Chapter 3-power point-classnotes

Chapter 3-power point-classnotes - CHAPTER 3 Adjusting...

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Adjusting Accounts and Preparing Financial Statements C H A P T E R 3
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The Accounting Cycle Start Analyze transactions Journalize Post Prepare unadjusted trial balance Adjust Prepare adjusted trial balance Prepare statements Close Prepare post-closing trial balance Reverse (optional)
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1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 Annually 1 2 Monthly Quarterly Semiannually The Accounting Period Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
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Accounting Accrual Basis vs. Cash Basis Accrual Basis Revenues are recognized when earned and expenses are recognized when incurred. Cash Basis Revenues are recognized when cash is received and expenses recorded when cash is paid. Not GAAP Not GAAP
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Accrual Basis vs. Cash Basis On the cash basis the entire $2,400 would be recognized as insurance expense in 2007. No insurance expense from this policy would be recognized in 2008 or 2009, periods covered by the policy. Jan Feb Mar Apr - $ - $ - $ - $ May Jun Jul Aug - $ - $ - $ - $ Sep Oct Nov Dec - $ - $ - $ 2,400 $ Insurance Expense 2007
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Accrual Basis vs. Cash Basis Jan Feb Mar Apr - $ - $ - $ - $ May Jun Jul Aug - $ - $ - $ - $ Sep Oct Nov Dec - $ - $ - $ 100 $ Jan Feb Mar Apr 100 $ 100 $ 100 $ 100 $ May Jun Jul Aug 100 $ 100 $ 100 $ 100 $ Sep Oct Nov Dec 100 $ 100 $ 100 $ 100 $ Jan Feb Mar Apr 100 $ 100 $ 100 $ 100 $ May Jun Jul Aug 100 $ 100 $ 100 $ 100 $ Sep Oct Nov Dec 100 $ 100 $ 100 $ - $ Insurance Expense 2007 Insurance Expense 2008 Insurance Expense 2009 On the accrual basis $100 of insurance expense is recognized in 2007 , $1,200 in 2008 , and $1,100 in 2009 . The expense is matched with the periods benefited by the insurance coverage.
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We have delivered the product to our customer, so I think we should record the revenue earned. Recognizing Revenues Revenue Recognition
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Recognizing Expenses Revenue Recognition Matching Summary of Expenses Rent Gasoline Advertising Salaries Utilities and . . . .
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