f15 - Adjusting Entries Adjusting Measuring Business Income...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Adjusting Entries Adjusting Measuring Business Income Measuring s Accounting period assumption s Cash accounting versus accrual Cash accounting accounting s Matching principle s Materiality concept Adjusting Entries Adjusting s Journal Journal entries that update the general ledger accounts to state revenues, expenses, assets, and liabilities more accurately liabilities s Involve – One balance sheet account – One income statement account – Never cash Adjusting Process Adjusting s Identify Identify the accounts requiring adjustment adjustment s Determine unadjusted balances s Determine correct (adjusted) Determine balances for each account balances s Prepare adjusting entry to bring Prepare accounts in agreement with adjusted balances adjusted Deferrals Deferrals sA cash payment or receipt occurred cash in current period in s Must defer a portion of expense or Must revenue until a future period revenue Deferrals Deferrals s Two situations – Pay a cost of benefit in advance and Pay allocate cost as expenses to periods that receive benefit that Deferrals Deferrals s Two situations – Pay a cost of benefit in advance and Pay allocate cost as expenses to periods that receive benefit that – Receive a cash revenue in advance Receive and allocate amounts as revenues to periods in which revenues earned periods Prepaid Insurance Prepaid s Dec. Dec. 1, paid $600 for 12 month insurance premium recording as asset, Prepaid Insurance asset, s At Dec. 31 – Prepaid Insurance balance $600 – Insurance Expense balance $0 Prepaid Insurance Prepaid s As As of Dec. 31, one month’s insurance has expired and become expense expense s Correct Dec. 31 balance – Prepaid Insurance $550 – Insurance Expense $50 Prepaid Insurance Prepaid s Adjusting entry – Debit Insurance Expense $50 »Increases Insurance Expense to Increases correct balance $50 correct – Credit Prepaid Insurance $50 »Decreases Prepaid Insurance to Decreases correct balance $550 correct Depreciation Expense Depreciation s Similar Similar to prepaid insurance but for long-term asset long-term s Decrease in asset not recorded in Decrease asset account asset s Recorded as increase in contra Recorded asset - Accumulated Depreciation asset Depreciation Expense Depreciation Before Balance Sheet $26,000 Trucks 400 Accum Deprec Income Statement Depreciation expense $0 $400 After $26,000 800 Unearned Revenues Unearned s Dec. Dec. 1, received $600 for 6 month rent recording as liability, Unearned Rent Rent s At Dec. 31 – Unearned Rent balance $600 – Rent Revenue balance $0 Unearned Revenues Unearned s As As of Dec. 31, one month’s rent has been earned and become revenue revenue s Correct Dec. 31 balance – Unearned Revenue $500 – Rent Revenue $100 Unearned Revenues Unearned s Adjusting entry – Debit Unearned Rent $100 »Decreases Unearned Rent to Decreases correct balance $500 correct – Credit Rent Revenue $100 »Increases Rent Revenue to correct Increases balance $100 balance Accruals Accruals s Recognize Recognize revenues and expenses that have accumulated (accrued) during the accounting period but have not been recorded have Accrued Revenues Accrued s Dec.11, Dec.11, received 30-day, 15% note from customer. from s At Dec. 31 – Interest Revenue balance $0 – Interest Receivable balance $0 Accrued Revenues Accrued s As As of Dec. 31, 20 days interest has been earned and become revenue been s $1,200 x 0.15 x 20/360 = $10 s Correct Dec. 31 balance – Interest Revenue $10 – Interest Receivable $10 Accrued Revenues Accrued s Adjusting entry – Debit Interest Receivable $10 »Increases Interest Receivable to Increases correct balance $10 correct – Credit Interest Revenue $10 »Increases Interest Revenue to Increases correct balance $10 correct Accrued Expenses Accrued s Employees Employees paid Friday for 5-day work week at $1,000 per week work s At Dec. 31, a Tuesday – Wages Expense balance $50,000 Wages represents past weeks wages represents – Wages Payable balance $0 Accrued Expenses Accrued s As As of Dec. 31, 2 days wages have been incurred and become expense expense s Correct Dec. 31 balance – Wages Expense $50,200 – Wages Payable $200 Accrued Expenses Accrued s Adjusting entry – Debit Wages Expense $200 »Increases Wages Expense to Increases correct balance $50,200 correct – Credit Wages Payable $200 »Increases Wages Payable to Increases correct balance $200 correct Summarize Adjustments Summarize Analyzing Information Analyzing s Use Use questions to compare companies companies Income Statement Income s Which Which company has the higher revenues? revenues? s Which company has the higher Which percentage change in revenues? percentage s Which company has the lower Which percentage of expenses to revenues? revenues? Balance Sheet Balance s Which Which company has the higher assets? assets? s What is the percentage change in What assets for each company? assets s Is the percent of total liabilities to Is total liabilities plus owners’ equity increasing or decreasing? Which company is more risky? company Integrative Analysis Integrative s Are Are companies operating efficiently by using least amount of assets to generate a given level of revenues? generate – Calculate total asset turnover s Are Are companies operating efficiently by using least amount of assets to generate a given net income? generate – Calculate return on assets ...
View Full Document

This note was uploaded on 02/11/2011 for the course ACG 2021 taught by Professor Mcdonald during the Spring '08 term at University of Florida.

Ask a homework question - tutors are online