lec04 - Chapter4:Adjustments,Financial Statements,...

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Chapter 4: Adjustments, Financial  Statements, and the Quality of Earnings
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Learning Objectives  Understand the accounting cycle Analyze the adjustments  necessary at the end of the  period to update balance sheet and income statement  accounts Prepare four financial statements Explain the closing process
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Accounting Cycle Prepare financial  statements. Disseminate  statements to users. Close revenues, gains,  expenses, and losses to  Retained Earnings. During the period: Analyze transactions. Record journal entries. Post amounts to general ledger. At the end of the period: Adjust revenues and  expenses. Start of  Period
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Unadjusted Trial Balance A listing of individual accounts, usually in  financial statement order. Ending debit or credit balances are listed  in two separate columns. Total debit account balances  should   equal  total credit account balances. 
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McGraw-Hill/Irwin Slide 5 Matrix, Inc. Unadjusted Trial Balance At December 31, 2009 Description Debit Credit Cash 3,900 $ Accounts receivable 4,985 Inventory 3,300 Equipment 4,800 Accumulated depreciation - equip. 1,440 $ Furniture and fixtures 6,600 Accumulated depreciation - furn. & fix. 2,200 Accounts payable 2,985 Notes payable 4,000 Common stock 10,000 Retained earnings, 12/31/08 1,760 Sales revenue 35,000 Cost of goods sold 27,500 Operating expenses 6,300 Totals 57,385 $ 57,385 $ Note that total  debits = total  credits
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McGraw-Hill/Irwin Slide 6 Matrix, Inc. Unadjusted Trial Balance At December 31, 2009 Description Debit Credit Cash 3,900 $ Accounts receivable 4,985 Inventory 3,300 Equipment 4,800 Accumulated depreciation - equip. 1,440 $ Furniture and fixtures 6,600 Accumulated depreciation - furn. & fix. 2,200 Accounts payable 2,985 Notes payable 4,000 Common stock 10,000 Retained earnings, 12/31/08 1,760 Sales revenue 35,000 Cost of goods sold 27,500 Operating expenses 6,300 Totals 57,385 $ 57,385 $ Accumulated depreciation is  contra-asset  account.  It is  directly related to an asset  account but has the opposite  balance.
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McGraw-Hill/Irwin Slide 7 Matrix, Inc. Unadjusted Trial Balance At December 31, 2009 Description Debit Credit Cash 3,900 $ Accounts receivable 4,985 Inventory 3,300 Equipment 4,800 Accumulated depreciation - equip. 1,440 $ Furniture and fixtures 6,600 Accumulated depreciation - furn. & fix. 2,200 Accounts payable 2,985 Notes payable 4,000 Common stock 10,000 Retained earnings, 12/31/08 1,760 Sales revenue 35,000 Cost of goods sold 27,500 Operating expenses 6,300 Totals 57,385 $ 57,385 $ Cost  - Accumulated depreciation =  BOOK VALUE.
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McGraw-Hill/Irwin Slide 8 Purpose of Adjustments Revenues are  recorded when  earned. Expenses are  recorded when  incurred. Because transactions occur over time, ADJUSTMENTS are required  at the end of each fiscal period to get the revenues and expenses into  the “right” period.
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