Chapter04 - 4-1 Chapter 4 The Accounting Cycle Accruals and...

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BUSI1002KLT 07/08 4-1 The Accounting Cycle Accruals and Deferrals Chapter 4
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BUSI1002KLT 07/08 4-2 Learning Objective LO1 To explain the purpose of adjusting entries.
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BUSI1002KLT 07/08 4-3 At the end of the period, we need to make adjusting entries to get the accounts up to date for the financial statements.
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BUSI1002KLT 07/08 4-4 Adjusting entries are needed whenever revenue or expenses affect more than one accounting period . Every adjusting entry involves a change in either a revenue or expense and an asset or liability . Adjusting Entries
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BUSI1002KLT 07/08 4-5 Learning Objective LO2 To describe and prepare the four basic types of adjusting entries.
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BUSI1002KLT 07/08 4-6 Converting assets to expenses Accruing unpaid expenses Converting liabilities to revenue Accruing uncollected revenue Types of Adjusting Entries
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BUSI1002KLT 07/08 4-7 Learning Objective LO3 To prepare adjusting entries to convert assets to expenses.
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BUSI1002KLT 07/08 4-8 Prior Periods Current Period Future Periods Transaction Paid cash in advance of incurring expense (creates an asset). End of Current Period Adjusting Entry Recognizes portion of asset consumed as expense, and Reduces balance of asset account. Converting Assets to Expenses
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BUSI1002KLT 07/08 4-9 Examples Include: Depreciation Supplies Expiring Insurance Policies Converting Assets to Expenses
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BUSI1002KLT 07/08 4-10 Jan. 1 Dec. 31 $2,400 Insurance Policy Coverage for 12 Months $200 Monthly Insurance Expense On January 1, Webb Co. purchased a one- year insurance policy for $2,400. Converting Assets to Expenses
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BUSI1002KLT 07/08 4-11 GENERAL JOURNAL Date Account Titles and Explanation Debit Credit Jan. 1 Unexpired Insurance 2,400 Cash 2,400 Purchase a one-year insurance policy. Initially, costs that benefit more than one accounting period are recorded as assets . Converting Assets to Expenses
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BUSI1002KLT 07/08 4-12 The costs are expensed as they are used to generate revenue. GENERAL JOURNAL Date Account Titles and Explanation Debit Credit Monthly Adjusting Entry for Insurance Jan. 31 Insurance Expense 200 Unexpired Insurance 200 Insurance expense for January. Converting Assets to Expenses
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BUSI1002KLT 07/08 4-13 Insurance Expense 1/31 200 Unexpired Insurance 1/1 2,400 1/31 Bal. 2,200 Income Statement Cost of assets used this period to generate revenue. Balance Sheet Cost of assets that benefit future periods. Converting Assets to Expenses
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BUSI1002KLT 07/08 4-14 Depreciation is the systematic allocation of the cost of a depreciable asset to expense.
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This note was uploaded on 04/20/2010 for the course BUSI BUSI1002 taught by Professor Drjasmine during the Spring '10 term at HKU.

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Chapter04 - 4-1 Chapter 4 The Accounting Cycle Accruals and...

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