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RAPID REVIEW Chapter Content ACCOUNTING EQUATION (Chapter 2) INVENTORY (Chapters 5 and 6) Ownership Assets Owner’s Equity + Basic Equation Expanded Equation =+–+– Debit / Credit Effects Liabilities = Dr. + Assets Cr. Dr. Liabilities Cr. + Dr. Owner’s Capital Cr. + Dr. + Owner’s Drawing Cr. Dr. Revenues Cr. + Dr. + Expenses Cr. ADJUSTING ENTRIES (Chapter 3) 7 Prepare financial statements: Income statement Owner’s equity statement Balance sheet 5 Journalize and post adjusting entries: Deferrals/Accruals 6 Prepare an adjusted trial balance Optional steps: If a worksheet is prepared, steps 4, 5, and 6 are incorporated in the worksheet. If reversing entries are prepared, they occur between steps 9 and 1 as discussed below. 4 Prepare a trial balance 3 Post to ledger accounts 2 Journalize the transactions 1 Analyze business transactions 9 Prepare a post-closing trial balance 8 Journalize and post closing entries Type Adjusting Entry Deferrals 1. Prepaid expenses Dr. Expenses Cr. Assets 2. Unearned revenues Dr. Liabilities Cr. Revenues Accruals 1. Accrued revenues Dr. Assets Cr. Revenues 2. Accrued expenses Dr. Expenses Cr. Liabilities Note: Each adjusting entry will affect one or more income statement accounts and one or more balance sheet accounts. Interest Computation Interest = Face value of note H Annual interest rate H Time in terms of one year CLOSING ENTRIES (Chapter 4) Purpose: (1) Update the Owner’s Capital account in the ledger by transferring net income (loss) and Owner’s Drawing to Owner’s Capital. (2) Prepare the temporary accounts (revenue, expense, Owner’s Drawing) for the next period’s postings by reducing their balances to zero. Process 1. Debit each revenue account for its balance (assuming normal balances), and credit Income Summary for total revenues. 2. Debit Income Summary for total expenses, and credit each expense account for its balance (assuming normal balances). STOP AND CHECK: Does the balance in your Income Summary Account equal the net income (loss) reported in the income statement? 3. Debit (credit) Income Summary, and credit (debit) Owner’s Capital for the amount of net income (loss). 4. Debit Owner’s Capital for the balance in the Owner’s Drawing account and credit Owner’s Drawing for the same amount. STOP AND CHECK: Does the balance in your Owner’s Capital account equal the ending balance reported in the balance sheet and the owner’s equity statement? Are all of your temporary account balances zero? ACCOUNTING CYCLE (Chapter 4) Perpetual vs. Periodic Journal Entries Event Perpetual Periodic* Purchase of goods Inventory Purchases Cash (A/P) Cash (A/P) Freight (shipping point) Inventory Freight-In Cash Cash Return of goods Cash (or A/P) Cash (or A/P) Inventory Purchase Returns and Allowances Sale of goods Cash (or A/R) Cash (or A/R) Sales Sales Cost of Goods Sold No entry Inventory End of period No entry Closing or adjusting entry required Cost Flow Methods • Specific identification • Weighted average • First-in, first-out (FIFO) • Last-in, first-out (LIFO)
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This note was uploaded on 01/30/2011 for the course ACT 240 taught by Professor Janson during the Summer '08 term at N. Michigan.

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