Accrual accounting ACCRUAL VERSUS CASH BASIS OF ACCOUNTING. ACCRUAL VERSUS CASH BASIS OF ACCOUNTING continued. Chapter 3

Size: px
Start display at page:

Download "Accrual accounting ACCRUAL VERSUS CASH BASIS OF ACCOUNTING. ACCRUAL VERSUS CASH BASIS OF ACCOUNTING continued. Chapter 3"

Transcription

1 Chapter 3 Accrual accounting concepts PowerPoint presentation by Anne Abraham University of Wollongong 2009 John Wiley & Sons Australia, Ltd ACCRUAL VERSUS CASH BASIS OF ACCOUNTING Accrual-based accounting Revenue recognised when goods and services are provided Expenses recognised when assets are consumed or liabilities incurred Cash-based accounting Revenue recognised when the cash is received or paid. Expenses recognised when the cash is received or paid 2 ACCRUAL VERSUS CASH BASIS OF ACCOUNTING continued Example: Year 1 Year 2 Activity Purchased paint, painted Received payment for work building, paid employees done in Year 1 Accrual Revenue $ Revenue $ - basis Expense Expense - Profit $ Profit $ - Cash Revenue $ - Revenue $ basis Expense Expense - Loss $(50 000) Profit $

2 TIMING ISSUES Accounting divides the economic life of a business into artificial time periods (period assumption) Relationships exist between revenue recognition expense recognition period assumption 4 TIMING ISSUES continued Period assumption Economic life of business can be divided into artificial periods Revenue recognition criteria Revenues recognised in the period in which the increase in assets or decrease in liabilities become probable and can be measured reliably Expense recognition criteria Expenses recognised in the period when the reduction in assets or increase in liabilities become probable and can be measured reliably Revenue and expense criteria Form part of generally accepted accounting principles (GAAP) 5 THE BASICS OF ADJUSTING ENTRIES Adjusting entries are necessary to make sure: Revenues and expenses are recorded in the correct accounting period (matching principle) Recognition criteria are followed for assets, liabilities, revenues and expenses (revenue recognition principle) 6 2

3 Types of adjusting entries Prepayments 1. Prepaid expenses: Amounts paid in cash and recorded as assets until used 2. Revenue received in advance: Amounts received from customers and recorded as a liability until services performed or goods delivered Accruals 1. Accrued revenues: Amounts not yet received and recorded for which goods or services have been provided 2. Accrued expenses: Amounts not yet paid or recorded for goods or services already received 7 Adjusting entries for prepayments Prepayments are either: a. prepaid expenses Asset Unadjusted Credit Expense Debit balance adjusting adjusting entry (-) entry (+) b. revenues received in advance Liability Debit Unadjusted adjusting balance entry (-) Revenue Credit adjusting entry (+) 8 Adjusting entries for prepayments continued Prepaid expenses 1. Supplies Supplies on hand 31 October: $1000 Supplies expense of $2500 originally recorded as an asset Journal entry: Oct. 31 Advertising Supplies Expense Advertising Supplies (To record supplies used) 9 3

4 Adjusting entries for prepayments continued Supplies on hand 31 October: $1000 General Ledger entry: Advertising Supplies Oct Oct. 31 Adj. Advertising Supplies Expense Advertising Supplies Expense Oct. 31 Adj. Advertising Supplies cross-reference cross-reference 10 Adjusting entries for prepayments continued 2. Insurance Insurance paid for 1 year in advance: $600 Insurance for October $600/12 = $50 Journal entry: Oct. 31 Insurance Expense 50 Prepaid Insurance 50 (To record insurance expired) General ledger: Prepaid Insurance Insurance Expense Oct Oct. 31 Adj. 50 Oct. 31 Adj Adjusting entries for prepayments continued 3. Depreciation Allocation of the cost of the asset to expense over its useful life Depreciation of office equipment: $480 p.a. or $40 monthly Journal entry: Oct. 31 Depreciation Expense 40 Accumulated Depreciation - Office Equipment 40 (To record monthly depreciation) 12 4

5 Adjusting entries for prepayments continued General Ledger Office Equipment Oct Accumulated Depreciation - Office Equipment Depreciation Expense Oct. 31 Adj. 40 Oct. 31 Adj. 40 Statement of Financial Position Office Equipment $5 000 Less: Accumulated Depreciation 40 Carrying Value $ Adjusting entries for prepayments continued Revenues received in advance Example $100 received 2 October for advertising services to be completed 31 December Journal entry: Oct. 31 Service Revenue Received in Advance 40 Service Revenue 40 (To record revenue) General Ledger: Service Revenue Received in Advance Service Revenue Oct. 31 Adj. 400 Oct Oct Oct. 31 Adj. 400 Adjusting entries for accruals Accruals may be either: a. accrued revenues Asset Revenue Debit Credit adjusting adjusting entry (+) entry (+) b. accrued expenses Expense Debit adjusting entry (+) Liability Credit adjusting entry (+) 15 5

6 Adjusting entries for accruals continued Accrued revenues are revenues earned from providing goods or services that have not as yet been recorded Revenue and receivable are recorded for revenue not received and not recorded Once cash is received, receivable is reduced 16 Adjusting entries for accruals continued Example: Commission Revenue earned, but not yet received or recorded: $200 Journal entry: Oct. 31 Commissions Receivable 200 Commissions Revenue 200 (To accrue commissions revenue not recorded or collected) General Ledger: Commissions Receivable Commissions Revenue Oct. 31 Adj. 200 Oct. 31 Adj Adjusting entries for accruals continued Accrued expenses are expenses not yet paid or recorded at balance date 1. Accrued interest Accrued interest owing on loan of $5000 Interest rate: 12% p.a. Interest owing: $5000 x 12% x 1/12 = $

7 Adjusting entries for accruals continued Journal entry Oct. 31 Interest Expense 50 Interest Payable 50 (To accrue interest on bank loan) General Ledger: Interest Expense Interest Payable Oct. 31 Adj. 50 Oct. 31 Adj Adjusting entries for accruals continued 2. Accrued Salaries Salaries outstanding for October: $1200 (3 days x $400) 20 Adjusting entries for accruals continued Journal entry Oct. 31 Salaries Expense 1200 Salaries Payable 1200 (To record accrued salaries) General Ledger: Salaries Expense Salaries Payable Oct Oct. 31 Adj Oct. 31 Adj

8 Summary of basic relationships Accounts before Adjusting Type of adjustment adjustment entry Prepaid expenses If amt paid is initially Assets overstated Dr Expenses recorded as an asset Expenses understated Cr Assets If amt paid is initially Expenses overstated Dr Assets recorded as an expense Assets understated Cr Expenses Revenues received in advance If amt received is initially Liabilities overstated Dr Liabilities recorded as a liability Revenues understated Cr Revenues If amt received is initially Revenues overstated Dr Revenues recorded as a revenue Liabilities understated Cr Liabilities Accrued revenues Assets understated Dr Assets Revenues understated Cr Revenues Accrued expenses Expenses understated Dr Expenses Liabilities understated 22 Cr Liabilities THE ADJUSTED TRIAL BALANCE AND FINANCIAL STATEMENTS The adjusted trial balance is prepared after all adjusting entries have been made It is used to prove the equality of total debit balances and total credit balances after the adjusting entries have been made The adjusted trial basis is the main basis for preparation of the financial statements 23 WONG PTY LTD Trial Balances as at 31 October 2007 Before adjustment After adjustment Dr Cr Dr Cr Cash $ $ Commissions Receivable 200 Advertising Supplies Prepaid Insurance Office Equipment Accumulated Depreciation Office Equipment $ 40 Accounts Payable $ Interest Payable 50 Service Revenue Received in Advance Salaries Payable Bank Loan Share Capital Retained Earnings Dividends Service Revenue Commissions Revenue Salaries Expense Advertising Supplies Expense Rent Expense Insurance Expense 50 Interest Expense 50 Depreciation Expense Profit $ $ $ $

9 Preparing financial statements Income statement prepared from revenue and expense accounts Current period profit (or loss) and dividends paid transferred to retained profits account Statement of financial position prepared from asset, liability, equity and balance of retained earnings accounts 25 Preparing financial statements continued 26 WONG PTY LTD Adjusted Trial Balance as at 31 October 2010 Account Debit Credit Cash $ Commissions Receivable 200 Advertising Supplies Prepaid Insurance 550 Office Equipment Accumulated Depreciation - Office Equipment $ 40 Accounts payable Interest payable 50 Service Revenue Received in Advance 800 Salaries Payable Bank Loan Share Capital Retained Earnings -- Dividends 500 Service Revenue Commissions Revenue 200 Salaries Expense Advertising Supplies Expense Rent Expense 900 Insurance Expense 50 Interest Expense 50 Depreciation Expense 40 WONG PTY LTD Statement of Financial Position as at 31 October 2010 Assets Cash $ Commissions Receivable 200 Adverting Supplies Prepaid Insurance 550 Office Equipment $5 000 Less: Accumulated Depreciation Total assets $ Liabilities and equity Liabilities Accounts payable py $2 500 Interest payable 50 Service Revenue Received in Advance 800 Salaries Payable Bank Loan Total liabilities $ Equity Share Capital Retained Earnings Total equity Total liabilities and equity $ $ $ Balance at 31 Oct. from calculation of retained earnings on previous slide 27 9

10 CLOSING THE BOOKS Temporary accounts relate to only a given accounting period i.e., revenues, expenses, dividends Permanent accounts are carried forward to future accounting periods i.e., assets, liabilities, equity 28 Preparing closing entries Closing entries are used to transfer the temporary account balances to the permanent equity account, retained earnings They produce a zero balance in each temporary account 29 Preparing closing entries continued Each revenue and expense account is closed to the Income Summary, another temporary account The Income Summary account is closed to Retained Earnings Dividends are closed to the Retained Earnings This will result in all temporary accounts having a closing balance of zero 30 10

11 Preparing a post-closing trial balance A post-closing trial balance is a list of all permanent accounts and their balances after closing entries are journalised and posted The purpose of the post-closing trial balance is to prove the equality of the permanent accounts that are carried forward to the next accounting period 31 SUMMARY OF THE ACCOUNTING CYCLE 1. Analyse transactions 2. Journalise transactions 3. Post to ledger accounts 4. Prepare a trial balance 5. Journalise and post adjusting entries: prepayments/accruals 6. Prepare an adjusted trial balance 32 SUMMARY OF THE ACCOUNTING CYCLE continued 7. Prepare financial statements Income statement Calculation of retained earnings Statement of financial position 8. Journalise and post closing entries 9. Prepare a post-closing trial balance 33 11

12 DECISION TOOLKIT People Care Ltd Work through on your own and check your results with the suggested solution provided 34 DEMONSTRATION PROBLEMS 1. Green Thumb Lawn Care Ltd 2. Rosy Narr Work through on your own and check your results with the suggested solution provided

Time Period Assumption

Time Period Assumption ILLUSTRATION 3-1 GUIDELINES TO REPORT REVENUE AND EXPENSES Time Period Assumption Economic life of business can be divided into artificial time periods Revenue Recognition Principle Revenue recognized

More information

Accounting Cycle. Matching Principle

Accounting Cycle. Matching Principle CHAPTER 3 Accounting Cycle Analyze and record the transactions Post the transactions and prepare trial balance Adjust the accounts and prepare trial balance Prepare the financial statements Close the accounts

More information

CHAPTER 3 ADJUSTING THE ACCOUNTS

CHAPTER 3 ADJUSTING THE ACCOUNTS CHAPTER 3 ADJUSTING THE ACCOUNTS TIME PERIOD ASSUMPTION The time period (or periodicity) assumption assumes that the economic life of a business can be divided into artificial time periods generally a

More information

b. Do not recognize revenue until steel is shipped. c. Do not recognize revenue until next year after the games are played.

b. Do not recognize revenue until steel is shipped. c. Do not recognize revenue until next year after the games are played. CHAPTER FOUR SE4-2 Revenue recognition a. Recognize revenue from car sales for 12,000. Notes receivable $12,000 Sales revenue $12,000 b. Do not recognize revenue until steel is shipped. c. Do not recognize

More information

COMPLETION OF THE ACCOUNTING CYCLE - Closing Entries -

COMPLETION OF THE ACCOUNTING CYCLE - Closing Entries - COMPLETION OF THE ACCOUNTING CYCLE - Closing Entries - Worksheet Overview Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet Account Titles Debit Credit Debit Credit Debit

More information

(a) Prepaid Insurance to recognize insurance expired during the period.

(a) Prepaid Insurance to recognize insurance expired during the period. BRIEF EXERCISE 4-1 (a) (b) (c) (d) (e) (f) Cash $ 100 0 0 +800 2,500 0 Net Income $0 20 +1,300 0 0 600 BRIEF EXERCISE 4-2 (a) Prepaid Insurance to recognize insurance expired during the period. (b) Depreciation

More information

1. If the assets owned by a business total $100,000 and liabilities total $70,000, stockholders' equity totals $30,000.

1. If the assets owned by a business total $100,000 and liabilities total $70,000, stockholders' equity totals $30,000. Rallis Page 1 Name: _ Date: 1. If the assets owned by a business total $100,000 and liabilities total $70,000, stockholders' equity totals $30,000. A) True B) False 2. If total liabilities decreased by

More information

Closing Entries and the Postclosing Trial Balance

Closing Entries and the Postclosing Trial Balance 6-1 McGraw-Hill 2009 The McGraw-Hill Companies, Inc. All rights reserved. Chapter Closing Entries and the Postclosing Trial Balance 6 Section 1: Closing Entries Section Objectives 1. Journalize and post

More information

Chapter 4 20/09/2012. Why Adjustments Are Needed. The Need for Adjustments. Adjustments. Types of Deferral Adjustments.

Chapter 4 20/09/2012. Why Adjustments Are Needed. The Need for Adjustments. Adjustments. Types of Deferral Adjustments. Chapter 4 Adjustments, Financial Statements, and the Quality of Financial Reporting Adjustments: How, When and Why? Preparing the Adjusted Trial Balance Preparing Adjusted Financial Statements The Closing

More information

EXERCISES. Does not normally require adjustment. Normally requires adjustment (AE).

EXERCISES. Does not normally require adjustment. Normally requires adjustment (AE). EXERCISES Ex. 3 1 1. Prepaid expense 2. Accrued revenue 3. Unearned revenue 4. Accrued expense 5. Unearned revenue 6. Prepaid expense 7. Accrued expense 8. Accrued expense Ex. 3 2 Account Accounts Receivable...

More information

ACCT1115. Review Package - Midterm SOLUTION Fall 2013

ACCT1115. Review Package - Midterm SOLUTION Fall 2013 ACCT1115 Review Package - Midterm SOLUTION Fall 2013 Part I Multiple Choice 1) How should you record the purchase of an expensive automobile? a) Decrease cash, increase assets b) Decrease cash, increase

More information

> DO IT! Chapter 3 Adjusting the Accounts. Timing Concepts. Adjusting Entries for Deferrals D-12. Solution

> DO IT! Chapter 3 Adjusting the Accounts. Timing Concepts. Adjusting Entries for Deferrals D-12. Solution Chapter 3 Adjusting the Accounts Timing Concepts Review the glossary terms. Study carefully the revenue recognition principle, the expense recognition principle, and the time period assumption. Several

More information

Take-Off Trial Balance

Take-Off Trial Balance Closing Entries, and Accounting Worksheet Created 2007 By Michael Worthington Elizabeth City State University Take-Off is initial stage of 1. Copy (take-off) unadjusted from General Ledger to the worksheet

More information

PART A: TRUE/FALSE (1 point each):

PART A: TRUE/FALSE (1 point each): CHABOT COLLEGE General Accounting (BUS-7) Dmitriy Kalyagin EXAM #2 (Chapters 4-6) PART A: TRUE/FALSE (1 point each): 1. The book value of an asset is equal to its true market value. 2. The worksheet is

More information

Chapter 4: Adjusting the accounts and preparing Financial statements. 4.1 Measurement of Profit Income Expense = profit

Chapter 4: Adjusting the accounts and preparing Financial statements. 4.1 Measurement of Profit Income Expense = profit Chapter 4: Adjusting the accounts and preparing Financial statements 4.1 Measurement of Profit Income Expense = profit Cash basis Income is recorded wen cash is received Expenses are recorded when cash

More information

CHAPTER 2 REVIEW OF THE ACCOUNTING PROCESS. Lecture Outline

CHAPTER 2 REVIEW OF THE ACCOUNTING PROCESS. Lecture Outline CHAPTER 2 REVIEW OF THE ACCOUNTING PROCESS Overview Chapter 1 explained that the primary means of conveying financial information to investors, creditors, and other external users is through financial

More information

Vol. 1, Chapter 3 - Accounting Adjustments

Vol. 1, Chapter 3 - Accounting Adjustments Vol. 1, Chapter 3 - Accounting Adjustments Problem 1 1. ($20,000 2,000) 48 = $375 per month 2. Jan. 31 Depreciation Expense $375 Accumulated Depreciation Van $375 To record depreciation expense for January

More information

Accounting Principles Dr. Mishari Alfraih. Adjusting the Accounts

Accounting Principles Dr. Mishari Alfraih. Adjusting the Accounts Accrual- vs. Cash-Basis Accounting Accrual-Basis Accounting Adjusting the Accounts Transactions recorded in the periods in which the events occur Revenues are recognized when earned, rather than when cash

More information

Periodicity Assumption... Time Period Assumption... Chapter 4 Accrual Accounting Concepts

Periodicity Assumption... Time Period Assumption... Chapter 4 Accrual Accounting Concepts Financial Accounting: Tools for Business Decision Making, 4th Ed. CHAPTER 4 Kimmel, Weygandt, Kieso Chapter 4 Accrual Accounting Concepts KEY THINGS WE LL DO: Refresh and expand Ch.3 concepts. Differentiate

More information

Accounting Basics, Part 2

Accounting Basics, Part 2 Accounting Basics, Part 2 The Accounting Cycle, T-Accounts, Trial Balance, and from Ledger to Trial Closing Balance Part 2 What s Here Introduction The Accounting Cycle T-Accounts Trial Balance Adjusting

More information

ACC Financial Accounting Review for Test 1 (includes chapters 1, 2 and 3)

ACC Financial Accounting Review for Test 1 (includes chapters 1, 2 and 3) ACC 201 - Financial Accounting Review for Test 1 (includes chapters 1, 2 and 3) From the following list of questions, I will pick 27 multiple choice questions(each worth 1.5 points=40.5points) and one

More information

TRANSACTIONS ANALYSIS EXAMPLE. Maxwell Partners Medical Diagnostic Services report the following information for 2011, their first year of operations:

TRANSACTIONS ANALYSIS EXAMPLE. Maxwell Partners Medical Diagnostic Services report the following information for 2011, their first year of operations: TRANSACTIONS ANALYSIS EXAMPLE Maxwell Partners Medical Diagnostic Services report the following information for 2011, their first year of operations: 1. Billings to clients for services provided: $350,000

More information

Chapter 3 Adjusting the Accounts

Chapter 3 Adjusting the Accounts Bennett S. LeBow College of Business Financial Accounting Professor Jane Kaplan Professor Notes Chapter 3 Adjusting the Accounts Measuring Revenues and Expenses o Accrual accounting is a form of accounting

More information

Chapter 5 Accrual Adjustments and Financial Statement Preparation. Revenue recognition Matching expenses to revenues Expenses related to periods

Chapter 5 Accrual Adjustments and Financial Statement Preparation. Revenue recognition Matching expenses to revenues Expenses related to periods Chapter 5 Accrual Adjustments and Financial Statement Preparation Revenue recognition Matching expenses to revenues Expenses related to periods 1 The Measurement of Income major function of accounting

More information

Adjusting the Accounts

Adjusting the Accounts HOSP 1210 (Financial Acct) Learning Centre Adjusting the Accounts Anytime we prepare financial statements or reach the end of an accounting period, there are account adjustments that need to be made to

More information

Do it! Solution. Action Plan B2H1

Do it! Solution. Action Plan B2H1 1 The ledger of Hammond, Inc., on March 31, 2014, includes these selected accounts before adjusting entries are prepared. Debit Credit Prepaid Insurance $ 3,600 Supplies 2,800 Equipment 25,000 Accumulated

More information

CHAPTER 4 Accrual Accounting Concepts Study Objectives

CHAPTER 4 Accrual Accounting Concepts Study Objectives CHAPTER 4 Accrual Accounting Concepts Study Objectives Explain the revenue recognition principle and the matching principle. Differentiate between the cash basis and the accrual basis of accounting. Explain

More information

Review of the Accounting Process THE BASIC MODEL

Review of the Accounting Process THE BASIC MODEL THE BASIC MODEL The accounting information system is designed to collect and organize data into information that is useful for stakeholders. The Accounting Equation The basic accounting equation is what

More information

Adjustments were analyzed and planned on the work sheet These adjustments must be journalized, so they can be posted to the general ledger accounts

Adjustments were analyzed and planned on the work sheet These adjustments must be journalized, so they can be posted to the general ledger accounts LESSON 8-1 Recording Adjusting Entries Adjustments were analyzed and planned on the work sheet These adjustments must be journalized, so they can be posted to the general ledger accounts Adjusting entries

More information

SOLUTIONS. Learning Goal 16

SOLUTIONS. Learning Goal 16 Learning Goal 16: Prepare Closing Entries S1 Learning Goal 16 Multiple Choice 1. d 2. a 3. b 4. d Because drawing is closed directly into the capital account, not into income summary. 5. c 6. b This a

More information

ILLUSTRATION 3-1 DOUBLE-ENTRY ACCOUNTING SYSTEM

ILLUSTRATION 3-1 DOUBLE-ENTRY ACCOUNTING SYSTEM ILLUSTRATION 3-1 DOUBLE-ENTRY ACCOUNTING SYSTEM ASSETS Increase Decrease + DOUBLE-ENTRY ACCOUNTING REAL (PERMANENT) ACCOUNTS = LIABILITIES + Rules of Thumb + If the "normal balance" for an account is a

More information

The Work Sheet and the Closing Process

The Work Sheet and the Closing Process C H A P T E R 4 The Work Sheet and the Closing Process A systematic approach is essential for efficient and accurate processing of large amounts of information. Whether work sheets are on paper or computerized,

More information

CHAPTER 3 The Accounting Information System

CHAPTER 3 The Accounting Information System CHAPTER 3 The Accounting Information System 3-1 LECTURE OUTLINE Chapter 3 provides a review of accounting procedures throughout the accounting cycle. Depending on time constraints and students accounting

More information

Supplement to CHAPTER 3 CLOSING ENTRIES AND THE WORK SHEET

Supplement to CHAPTER 3 CLOSING ENTRIES AND THE WORK SHEET Supplement to CHAPTER 3 CLOSING ENTRIES AND THE WORK SHEET Answers to Review Questions 1. No, the work sheet cannot be used as a substitute for the financial statements. It is a tool used in preparing

More information

Statements MAKEorBREAK Sample Questions

Statements MAKEorBREAK Sample Questions Castle 2.3 Statements Got the answer? Be the first to stand with your group s flag. Got it correct? MAKE or BREAK a castle, yours or any other group s. The group with the most castles wins. Enjoy! Question

More information

13 Financial Statements and Closing Procedures

13 Financial Statements and Closing Procedures 13-1 McGraw-Hill 2009 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 13 Financial Statements and Closing Procedures Section 1: Preparing the Financial Statements Section Objectives 1. Prepare

More information

BAT 4M: Chapter 3 ANSWERS TO QUESTIONS

BAT 4M: Chapter 3 ANSWERS TO QUESTIONS BAT 4M: Chapter 3 ANSWERS TO QUESTIONS 01. (a) Under the time period assumption, an accountant is required to determine the relevance of each business transaction to specific accounting periods, and its

More information

CHAPTER 3. BE3-2 Advertising. Dec. 31 Advertising Supplies Expense 7200 Advertising Supplies 7200 to adjust. BE3-3 Bere Co.

CHAPTER 3. BE3-2 Advertising. Dec. 31 Advertising Supplies Expense 7200 Advertising Supplies 7200 to adjust. BE3-3 Bere Co. CHAPTER 3 BE3-2 Advertising Advertising Supplies Supplies Expense 8700 7200 7200 1500 7200 Dec. Advertising Supplies Expense 7200 Advertising Supplies 7200 BE3-3 Bere Co. Prepaid Insurance Insurance Expense

More information

Accrual Accounting Fundamentals

Accrual Accounting Fundamentals Accrual Accounting Fundamentals A Primer To assist in maintaining the knowledge and skills after training. Outline of program Introduction to Accrual Accounting Terminology - Definitions Key Financial

More information

Accrual Accounting Process

Accrual Accounting Process Accrual Accounting Process 15.501 Accounting Spring 2004 Professor S. Roychowdhury Sloan School of Management Massachusetts Institute of Technology Feb 17/18, 2004 1 An accountant s functions include Classifying

More information

ADJUSTMENTS IN ACCOUNTING

ADJUSTMENTS IN ACCOUNTING ADJUSTMENTS IN ACCOUNTING Learning Objectives Understand the process of adjustments in accounting Explain the different types of adjustments Prepare adjusting entries 2 Income Statement Revenues recognized

More information

Chapter 4. Completing the accounting cycle

Chapter 4. Completing the accounting cycle 1 Chapter 4 Completing the accounting cycle 2 Learning objectives 1. Prepare an accounting worksheet and describe its purpose 2. Prepare a classified balance sheet and explain the major headings 3. Explain

More information

ACCRUAL ACCOUNTING CONCEPTS

ACCRUAL ACCOUNTING CONCEPTS c04accrualaccountingconcepts.qxd 8/3/10 1:50 PM Page 162 chapter 4 ACCRUAL ACCOUNTING CONCEPTS 162 the navigator Scan Study Objectives Read Feature Story Scan Preview Read Text and Answer Do it! p. 175

More information

Completing the Accounting Cycle

Completing the Accounting Cycle C H A P T E R 4 Completing the Accounting Cycle Financial Accounting 14e Warren Reeve Duchac human/istock/360/getty Images Flow of Accounting Information (slide 1 of 5) End-of-Period Spreadsheet (Work

More information

CHAPTER 3: PREPARING FINANCIAL STATEMENTS

CHAPTER 3: PREPARING FINANCIAL STATEMENTS CHAPTER 3: PREPARING FINANCIAL STATEMENTS I. TIMING AND REPORTING A. The Accounting Period Time period assumption an organization s activities can be divided into specific time periods. Examples: a month,

More information

Module 3: Adjusting the accounts, preparing the statements, and completing the accounting cycle

Module 3: Adjusting the accounts, preparing the statements, and completing the accounting cycle Page 1 of 27 Module 3: Adjusting the accounts, preparing the statements, and completing the accounting cycle Overview In Module 2 you studied the fundamental steps in recording accounting information by

More information

Dr. Maddah ENMG 602 Intro. to Financial Eng g 10/22/08

Dr. Maddah ENMG 602 Intro. to Financial Eng g 10/22/08 Dr. Maddah ENMG 602 Intro. to Financial Eng g 10/22/08 Income Statement Concepts (Chapter 3, Antle) The income concept Net assets (equities) are the excess of the entities assets over its liabilities,

More information

Chapter 4 Adjustments, Financial Statements, and the Quality of Earnings

Chapter 4 Adjustments, Financial Statements, and the Quality of Earnings Chapter 4 Adjustments, Financial Statements, and the Quality of Earnings ANSWERS TO QUESTIONS 1. Adjusting entries are made at the end of the accounting period to record all revenues and expenses that

More information

Accrual Accounting Process: Part II

Accrual Accounting Process: Part II Accrual Accounting Process: Part II 15.511 Corporate Accounting Summer 2003 Professor S.P. Kothari Sloan School of Management Massachusetts Institute of Technology June 14, 2003 1 Agenda for Today Continue

More information

THE ACCOUNTING INFORMATION SYSTEM

THE ACCOUNTING INFORMATION SYSTEM CHAPTER 3 THE ACCOUNTING INFORMATION SYSTEM OVERVIEW Accounting information must be accumulated and summarized before it can be communicated and analysed. In this chapter, we will discuss the steps involved

More information

Completing the Accounting Cycle

Completing the Accounting Cycle HOSP 1210 (Financial Acct) Learning Centre Completing the Accounting Cycle At the end of the accounting cycle, the final steps are to journalize and post closing entries and to prepare a post-closing trial

More information

Marist College ACCT 203 Financial Accounting Quiz Prep Chapter 3

Marist College ACCT 203 Financial Accounting Quiz Prep Chapter 3 Marist College ACCT 203 Financial Accounting Quiz Prep Chapter 3 The Accounting Cycle: Capturing Economic Events Peter Rivera August 2011 Disclaimer This Quiz Prep is provided as an outline of the key

More information

Unit 2 The Basic Accounting Cycle

Unit 2 The Basic Accounting Cycle Unit 2 The Basic Accounting Cycle Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Business Transactions and the Accounting Equation Transactions That Affect Assets, Liabilities, and

More information

Chapter 4. Completing the Accounting Cycle. Albrecht, Stice, Stice, Swain

Chapter 4. Completing the Accounting Cycle. Albrecht, Stice, Stice, Swain Chapter 4 Completing the Accounting Cycle Albrecht, Stice, Stice, Swain COPYRIGHT 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks

More information

Practice Test Chapters 1, 2, 3

Practice Test Chapters 1, 2, 3 Practice Test Chapters 1, 2, 3 Multiple Choice 1. Which of the following would not be considered an internal user of accounting data for the ABC Company? A. The President of the company B. Production Manager

More information

Chapter 4. Completing the accounting cycle. Appendix 4A: Reversing entries

Chapter 4. Completing the accounting cycle. Appendix 4A: Reversing entries 1 Chapter 4 Completing the accounting cycle Appendix 4A: Reversing entries 2 Learning objective 1. Prepare reversing entries and describe their purpose 3 Reversing entries Reversing entries are optional

More information

CHAPTER 4. Adjusting the accounts and preparing financial statements CONTENTS

CHAPTER 4. Adjusting the accounts and preparing financial statements CONTENTS CHAPTER 4 Adjusting the accounts and preparing financial statements CONTENTS Demonstration problem 4.1 Adjusting entries and corrections 4.2 Adjusting centries and effect on financial statements 4.3 Adjusting

More information

Assessment Schedule 2010 Accounting: Prepare financial statements and related accounting entries for sole proprietors (90224)

Assessment Schedule 2010 Accounting: Prepare financial statements and related accounting entries for sole proprietors (90224) NCEA Level 2 Accounting (90224) 2010 page 1 of 7 Assessment Schedule 2010 Accounting: Prepare financial statements and related accounting entries for sole proprietors (90224) Evidence Statement ONE Part

More information

Accounting 300A-10A The Operating Cycle: Worksheet/Closing Entries Page 1

Accounting 300A-10A The Operating Cycle: Worksheet/Closing Entries Page 1 Accounting 3A-1A The Operating Cycle: Worksheet/Closing Entries Page 1 THE WORKSHEET and CLOSING ENTRIES I. Review of Key Concepts and Terms: A. The purpose of the worksheet 1. To show that the accounts

More information

Problem Solutions: Topics 1 and 2 ACCT Evaluating Financial Performance Fall 2015

Problem Solutions: Topics 1 and 2 ACCT Evaluating Financial Performance Fall 2015 Problem Solutions: Topics 1 and 2 ACCT 60601 Evaluating Financial Performance Fall 2015 Note: All problems are organized by Topic. Each problem is numbered with the topic number first followed by a dash

More information

Accounting 1 Semester 1 Final Exam Review Practice

Accounting 1 Semester 1 Final Exam Review Practice Accounting 1 Semester 1 Final Exam Review Practice True/False Indicate whether the sentence or statement is true or false. 1. Accounting is the language of business. 2. The relationship among assets, liabilities,

More information

Gold Run Snowmobile. Adjusting Entries and Closing Entries For The Quarter Ended December 31. Final Project Evaluation. 5 th Edition.

Gold Run Snowmobile. Adjusting Entries and Closing Entries For The Quarter Ended December 31. Final Project Evaluation. 5 th Edition. Gold Run Snowmobile 5 th Edition Adjusting Entries and Closing Entries For The Quarter Ended December 31 and the Final Project Evaluation Page 1 ADJUSTING ENTRIES FOR THE QUARTER Using a copy of the December

More information

CHAPTER 4. Completion of the Accounting Cycle ASSIGNMENT CLASSIFICATION TABLE. Brief Exercises 1, 2, 3 1, 2, 3, *11 7, 8 4, *17, *18 *10, *11, *12

CHAPTER 4. Completion of the Accounting Cycle ASSIGNMENT CLASSIFICATION TABLE. Brief Exercises 1, 2, 3 1, 2, 3, *11 7, 8 4, *17, *18 *10, *11, *12 CHAPTER 4 Completion of the Accounting Cycle ASSIGNMENT CLASSIFICATION TABLE Study Objectives Questions Brief Exercises Exercises Problems Set A Problems Set B 1. Prepare closing entries and a postclosing

More information

SOLUTIONS TO BRIEF EXERCISES

SOLUTIONS TO BRIEF EXERCISES SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 4-1 1. Prepare a trial balance on the work sheet 2. Enter adjustment data 3. Enter adjusted balances 4. Enter adjusted balances in appropriate statement columns

More information

Completing the Accounting Cycle

Completing the Accounting Cycle CHAPTER 4 Completing the Accounting Cycle Making a Statement INCOME STATEMENT Revenues Expenses = Net Income STATEMENT OF OWNER S EQUITY Beginning Balance + Net Income Withdrawals = Ending Balance BALANCE

More information

CHAPTER 3. The Accounting Information System. 1. Transaction identification. 1, 2, 3, 5 1, 2 1, 2, 3, 4, Trial balance. 6, 10 2, 3, 4 1, 2, 7

CHAPTER 3. The Accounting Information System. 1. Transaction identification. 1, 2, 3, 5 1, 2 1, 2, 3, 4, Trial balance. 6, 10 2, 3, 4 1, 2, 7 CHAPTER 3 The Accounting Information System ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics Questions Brief Exercises Exercises Problems 1. Transaction identification. 1, 2, 3, 5 1, 2 1, 2, 3, 4, 17

More information

CHAPTER 3. The Accounting Information System. 3. Trial balance. 6, 10 2, 3, 4 1, 2, Adjusting entries. 8, 11, 13, 14 3, 4, 5, 6, 7, 8, 9, 10

CHAPTER 3. The Accounting Information System. 3. Trial balance. 6, 10 2, 3, 4 1, 2, Adjusting entries. 8, 11, 13, 14 3, 4, 5, 6, 7, 8, 9, 10 CHAPTER 3 The Accounting Information System ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics Questions Brief Exercises Exercises Problems 1. Transaction identification. 1, 2, 3, 5, 6, 7, 8 1, 2 1, 2,

More information

CHAPTER 4. Adjusting the accounts and preparing financial statements CONTENTS

CHAPTER 4. Adjusting the accounts and preparing financial statements CONTENTS CHAPTER 4 Adjusting the accounts and preparing financial statements CONTENTS Demonstration problem 4.1 Adjusting entries and corrections 4.2 Adjusting centries and effect on financial statements 4.3 Adjusting

More information

Accruals and prepayments

Accruals and prepayments Accruals and prepayments Introduction These are adjustments which need to be carried out before the financial statements can be produced. The adjustments are necessary as accounts are prepared in accordance

More information

Financial Accounting. (Exam)

Financial Accounting. (Exam) Financial Accounting (Exam) Your AccountingCoach PRO membership includes lifetime access to all of our materials Take a quick tour by visiting wwwaccountingcoachcom/quicktour Table of Contents (click to

More information

Accrual Accounting Process: Part I

Accrual Accounting Process: Part I Accrual Accounting Process: Part I 15.511 Corporate Accounting Summer 2004 Professor SP Kothari Sloan School of Management Massachusetts Institute of Technology June 11, 2004 1 An accountant s functions

More information

Accg100 Accounting 1A. Lecture Notes

Accg100 Accounting 1A. Lecture Notes Accg100 Accounting 1A Lecture Notes Semester 2, 2012 1 Table of Contents Lecture Notes Page Week 1: Introduction to Accounting, Ethics, 3 Business Entities, Financial Statements Week 2: Accounting for

More information

CHAPTER 3 THE ADJUSTING PROCESS

CHAPTER 3 THE ADJUSTING PROCESS 1. a. Under cash-basis accounting, revenues are reported in the period in which cash is received and expenses are reported in the period in which cash is paid. b. Under accrual-basis accounting, revenues

More information

The Double-Entry System EFFECTS OF TRANSACTIONS ON THE BALANCE SHEET. Initial Paid-in Capital. An Example Entity. Transaction 2.

The Double-Entry System EFFECTS OF TRANSACTIONS ON THE BALANCE SHEET. Initial Paid-in Capital. An Example Entity. Transaction 2. The Double-Entry System EFFECTS OF TRANSACTIONS ON THE BALANCE SHEET 2001 Richard S. Barr Transaction: Any event that affects the entity's financial position and requires recording Every accounting transaction

More information

Questions and Answers

Questions and Answers Questions and Answers 1. List and describe the major steps in the accounting cycle. 2. In accounting, debit and credit have specific meanings. What are they? 3. You overheard one of your friends telling

More information

Acct 3110 Qualifying Exam Sample Questions as of May 31, 2016

Acct 3110 Qualifying Exam Sample Questions as of May 31, 2016 Acct 3110 Qualifying Exam Sample Questions as of May 31, 2016 1. The primary objective of financial reporting is to provide financial information about the reporting company that is useful: *a. to existing

More information

Review for Test 1 : INCLUDES CHAPTERS 1, 2, 3 & 4 (For Friday class ONLY)

Review for Test 1 : INCLUDES CHAPTERS 1, 2, 3 & 4 (For Friday class ONLY) Review for Test 1 : INCLUDES CHAPTERS 1, 2, 3 & 4 (For Friday class ONLY) Name The following review includes 100 questions. On the test students will answer 33 questions selected from the review. MULTIPLE

More information

CHAPTER 3 Solutions MEASURING BUSINESS INCOME

CHAPTER 3 Solutions MEASURING BUSINESS INCOME CHAPTER 3 Solutions MEASURING BUSINESS INCOME Chapter 3, SE 1. 1. 2. 3. 4. c b d a Chapter 3, SE 2. Dec. 31 Insurance Expense 800 Prepaid Insurance To record insurance expired during the year $460 + $1,040

More information

PRINCIPLES OF ACCOUNTING REVISION

PRINCIPLES OF ACCOUNTING REVISION PRINCIPLES OF ACCOUNTING REVISION Exam format open book 2 hours No multiple choice question. Question 1 FIFO, LIFO stock valuation (20 marks) Question 2 Depreciation (20 marks) Question 3 Bank reconciliation

More information

The Accounting Process

The Accounting Process GAAP LITERATURE The Accounting Process Chapter 3 TRADITIONAL: Original pronouncements, issued by the FASB. SEPT. 2009 CHANGE: Codification issued by the FASB. DIFFERENCE: Codification is listed by topic

More information

CHAPTER 2 ACCOUNTING FOR TRANSACTIONS

CHAPTER 2 ACCOUNTING FOR TRANSACTIONS CHAPTER 2 ACCOUNTING FOR TRANSACTIONS Key Terms and Concepts to Know Double entry accounting: Debits and Credits Total debits must always equal total credits Accounting Books: Accounts General Journal

More information

Completing the Accounting Cycle. SMART TOUCH LEARNING Balance Sheet May 31, 2013 $ 4,800 2,600 30, ,000 $ 40,500 $18, ,

Completing the Accounting Cycle. SMART TOUCH LEARNING Balance Sheet May 31, 2013 $ 4,800 2,600 30, ,000 $ 40,500 $18, , 4 Completing the Accounting Cycle SMART TOUCH LEARNING ance Sheet May 31, 2013 All accounts not on the balance sheet reset to zero at the end of a period, and update the capital balance. Assets Current

More information

In the event of a tie, the score on the last ten questions will be used as a tie-breaker.

In the event of a tie, the score on the last ten questions will be used as a tie-breaker. NEW YORK STATE ASSOCIATION FUTURE BUSINESS LEADERS OF AMERICA SPRING DISTRICT MEETING ACCOUNTING II 2010 TEST DIRECTIONS 1. Complete the information requested on the answer sheet. PRINT your name on the

More information

SOLUTIONS TO EXERCISES SET B

SOLUTIONS TO EXERCISES SET B SOLUTIONS TO EXERCISES SET B EXERCISE 4-1B GREEN COMPANY Worksheet For the Month Ended June 30, 2008 Account Titles Trial Balance Adjustments Adj. Trial Balance Income Statement Balance Sheet Dr. Cr. Dr.

More information

Recording Adjusting and Closing Entries for a Service Business

Recording Adjusting and Closing Entries for a Service Business 1 Chapter 8 Mindy Boyd - HHS Recording Adjusting and Closing Entries for a Service Business 2 Vocabulary Words Chapter 8 Adjusting Entries = journal entries recorded to update general ledger accounts at

More information

The Adjusting Process

The Adjusting Process Chapter 03.qxd 5/21/08 7:07 PM Page 99 C H A P T E R 3 AP Photo/Jeff Kravitz Fo r Sa le The Adjusting Process M A R V E L D E N T E R T A I N M E N T, N ot o you subscribe to any magazines? Most of us

More information

Student Solutions Manual to Accompany. Introduction to Financial Accounting. David Annand. Based on International Financial Reporting Standards

Student Solutions Manual to Accompany. Introduction to Financial Accounting. David Annand. Based on International Financial Reporting Standards Student Solutions Manual to Accompany Introduction to Financial Accounting Based on International Financial Reporting Standards David Annand Copyright 2014 David Annand Published by David Annand 4910C

More information

CHAPTER 5. Accounting for Merchandising Operations 1, 12, 13, 14 15, 16, 17, 18

CHAPTER 5. Accounting for Merchandising Operations 1, 12, 13, 14 15, 16, 17, 18 CHAPTER 5 Accounting for Merchandising Operations ASSIGNMENT CLASSIFICATION TABLE Learning Objectives Questions Brief Exercises Do It! Exercises A Problems B Problems *1. Identify the differences between

More information

Learn Accounting Understand Business: Course Review Answers

Learn Accounting Understand Business: Course Review Answers Learn Accounting Understand Business: Course Review Answers 1. What type of accounting measures the activity of the company by looking at economic events regardless of when cash transactions occur? A.

More information

CHAPTER 3. Understanding the Accounting Information System. 3. Trial balance. 6, 10 3, 4, 5 1, 2, Closing , 15, 16 1, 4, 8, 9, 11

CHAPTER 3. Understanding the Accounting Information System. 3. Trial balance. 6, 10 3, 4, 5 1, 2, Closing , 15, 16 1, 4, 8, 9, 11 CHAPTER 3 Understanding the Accounting Information System ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics Questions Brief Exercises Exercises Problems 1. Transaction identification. 1, 2, 3, 5, 6, 7,

More information

Accounting II Second Semester Final

Accounting II Second Semester Final Name: Class: Date: Accounting II Second Semester Final Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1. Profit is the difference between:

More information

Preparing Financial Statements

Preparing Financial Statements Carroll_CH03_023-040.qxd 8/10/06 4:37 PM Page 23 CHAPTER 3 Preparing Financial Statements OBJECTIVES F After reading this chapter, the student should be able to: 1. Describe the general process by which

More information

SOLUTION DISCUSSION QUESTIONS. Suggested Responses GENERAL JOURNAL Closing Entries

SOLUTION DISCUSSION QUESTIONS. Suggested Responses GENERAL JOURNAL Closing Entries SOLUTION GENERAL JOURNAL PAGE 4 1 20 Closing Entries 1 2 Dec. 31 Commissions Earned 92,824.00 2 3 Income from Services 23,050.00 3 4 Income Summary 115,874.00 4 5 5 6 31 Income Summary 37,194.00 6 7 Salary

More information

Chapter 4 Completing the Accounting Cycle 高立翰

Chapter 4 Completing the Accounting Cycle 高立翰 Chapter 4 Completing the Accounting Cycle 高立翰 Study Objectives 1. Prepare a worksheet. 2. Explain the process of closing the books. 3. Describe the content and purpose of a postclosing trial balance. 4.

More information

The Matching Concept and the Adjusting Process

The Matching Concept and the Adjusting Process The Matching Concept and the Adjusting Process o b j e c t i v e s After studying this chapter, you should be able to: 4 Explain how the matching concept relates to the accrual basis of accounting. Explain

More information

Accounting Skills Assessment Practice Exam Page 1 of 10

Accounting Skills Assessment Practice Exam Page 1 of 10 NAU ACCOUNTING SKILLS ASSESSMENT PRACTICE EXAM & KEY 1. A company received cash and issued common stock. What was the effect on the accounting equation? Assets Liabilities Stockholders Equity A. + NE +

More information

PART 1. BASIC CONCEPTS AND ACCOUNTING MODEL

PART 1. BASIC CONCEPTS AND ACCOUNTING MODEL CHAPTER 1 PART 1. BASIC CONCEPTS AND ACCOUNTING MODEL OBJECTIVES The objectives of this part are: To introduce a definition of accounting, the need for accounting information, and the various accounting

More information

Chapter 13 Financial Statements and Closing Procedures

Chapter 13 Financial Statements and Closing Procedures Chapter 13 - Financial Statements and Closing Procedures Chapter 13 Financial Statements and Closing Procedures TEACHING OBJECTIVES 13-1) Prepare a classified income statement from the worksheet. 13-2)

More information

CENTURY 21 ACCOUNTING, 8e General Journal Chapter Objectives

CENTURY 21 ACCOUNTING, 8e General Journal Chapter Objectives CENTURY 21 ACCOUNTING, 8e General Journal Chapter Objectives Chapter 1 Starting A Proprietorship: Changes that Affect the Accounting Equation After studying Chapter 1, you will be able to: 1. Define accounting

More information