Lecture 10.pptx.ppt - Financial Accounting Prof Mirella Ciaburri ADJUSTMENTS John Cabot University Estimating profit or loss On an ACCRUAL BASIS Profit

Lecture 10.pptx.ppt - Financial Accounting Prof Mirella...

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Financial Accounting Prof. Mirella Ciaburri
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John Cabot University ADJUSTMENTS
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John Cabot University ADJUSTMENTS On an ACCRUAL BASIS Profit for the period on an accrual basis Loss for the period on an accrual basis Need for Estimating profit or loss
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John Cabot University ADJUSTMENTS depreciation and amortization concerning fixed assets provisions for certain, uncertain and deferred costs write-offs of fixed assets (operating and financial) write-offs of trade receivables accrued on-going service costs Current expenses increases, to charge the costs of the P&L with: Current expenses decreases, to capitalize on the balance sheet: costs of raw materials inventory costs of finished goods inventory costs of pre-paid services costs of internal fixed assets production Adjustments on current expenses
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John Cabot University ADJUSTMENTS accrued on-going service revenues (for which service production has been performed) Current revenue increase, to record in the revenues of the P&L: Current revenue decrease, to defer in the balance sheet: advance payments from customers and unearned revenues (for which future production will be performed) Adjustments on revenues
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John Cabot University ADJUSTMENT ON FIXED ASSETS
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John Cabot University FIXED ASSET-RELATED EXPENSES Depreciation The physiological and predictable decrease in the future benefits of tangible assets having a limited useful life Amortization The physiological and predictable decrease in the future benefits of intangible assets having a limited useful life Write-of The unpredictable decrease in the future benefits of fixed assets, often influenced by external factors or low future profitability of products Adjustments on fixed assets
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John Cabot University DEPRECIATION & AMORTISATION The physiological and predictable decrease in the future benefits, and hence in the value, of fixed assets having a limited useful life Hence, it represents the portion of the total utility of a fixed asset that is considered used in a certain period It is necessary to record: THE DECREASE IN THE VALUE OF FIXED ASSETS (in the BS) THE INCREASE IN THE COSTS (in the P&L) Adjustments on fixed assets
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John Cabot University On the january 1° 200X, a plant is bought for € 200.000. The expected useful life of the plant is 10 years. 1/01/0X 31/12/0X B.S. I.S. Cash at bank - 200.000 B.S. I.S. Depreciation 20.000 Plants +200.000 Plants +200.000 180.000 Adjustments on fixed assets
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John Cabot University 0X 0x+1 0x+2 0x+3 0x+10 Cost 200.000 Depreciation 20.000 20.000 20.000 20.000 20.000 Accumulated depreciation 20.000 40.000 60.000 80.000 200.000 On the january 1° 200X, a plant is bought for € 200.000. The expected useful life of the plant is 10 years.
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  • Spring '14
  • John Cabot, Generally Accepted Accounting Principles, JOHN CABOT UNIVERSITY

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