Lecture_4_-_Accruals - Accruals and Preparation of the...

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Unformatted text preview: Accruals and Preparation of the Financial Statements Lecture 4 FNA 1002X 2007-1st (03/09/2007) by Vincent Chen 2 To complete accounting cycle, two more additional journal entries are needed: To complete accounting cycle, two more additional journal entries are needed: Adjusting Entries Adjusting Entries Closing Entries Closing Entries FNA 1002X 2007-1st (03/09/2007) by Vincent Chen 3 Adjusting Entries Adjusting Entries FNA 1002X 2007-1st (03/09/2007) by Vincent Chen 4 Journal Entries Journal Entries Business Transactions Business Transactions Prior Periods Current Period Future Periods Adjusting Entries Adjusting Entries Revenues or expenses not recognized in business transactions but should be included to reflect a firm’s performance Revenues or expenses not recognized in business transactions but should be included to reflect a firm’s performance FNA 1002X 2007-1st (03/09/2007) by Vincent Chen 5 Matching Principle- Expenses are recorded when the assets or costs are incurred (used up) for generating revenue Matching Principle- Expenses are recorded when the assets or costs are incurred (used up) for generating revenue Revenue Recognition Principle- The earning process is substantially completed- Cash has been collected or collectivity is reasonably assured Revenue Recognition Principle- The earning process is substantially completed- Cash has been collected or collectivity is reasonably assured FNA 1002X 2007-1st (03/09/2007) by Vincent Chen 6 Costs are matched with revenue in two ways: Costs are matched with revenue in two ways: o Direct association of costs with specific revenue transactions. o Direct association of costs with specific revenue transactions. t Systematic allocation of costs over the “useful life” of the expenditure. t Systematic allocation of costs over the “useful life” of the expenditure. FNA 1002X 2007-1st (03/09/2007) by Vincent Chen 7 Cash is not involved in adjusting entry Every adjusting entry involves a change in either a revenue or expense and an asset or liability . General Rules General Rules FNA 1002X 2007-1st (03/09/2007) by Vincent Chen 8 o Converting assets to expenses o Converting assets to expenses t Accruing unpaid expenses t Accruing unpaid expenses T Converting liabilities to revenue T Converting liabilities to revenue f Accruing uncollected revenue f Accruing uncollected revenue Types of Adjusting Entries Types of Adjusting Entries FNA 1002X 2007-1st (03/09/2007) by Vincent Chen 9 Converting Assets to Expenses Converting Assets to Expenses FNA 1002X 2007-1st (03/09/2007) by Vincent Chen 10 Prior Periods Current Period Future Periods Transaction Paid cash in advance of incurring expense (creates an asset)....
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Lecture_4_-_Accruals - Accruals and Preparation of the...

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