the objectives of financial reporting, key qualitative characteristics of accounting information, elements of financial statements, and basic principles of accounting including measurement, revenue/expense recognition, and full disclosure.
Here are the steps to analyze and post a journal entry:
1. Analyze the journal entry to determine the accounts involved and whether each account increased or decreased.
2. Determine if each account is an asset, liability, equity, revenue or expense account based on the general ledger chart of accounts.
3. Translate increases in asset and expense accounts and decreases in liability, equity and revenue accounts into debits, and increases in liability, equity and revenue accounts and decreases in asset and expense accounts into credits.
4. Record the debits and credits in the appropriate general ledger accounts.
Posting
Question
LO 6
The document discusses auditing procedures for accounts receivable and cash balances. It outlines management assertions that auditors need to test, including existence, completeness, valuation, rights and obligations, and presentation and disclosure. The document then describes objectives and procedures for testing each assertion, such as confirmation, cutoff testing, and analytical procedures. It also discusses risks like earnings manipulation and provides examples of ways companies have manipulated earnings through premature revenue recognition or channel stuffing. Finally, it covers computer-assisted techniques for testing accounts receivable balances and aging.
1. The document provides an overview of chapter 1 of the textbook "Financial Accounting" which covers topics such as what accounting is, who uses accounting data, ethics in accounting, accounting standards, and the basic accounting equation.
2. It defines accounting as identifying, recording, and communicating the economic events of an organization to interested users. Accounting data is used by internal and external users such as managers, investors, creditors, and more.
3. Ethics, accounting standards set by bodies like FASB and IASB, and measurement principles like historical cost are also introduced as important foundations of accounting.
1) The document discusses accounting for merchandising operations under a perpetual inventory system. It describes how purchases, sales, returns and allowances are recorded.
2) Purchases are recorded by debiting inventory and crediting accounts payable. Sales are recorded by crediting sales revenue and debiting cost of goods sold and inventory.
3) Returns and allowances are contra accounts that are credited to offset original debit entries for purchases or sales. This summary highlights the key accounting entries for a merchandising business.
The document provides information about adjusting entries for Micro Computer Services for August 2017. It states that accrued revenues of $500 were earned but not recorded for services performed. It also states that accrued expenses of $300 were incurred for unpaid utilities. The adjusting entries would debit Accounts Receivable and credit Service Revenue for $500 to record accrued revenues. For accrued expenses, the adjusting entries would debit Utilities Expense and credit Accounts Payable for $300 to record accrued expenses.
The document discusses the steps in preparing a worksheet. It begins by explaining how to prepare a trial balance on the worksheet by transferring account balances from the ledger. The second step is to enter adjusting entries in the adjustments columns. The third step is to complete the adjusted trial balance columns by totaling debits and credits. The fourth step extends adjusted account balances to the appropriate financial statement columns. The final step is to compute net income or loss by totaling the columns and determining the difference between revenues and expenses.
The document discusses the audit of the payroll and personnel cycle. It identifies key accounts and transactions such as wages payable, payroll taxes payable, and cash. It describes the related business functions like hiring, timekeeping, payroll preparation, payment, and tax filings. It outlines the objectives of understanding internal controls, assessing risks, and designing tests of controls and substantive procedures to audit the payroll accounts and transactions.
Audit of the Payroll and Personnel Cycle _ Accounting & AudtingCarl Hebeler
This document discusses the audit of the payroll and personnel cycle. It identifies key accounts and transactions such as wages payable, payroll taxes payable, and cash. It describes the related business functions, documents, and internal controls. It provides guidance on assessing risks, testing controls, and performing substantive tests of transactions and account balances. These include analytical procedures to identify potential misstatements, as well as detailed tests of liability and expense accounts to ensure accurate cutoff and balances. The overall goal is to obtain sufficient evidence that payroll and personnel accounts are fairly stated in accordance with GAAP.
Current Liabilities, Provisions, and Contingenciesreskino1
Current Liabilities,
Provisions, and Contingencies
After studying this chapter, you should be able to:
1. Describe the nature, valuation, and reporting of current liabilities.
2. Explain the accounting for different types of provisions.
3. Explain the accounting for loss and gain contingencies.
4. Indicate how to present and analyze liability-related information
The document discusses the auditor's procedures for auditing cash balances. It notes the auditor's primary concerns regarding cash are existence, completeness, physical control, and presentation/disclosure. Key procedures discussed include obtaining cutoff bank statements, preparing schedules of bank transfers, obtaining or preparing bank reconciliations, confirming cash balances held by third parties such as banks, and tests to detect possible kiting between bank accounts. It provides an example of how kiting works and notes reconciliation may not detect unrecorded deposits/checks or incorrectly recorded amounts.
The document provides an overview of accounting information systems. It discusses the basic concepts of an AIS, including that an AIS collects and processes transaction data and communicates financial information. It also describes the nature and purpose of subsidiary ledgers, which are used to track individual account balances like accounts receivable. Additionally, the document explains how to record transactions in special journals, including sales, purchases, cash receipts and payments journals, in order to organize similar transactions and reduce general journal entries. It compares AIS under GAAP and IFRS.
The document discusses IFRS 2, which provides guidance on accounting for share-based payment transactions. It summarizes key aspects of IFRS 2 including scope, valuation techniques, vesting conditions, journal entries, tax treatment, transition, and disclosure requirements. Valuation of share options requires estimation and the use of models, with complexity depending on factors like performance conditions. An expense is recognized over the vesting period and adjustments made if fair value estimates change.
A presentation about the Cash Flow Statement ,whole chapter is covered in the slides .one can easily understand the concept of cash flow statement
and a video is also there but link went missing so please search it on youtube by the name of "cash flow statement in 3-min" a beautiful video to understand the basic concept of cash flow statement.In the end a numerical has solved for the better understanding ,which let u fetch marks in your examinations.
The document provides an overview of the key learning objectives and content covered in Chapter 3 of Intermediate Accounting (IFRS 2nd Edition) by Kieso, Weygandt, and Warfield. The chapter introduces fundamental accounting concepts including the accounting equation, double-entry system, accounting cycle, basic terminology, adjusting entries, and preparation of financial statements. It also discusses how the accounting information system collects and processes transaction data to disseminate financial information to stakeholders.
Here is the bank reconciliation statement presented to show the overdraft balance:
- Begin with the overdraft balance per the cash book
- Add any items that increase the overdraft
- Deduct any items that decrease the overdraft
- End with the overdraft balance per the bank statement
This presentation clearly shows the bank overdraft position.
Kieso Ch02 Conceptual Framework for Financing ReportingAhmad Rudi
The document provides an overview of the conceptual framework for financial reporting. It discusses the need for a conceptual framework, the efforts to develop one jointly by the IASB and FASB, and the structure and key components of the conceptual framework. The conceptual framework establishes the fundamental concepts that guide financial reporting standards. It includes objectives, qualitative characteristics, elements, assumptions, principles, and constraints of financial reporting.
Ch02-conceptual framework or financial reportingVivi Tazkia
The document provides an overview and learning objectives for a chapter on the conceptual framework for financial reporting. It discusses the need for a conceptual framework to establish consistent concepts to underlie financial reporting standards. It describes efforts to construct a conceptual framework, which comprises chapters on the objective of financial reporting, qualitative characteristics of accounting information, and basic concepts related to recognition, measurement and disclosure. The chapter objectives cover understanding the usefulness of the conceptual framework, its development, the financial reporting objective, qualitative characteristics, basic elements of financial statements, accounting assumptions, and how the cost constraint affects reporting.
Here are the key steps to solving this problem:
1. Calculate 10% of accounts receivable to estimate uncollectible accounts:
- 10% of $30,000 is 0.1 * $30,000 = $3,000
2. Add the existing balance in the allowance account:
- $2,000 existing balance
3. The total estimated uncollectible accounts is $3,000 + $2,000 = $5,000
Therefore, the adjusting entry is:
Bad Debt Expense 5,000
Allowance for Doubtful Accounts 5,000
The document describes the accounting recording process, including how accounts, debits, credits, journals, ledgers, and trial balances are used. It explains that journals are used to record transactions chronologically, while ledgers contain accounts for assets, liabilities, equity, revenues, and expenses. Transactions are posted from journals to ledgers to update account balances. A trial balance is prepared to check that total debits equal total credits. While useful, a trial balance does not guarantee accurate records as errors can still exist.
This document discusses capital structure and leverage. It defines key terms like capital structure, financial leverage, operating leverage, degree of financial leverage (DFL), degree of operating leverage (DOL), and degree of total leverage (DTL). It explains how financial and operating leverage can both increase profits but also increase risk and variability in results. The optimal capital structure balances these risks and rewards to maximize stock price.
The document provides an overview of adjusting entries and the adjusted trial balance process. It begins by explaining key concepts like the time period assumption and accrual basis of accounting. It then discusses the reasons for adjusting entries, which are to ensure revenues are recorded in the earned period and expenses are recorded in the incurred period. The major types of adjusting entries are identified as prepaid expenses, unearned revenues, accrued revenues, and accrued expenses. The document provides examples of adjusting entries for deferrals, which include prepaid expenses and unearned revenues. It shows entries to adjust accounts like advertising supplies, prepaid insurance, and accumulated depreciation. The overall purpose is to explain the adjusting entry process that is needed to prepare accurate
The document discusses adjusting entries in accounting. It explains key concepts like the time period assumption, accrual basis accounting, and reasons for adjusting entries. There are several types of adjusting entries, including entries for deferrals like prepaid expenses and unearned revenues, as well as accruals for revenues and expenses. An adjusted trial balance is prepared after all adjusting entries, which proves the equality of debits and credits and provides the basis for financial statements.
1) The document discusses accounting for merchandising operations under a perpetual inventory system. It describes how purchases, sales, returns and allowances are recorded.
2) Purchases are recorded by debiting inventory and crediting accounts payable. Sales are recorded by crediting sales revenue and debiting cost of goods sold and inventory.
3) Returns and allowances are contra accounts that are credited to offset original debit entries for purchases or sales. This summary highlights the key accounting entries for a merchandising business.
The document provides information about adjusting entries for Micro Computer Services for August 2017. It states that accrued revenues of $500 were earned but not recorded for services performed. It also states that accrued expenses of $300 were incurred for unpaid utilities. The adjusting entries would debit Accounts Receivable and credit Service Revenue for $500 to record accrued revenues. For accrued expenses, the adjusting entries would debit Utilities Expense and credit Accounts Payable for $300 to record accrued expenses.
The document discusses the steps in preparing a worksheet. It begins by explaining how to prepare a trial balance on the worksheet by transferring account balances from the ledger. The second step is to enter adjusting entries in the adjustments columns. The third step is to complete the adjusted trial balance columns by totaling debits and credits. The fourth step extends adjusted account balances to the appropriate financial statement columns. The final step is to compute net income or loss by totaling the columns and determining the difference between revenues and expenses.
The document discusses the audit of the payroll and personnel cycle. It identifies key accounts and transactions such as wages payable, payroll taxes payable, and cash. It describes the related business functions like hiring, timekeeping, payroll preparation, payment, and tax filings. It outlines the objectives of understanding internal controls, assessing risks, and designing tests of controls and substantive procedures to audit the payroll accounts and transactions.
Audit of the Payroll and Personnel Cycle _ Accounting & AudtingCarl Hebeler
This document discusses the audit of the payroll and personnel cycle. It identifies key accounts and transactions such as wages payable, payroll taxes payable, and cash. It describes the related business functions, documents, and internal controls. It provides guidance on assessing risks, testing controls, and performing substantive tests of transactions and account balances. These include analytical procedures to identify potential misstatements, as well as detailed tests of liability and expense accounts to ensure accurate cutoff and balances. The overall goal is to obtain sufficient evidence that payroll and personnel accounts are fairly stated in accordance with GAAP.
Current Liabilities, Provisions, and Contingenciesreskino1
Current Liabilities,
Provisions, and Contingencies
After studying this chapter, you should be able to:
1. Describe the nature, valuation, and reporting of current liabilities.
2. Explain the accounting for different types of provisions.
3. Explain the accounting for loss and gain contingencies.
4. Indicate how to present and analyze liability-related information
The document discusses the auditor's procedures for auditing cash balances. It notes the auditor's primary concerns regarding cash are existence, completeness, physical control, and presentation/disclosure. Key procedures discussed include obtaining cutoff bank statements, preparing schedules of bank transfers, obtaining or preparing bank reconciliations, confirming cash balances held by third parties such as banks, and tests to detect possible kiting between bank accounts. It provides an example of how kiting works and notes reconciliation may not detect unrecorded deposits/checks or incorrectly recorded amounts.
The document provides an overview of accounting information systems. It discusses the basic concepts of an AIS, including that an AIS collects and processes transaction data and communicates financial information. It also describes the nature and purpose of subsidiary ledgers, which are used to track individual account balances like accounts receivable. Additionally, the document explains how to record transactions in special journals, including sales, purchases, cash receipts and payments journals, in order to organize similar transactions and reduce general journal entries. It compares AIS under GAAP and IFRS.
The document discusses IFRS 2, which provides guidance on accounting for share-based payment transactions. It summarizes key aspects of IFRS 2 including scope, valuation techniques, vesting conditions, journal entries, tax treatment, transition, and disclosure requirements. Valuation of share options requires estimation and the use of models, with complexity depending on factors like performance conditions. An expense is recognized over the vesting period and adjustments made if fair value estimates change.
A presentation about the Cash Flow Statement ,whole chapter is covered in the slides .one can easily understand the concept of cash flow statement
and a video is also there but link went missing so please search it on youtube by the name of "cash flow statement in 3-min" a beautiful video to understand the basic concept of cash flow statement.In the end a numerical has solved for the better understanding ,which let u fetch marks in your examinations.
The document provides an overview of the key learning objectives and content covered in Chapter 3 of Intermediate Accounting (IFRS 2nd Edition) by Kieso, Weygandt, and Warfield. The chapter introduces fundamental accounting concepts including the accounting equation, double-entry system, accounting cycle, basic terminology, adjusting entries, and preparation of financial statements. It also discusses how the accounting information system collects and processes transaction data to disseminate financial information to stakeholders.
Here is the bank reconciliation statement presented to show the overdraft balance:
- Begin with the overdraft balance per the cash book
- Add any items that increase the overdraft
- Deduct any items that decrease the overdraft
- End with the overdraft balance per the bank statement
This presentation clearly shows the bank overdraft position.
Kieso Ch02 Conceptual Framework for Financing ReportingAhmad Rudi
The document provides an overview of the conceptual framework for financial reporting. It discusses the need for a conceptual framework, the efforts to develop one jointly by the IASB and FASB, and the structure and key components of the conceptual framework. The conceptual framework establishes the fundamental concepts that guide financial reporting standards. It includes objectives, qualitative characteristics, elements, assumptions, principles, and constraints of financial reporting.
Ch02-conceptual framework or financial reportingVivi Tazkia
The document provides an overview and learning objectives for a chapter on the conceptual framework for financial reporting. It discusses the need for a conceptual framework to establish consistent concepts to underlie financial reporting standards. It describes efforts to construct a conceptual framework, which comprises chapters on the objective of financial reporting, qualitative characteristics of accounting information, and basic concepts related to recognition, measurement and disclosure. The chapter objectives cover understanding the usefulness of the conceptual framework, its development, the financial reporting objective, qualitative characteristics, basic elements of financial statements, accounting assumptions, and how the cost constraint affects reporting.
Here are the key steps to solving this problem:
1. Calculate 10% of accounts receivable to estimate uncollectible accounts:
- 10% of $30,000 is 0.1 * $30,000 = $3,000
2. Add the existing balance in the allowance account:
- $2,000 existing balance
3. The total estimated uncollectible accounts is $3,000 + $2,000 = $5,000
Therefore, the adjusting entry is:
Bad Debt Expense 5,000
Allowance for Doubtful Accounts 5,000
The document describes the accounting recording process, including how accounts, debits, credits, journals, ledgers, and trial balances are used. It explains that journals are used to record transactions chronologically, while ledgers contain accounts for assets, liabilities, equity, revenues, and expenses. Transactions are posted from journals to ledgers to update account balances. A trial balance is prepared to check that total debits equal total credits. While useful, a trial balance does not guarantee accurate records as errors can still exist.
This document discusses capital structure and leverage. It defines key terms like capital structure, financial leverage, operating leverage, degree of financial leverage (DFL), degree of operating leverage (DOL), and degree of total leverage (DTL). It explains how financial and operating leverage can both increase profits but also increase risk and variability in results. The optimal capital structure balances these risks and rewards to maximize stock price.
The document provides an overview of adjusting entries and the adjusted trial balance process. It begins by explaining key concepts like the time period assumption and accrual basis of accounting. It then discusses the reasons for adjusting entries, which are to ensure revenues are recorded in the earned period and expenses are recorded in the incurred period. The major types of adjusting entries are identified as prepaid expenses, unearned revenues, accrued revenues, and accrued expenses. The document provides examples of adjusting entries for deferrals, which include prepaid expenses and unearned revenues. It shows entries to adjust accounts like advertising supplies, prepaid insurance, and accumulated depreciation. The overall purpose is to explain the adjusting entry process that is needed to prepare accurate
The document discusses adjusting entries in accounting. It explains key concepts like the time period assumption, accrual basis accounting, and reasons for adjusting entries. There are several types of adjusting entries, including entries for deferrals like prepaid expenses and unearned revenues, as well as accruals for revenues and expenses. An adjusted trial balance is prepared after all adjusting entries, which proves the equality of debits and credits and provides the basis for financial statements.
The document discusses accounting principles related to adjusting accounts, including the time period assumption, accrual basis of accounting, and different types of adjusting entries. It provides examples of adjusting entries for deferrals like prepaid expenses and unearned revenues. Specifically, it explains that adjusting entries are needed to ensure revenues are recorded when earned and expenses are recognized when incurred in accordance with the revenue recognition and matching principles. It also provides illustrations of adjusting entry journal entries for prepaid insurance, depreciation, and unearned rent revenue.
This document provides an overview of adjusting entries in 3 parts:
1. It introduces adjusting entries and explains they are needed to follow accrual accounting principles by ensuring revenues and expenses are recorded in the correct periods.
2. It identifies the major types of adjusting entries as deferrals (prepaid expenses and unearned revenues) and accruals (accrued revenues and accrued expenses).
3. It explains how to prepare adjusting entries for specific types of deferrals, including prepaid expenses like supplies, insurance, and depreciation, as well as unearned revenues. Examples are provided for each.
The document discusses accounting periods and the accrual basis of accounting. It covers key concepts such as:
- The time period assumption, which states that a business's economic life can be divided into artificial time periods like months or years.
- The difference between accrual-basis accounting, which records revenues when earned and expenses when incurred, and cash-basis accounting.
- The revenue recognition principle, which states that revenue should be recognized in the period it is earned.
- The expense recognition principle, which matches expenses with revenues in the period efforts are made to generate those revenues.
- The four major types of adjusting entries: prepaid expenses, unearned revenues, accrued revenues, and
The document provides an overview of adjusting entries and related accounting concepts. It begins with explaining the time period assumption and how accountants divide a business's economic life into artificial time periods. Then it discusses the accrual basis of accounting and how revenues are recognized when earned and expenses are recognized when incurred. The reasons for adjusting entries are to ensure revenues and expenses are recorded in the proper periods according to accrual accounting. The major types of adjusting entries are identified as those for deferrals, such as prepaid expenses and unearned revenues, and those for accruals, such as accrued revenues and accrued expenses. Instructions and examples are provided for preparing adjusting entries for deferrals.
Adjusting entries are journal entries made at the end of an accounting period to ensure revenues and expenses are recorded in the appropriate period. This involves adjusting accounts for accruals, such as unpaid expenses and unrecorded revenue, and deferrals like prepaid expenses and unearned revenue. An adjusted trial balance is prepared after adjusting entries to prove the equality of debit and credit balances before financial statements are made.
The document discusses adjusting entries, which are journal entries made at the end of an accounting period to align revenues and expenses with the accrual basis of accounting. It explains the different types of adjusting entries for deferrals like prepaid expenses and unearned revenues, as well as accruals for revenues earned but not received and expenses incurred but not paid. Examples are provided to illustrate adjusting entries for various accounts.
This document discusses key accounting concepts related to accrual accounting including the revenue recognition principle, matching principle, and differences between cash basis and accrual basis accounting. It explains why adjusting entries are needed to follow these concepts and identifies major types of adjusting entries such as those for deferrals and accruals. Specific topics covered include preparing adjusting entries for prepaid expenses, unearned revenues, accrued revenues, and accrued expenses.
1. The document discusses adjusting entries in accounting.
2. There are four main types of adjusting entries: prepaid expenses, unearned revenues, accrued revenues, and accrued expenses.
3. Adjusting entries are necessary to ensure revenues and expenses are recorded in the appropriate accounting period according to the accrual basis of accounting.
The Accounting Information System
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Describe the basic accounting information system.
Record and summarize basic transactions.
Identify and prepare adjusting entries.
Prepare financial statements from the adjusted trial balance and prepare closing entries.
Prepare financial statements for a merchandising company.
The document describes the accounting cycle and basic accounting concepts. It begins by outlining the learning objectives of describing the basic accounting information system, recording transactions, preparing adjusting entries, and preparing financial statements. It then provides details on the accounting information system, journal entries, T-accounts, debits and credits, the accounting equation, the trial balance, and adjusting entries. It includes examples of adjusting entries for supplies, insurance, depreciation, and unearned revenue. The overall purpose is to explain the fundamentals of the accounting process.
Bab 3 - The Accounting Information Systemmsahuleka
The document discusses key aspects of an accounting information system and the accounting cycle, including basic terminology, double-entry rules, journalizing and posting transactions, preparing adjusting entries, and financial statements. It explains the steps in the accounting cycle such as recording transactions, preparing a trial balance, making adjustments, preparing an adjusted trial balance and financial statements, and closing entries.
The adjusting entries for Hammond Company for the month of March are:
1) A debit to Insurance Expense of $100 and a credit to Prepaid Insurance of $100 to record the insurance expense for the month.
2) A debit to Supplies Expense of $2,000 and a credit to Supplies of $2,000 to record the supplies expense for the month, leaving $800 in the Supplies account.
3) A debit to Accumulated Depreciation-Equipment of $200 and a credit to Depreciation Expense of $200 to record the depreciation expense for the month.
4) A debit to Unearned Service Revenue of $4,600 and a
The document provides an overview of the key concepts and steps covered in Chapter 3 of Intermediate Accounting. It discusses the accounting information system and its objectives. The key steps in the accounting cycle are identified as journalizing transactions, posting to ledger accounts, preparing an initial trial balance, adjusting entries, and final financial statements. Basic accounting terminology is defined, including accounts, debits/credits, the accounting equation, and the different types of accounts. Examples are provided to illustrate double-entry accounting and the posting process.
Ch03-financial reporting and accounting standardsVivi Tazkia
The document provides an overview of the key concepts and steps covered in Chapter 3 of Intermediate Accounting (IFRS 2nd Edition) by Kieso, Weygandt, and Warfield. It outlines 8 learning objectives for the chapter, which include understanding basic accounting terminology, the double-entry system, the accounting cycle, journalizing and posting transactions, adjusting entries, and preparing financial statements. The chapter also discusses the accounting equation, T-accounts, the different types of accounts, and the accounting process from recording transactions to the adjusted trial balance.
The document discusses trial balance, which is a statement that lists the debit and credit balances of ledger accounts to test the arithmetical accuracy of accounting books. A trial balance has certain features, such as being prepared on a specific date and including all ledger accounts. It also discusses the purpose of a trial balance, which is to test accuracy, provide a summary of ledger account balances, and serve as the basis for preparing final financial statements. The document outlines different methods for preparing a trial balance and provides examples of common account adjustments that are made, such as for closing stock, depreciation, outstanding expenses, and prepaid expenses.
The document discusses factors that influence the development of international accounting standards and practices. It identifies 8 key factors: sources of finance, legal systems, political/economic ties between countries, inflation levels, taxation, economic development, education levels, and culture. Accounting systems vary between countries based on differences in these underlying developmental factors. Understanding how the factors shape accounting in different environments helps explain diversity and similarities between nations' accounting standards and practices.
This document provides an overview of logistics management. It defines logistics as the management of the flow of goods, resources, and information from the point of origin to the destination. The goal of logistics management is to ensure the efficient delivery of the right product, at the right cost, quantity, quality, place and time to customers. It discusses the key components of logistics including transportation, inventory planning, warehousing, and packaging. It also outlines the objectives and major functions of logistics management such as transportation management, warehouse management, and inventory management.
This document discusses two techniques for business decision making: cost-benefit analysis and SWOT analysis.
Cost-benefit analysis involves comparing the estimated costs and benefits of different project options to determine which makes the most business sense. The goal is to maximize total net profit.
SWOT analysis examines the strengths, weaknesses, opportunities, and threats of a business or project. It helps identify internal strengths and weaknesses as well as external opportunities and threats. Managers use SWOT analysis to guide strategic planning and evaluate major changes.
The document provides guidance on properly conducting a SWOT analysis, including examples of questions to consider for each component. It also outlines how to analyze and apply the results of a SWOT analysis to identify
This chapter discusses the consolidation of financial information for business combinations. It explains that consolidated financial statements combine the financial data of a parent company and its subsidiaries. The chapter outlines the acquisition method for accounting for business combinations, where one company obtains control of another. Under this method, the consideration transferred is allocated to identifiable assets acquired and liabilities assumed based on their fair values. Goodwill arises when the consideration exceeds the fair values. The chapter also discusses how pre-existing goodwill and in-process R&D are treated under the acquisition method.
This document provides an overview of different types of charts and graphs that can be used to visualize data, including histograms, frequency polygons, ogives, pie charts, stem and leaf plots, Pareto charts, and scatter plots. It discusses the key concepts of grouped versus ungrouped data, constructing frequency distributions, calculating relative and cumulative frequencies, and provides examples of how to build each type of chart using sample data sets.
This document outlines professional standards that CPAs must follow when conducting audits and attestation engagements. It discusses the types of practice standards that govern work for different entities. Generally Accepted Auditing Standards (GAAS) are described in detail, including the general standards, standards of fieldwork, evidence considerations, and reporting standards. The document also discusses attestation standards, quality control standards for CPA firms, and the role of the Public Company Accounting Oversight Board in standard-setting and oversight of audits of public companies.
Forensic accounting refers to accounting work performed for legal purposes, such as investigating potential fraud. Forensic accountants use auditing techniques as well as investigative skills to conduct detailed analyses of financial records to detect issues like embezzlement, insurance fraud, or tax evasion. Their work is often used in litigation to quantify economic damages or losses. Key areas forensic accountants work in include fraud investigation, bankruptcy, insurance claims, and criminal or civil court cases.
This document provides an overview of managerial accounting concepts and objectives. It begins by identifying four learning objectives: 1) identify features of managerial accounting and management functions, 2) describe classes of manufacturing costs and differences between product and period costs, 3) demonstrate how to compute cost of goods manufactured and prepare financial statements for a manufacturer, and 4) discuss trends in managerial accounting. It then covers topics related to each objective, including managerial vs financial accounting, management functions, cost classifications, cost of goods manufactured calculations, and contemporary issues like just-in-time inventory and activity-based costing.
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3. Chapter
3-3
1. Explain the time period assumption.
2. Explain the accrual basis of accounting.
3. Explain the reasons for adjusting entries.
4. Identify the major types of adjusting entries.
5. Prepare adjusting entries for deferrals.
6. Prepare adjusting entries for accruals.
7. Describe the nature and purpose of an adjusted
trial balance.
Study Objectives
4. Chapter
3-4
• Types of
adjusting entries
• Adjusting entries
for deferrals
• Adjusting entries
for accruals
• Summary of
journalizing and
posting
Timing Issues
• Fiscal and
calendar years
• Accrual- vs. cash-
basis accounting
• Recognizing
revenues and
expenses
• Preparing the
adjusted trial
balance
• Preparing
financial
statements
The Basics of
Adjusting Entries
The Adjusted
Trial Balance and
Financial
Statements
Adjusting the Accounts
5. Chapter
3-5
• Generally a month, a quarter, or a year.
• Fiscal year vs. calendar year
• Also known as the “Periodicity Assumption”
Timing Issues
Accountants divide the economic life of a
business into artificial time periods
(Time Period Assumption).
SO 1 Explain the time period assumption.
Jan. Feb. Mar. Apr. Dec.
. . . . .
6. Chapter
3-6
The time period assumption states that:
a. revenue should be recognized in the accounting
period in which it is earned.
b. expenses should be matched with revenues.
c. the economic life of a business can be divided
into artificial time periods.
d. the fiscal year should correspond with the
calendar year.
Review
Timing Issues
SO 1 Explain the time period assumption.
7. Chapter
3-7
Accrual-Basis Accounting
• Transactions recorded in the periods in which
the events occur
• Revenues are recognized when earned, rather
than when cash is received.
• Expenses are recognized when incurred, rather
than when paid.
Timing Issues
Accrual- vs. Cash-Basis Accounting
SO 2 Explain the accrual basis of accounting.
8. Chapter
3-8
Cash-Basis Accounting
• Revenues are recognized when cash is received.
• Expenses are recognized when cash is paid.
• Cash-basis accounting is not in accordance with
generally accepted accounting principles (GAAP).
Timing Issues
Accrual- vs. Cash-Basis Accounting
SO 2 Explain the accrual basis of accounting.
9. Chapter
3-9
Revenue Recognition Principle
Timing Issues
Recognizing Revenues and Expenses
SO 2 Explain the accrual basis of accounting.
Companies recognize
revenue in the accounting
period in which it is
earned.
In a service enterprise,
revenue is considered to
be earned at the time
the service is performed.
10. Chapter
3-10
Matching Principle
Timing Issues
Recognizing Revenues and Expenses
SO 2 Explain the accrual basis of accounting.
Match expenses with
revenues in the period
when the company makes
efforts to generate
those revenues.
“Let the expenses
follow the revenues.”
11. Chapter
3-11
Timing Issues
SO 2 Explain the accrual basis of accounting.
GAAP relationships
in revenue and
expense recognition
Illustration 3-1
13. Chapter
3-13
One of the following statements about the accrual
basis of accounting isfalse . That statement is:
a. Events that change a company’s financial
statements are recorded in the periods in which
the events occur.
b. Revenue is recognized in the period in which it is
earned.
c. The accrual basis of accounting is in accord with
generally accepted accounting principles.
d. Revenue is recorded only when cash is received,
and expenses are recorded only when cash is paid.
Review
Timing Issues
SO 2 Explain the accrual basis of accounting.
14. Chapter
3-14
• Adjusting entries make it possible to report
correct amounts on the balance sheet and
on the income statement.
• A company must make adjusting entries
every time it prepares financial statements.
The Basics of Adjusting Entries
SO 3 Explain the reasons for adjusting entries.
15. Chapter
3-15
• Revenues - recorded in the period in which
they are earned.
• Expenses - recognized in the period in which
they are incurred.
• Adjusting entries - needed to ensure that
the revenue recognition and matching
principles are followed.
The Basics of Adjusting Entries
SO 3 Explain the reasons for adjusting entries.
16. Chapter
3-16
Adjusting entries are made to ensure that:
a. expenses are recognized in the period in which
they are incurred.
b. revenues are recorded in the period in which
they are earned.
c. balance sheet and income statement accounts
have correct balances at the end of an
accounting period.
d. all of the above.
Review
Timing Issues
SO 3 Explain the reasons for adjusting entries.
17. Chapter
3-17
Types of Adjusting Entries
1. Prepaid Expenses.
Expenses paid in cash and
recorded as assets before
they are used or consumed.
Deferrals
3. Accrued Revenues.
Revenues earned but not
yet received in cash or
recorded.
4. Accrued Expenses.
Expenses incurred but not
yet paid in cash or
recorded.
2. Unearned Revenues.
Revenues received in cash
and recorded as liabilities
before they are earned.
Accruals
SO 4 Identify the major types of adjusting entries.
Illustration 4-2
Categories of adjusting entries
18. Chapter
3-18
Trial Balance – Each account is analyzed to determine whether
it is complete and up-to-date.
Illustration 3-3
Trial Balance
SO 4 Identify the major types of adjusting entries.
19. Chapter
3-19
Deferrals are either:
• Prepaid expenses
OR
• Unearned revenues.
Adjusting Entries for Deferrals
SO 5 Prepare adjusting entries for deferrals.
20. Chapter
3-20
Payment of cash that is recorded as an asset
because service or benefit will be received in the
future.
Adjusting Entries for “Prepaid Expenses”
• insurance
• supplies
• advertising
Cash Payment Expense Recorded
BEFORE
SO 5 Prepare adjusting entries for deferrals.
• rent
• maintenance on equipment
• fixed assets (depreciation)
Prepayments often occur in regard to:
21. Chapter
3-21
Prepaid Expenses
• Costs that expire either with the passage of time
or through use.
• Adjusting entries (1) to record the expenses that
apply to the current accounting period, and (2) to
show the unexpired costs in the asset accounts.
Adjusting Entries for “Prepaid Expenses”
SO 5 Prepare adjusting entries for deferrals.
22. Chapter
3-22
Adjusting Entries for “Prepaid Expenses”
SO 5 Prepare adjusting entries for deferrals.
Adjusting entries for prepaid expenses
• Increases (debits) an expense account and
• Decreases (credits) an asset account.
Illustration 3-4
23. Chapter
3-23
Illustration: Pioneer Advertising Agency purchased advertising
supplies costing $2,500 on October 5. Sierra recorded the
payment by increasing (debiting) the asset Advertising Supplies.
This account shows a balance of $2,500 in the October 31 trial
balance. An inventory count at the close of business on October
31 reveals that $1,000 of supplies are still on hand.
Advertising supplies 1,500
Advertising supplies expense 1,500
Oct. 31
Illustration 3-5
Adjusting Entries for “Prepaid Expenses”
SO 5 Prepare adjusting entries for deferrals.
24. Chapter
3-24
Illustration: On October 4, Pioneer Advertising Agency paid
$600 for a one-year fire insurance policy. Coverage began on
October 1. Pioneer recorded the payment by increasing (debiting)
Prepaid Insurance. This account shows a balance of $600 in the
October 31 trial balance. Insurance of $50 ($600 / 12) expires
each month.
Prepaid insurance 50
Insurance expense 50
Oct. 31
Illustration 3-6
Adjusting Entries for “Prepaid Expenses”
SO 5 Prepare adjusting entries for deferrals.
25. Chapter
3-25
Depreciation
• Buildings, equipment, and vehicles (long-lived
assets) are recorded as assets, rather than an
expense, in the year acquired.
• Companies report a portion of the cost of a long-
lived asset as an expense (depreciation) during
each period of the asset’s useful life (Matching
Principle).
Adjusting Entries for “Prepaid Expenses”
SO 5 Prepare adjusting entries for deferrals.
26. Chapter
3-26
Illustration: Pioneer Advertising estimates depreciation on the
office equipment to be $480 a year, or $40 per month.
Accumulated depreciation 40
Depreciation expense 40
Oct. 31
Illustration 3-7
Adjusting Entries for “Prepaid Expenses”
SO 5 Prepare adjusting entries for deferrals.
27. Chapter
3-27
Depreciation (Statement Presentation)
• Accumulated Depreciation is a contra asset account.
• Appears just after the account it offsets
(Equipment) on the balance sheet.
Illustration 3-8
Adjusting Entries for “Prepaid Expenses”
SO 5 Prepare adjusting entries for deferrals.
29. Chapter
3-29
Receipt of cash that is recorded as a liability
because the revenue has not been earned.
Adjusting Entries for “Unearned Revenues”
• rent
• airline tickets
• school tuition
Cash Receipt Revenue Recorded
BEFORE
• magazine subscriptions
• customer deposits
Unearned revenues often occur in regard to:
SO 5 Prepare adjusting entries for deferrals.
30. Chapter
3-30
Unearned Revenues
• Company makes an adjusting entry to record the
revenue that has been earned and to show the
liability that remains.
• The adjusting entry for unearned revenues results
in a decrease (a debit) to a liability account and an
increase (a credit) to a revenue account.
SO 5 Prepare adjusting entries for deferrals.
Adjusting Entries for “Unearned Revenues”
31. Chapter
3-31 SO 5 Prepare adjusting entries for deferrals.
Adjusting entries for unearned revenues
• Decrease (a debit) to a liability account and
• Increase (a credit) to a revenue account.
Adjusting Entries for “Unearned Revenues”
Illustration 3-10
32. Chapter
3-32
Adjusting Entries for “Unearned Revenues”
Illustration: Pioneer Advertising Agency received $1,200 on
October 2 from R. Knox for advertising services expected to be
completed by December 31. Unearned Service Revenue shows a
balance of $1,200 in the October 31 trial balance. Analysis
reveals that the company earned $400 of those fees in October.
Service revenue 400
Unearned service revenue 400
Oct. 31
Illustration 3-11
SO 5 Prepare adjusting entries for deferrals.
35. Chapter
3-35
Made to record:
• Revenues earned and
OR
• Expenses incurred
in the current accounting period that have not
been recognized through daily entries.
Adjusting Entries for Accruals
SO 6 Prepare adjusting entries for accruals.
36. Chapter
3-36
Revenues earned but not yet received in cash or
recorded.
Adjusting Entries for “Accrued Revenues”
• rent
• interest
• services performed
BEFORE
Accrued revenues often occur in regard to:
Cash Receipt
Revenue Recorded
Adjusting entry results in:
SO 6 Prepare adjusting entries for accruals.
37. Chapter
3-37
Accrued Revenues
An adjusting entry serves two purposes:
(1) It shows the receivable that exists, and
(2) It records the revenues earned.
Adjusting Entries for “Accrued Revenues”
SO 6 Prepare adjusting entries for accruals.
38. Chapter
3-38
Adjusting entries for accrued revenues
• Increases (debits) an asset account and
• Increases (credits) a revenue account.
SO 6 Prepare adjusting entries for accruals.
Adjusting Entries for “Accrued Revenues”
Illustration 3-13
39. Chapter
3-39
Illustration: In October Pioneer Advertising Agency earned
$200 for advertising services that had not been recorded.
Service Revenue 200
Accounts Receivable 200
Oct. 31
Illustration 3-14
SO 6 Prepare adjusting entries for accruals.
Adjusting Entries for “Accrued Revenues”
41. Chapter
3-41
Expenses incurred but not yet paid in cash or
recorded.
Adjusting Entries for “Accrued Expenses”
• rent
• interest
BEFORE
Accrued expenses often occur in regard to:
Cash Payment
Expense Recorded
• taxes
• salaries
Adjusting entry results in:
SO 6 Prepare adjusting entries for accruals.
42. Chapter
3-42
Accrued Expenses
An adjusting entry serves two purposes:
(1) It records the obligations, and
(2) It recognizes the expenses.
Adjusting Entries for “Accrued Expenses”
SO 6 Prepare adjusting entries for accruals.
43. Chapter
3-43
Adjusting entries for accrued expenses
• Increases (debits) an expense account and
• Increases (credits) a liability account.
SO 6 Prepare adjusting entries for accruals.
Adjusting Entries for “Accrued Expenses”
Illustration 3-16
44. Chapter
3-44 SO 6 Prepare adjusting entries for accruals.
Illustration: Pioneer Advertising Agency signed a three-month
note payable in the amount of $5,000 on October 1. The note
requires Pioneer to pay interest at an annual rate of 12%.
Interest payable 50
Interest expense 50
Oct. 31
Illustration 3-18
Illustration 3-17
Adjusting Entries for “Accrued Expenses”
45. Chapter
3-45 SO 6 Prepare adjusting entries for accruals.
Illustration: Pioneer Advertising Agency last paid salaries on
October 26; the next payment of salaries will not occur until
November 9. The employees receive total salaries of $2,000 for
a five-day work week, or $400 per day. Thus, accrued salaries at
October 31 are $1,200 ($400 x 3 days).
Salaries payable 1,200
Salaries expense 1,200
Oct. 31
Illustration 3-20
Adjusting Entries for “Accrued Expenses”
47. Chapter
3-47
After all adjusting entries are journalized and posted
the company prepares another trial balance from the
ledger accounts (Adjusted Trial Balance).
Its purpose is to prove the equality of debit balances
and credit balances in the ledger.
The Adjusted Trial Balance
SO 7 Describe the nature and purpose of an adjusted trial balance.