LN04-ch4-AFM101s10

LN04-ch4-AFM101s10 - Chapter 4 Adjustments, Financial...

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Financial Accounting, Third Canadian Edition 4-1 Chapter 4 Adjustments, Financial Statements, and the Quality of Earnings
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Financial Accounting, Third Canadian Edition 4-2 End of the Accounting Period Start of the Accounting Period Phase 1: During the Accounting Period (external transactions) Prepare a trial balance. Analyze the account balances. Record and post adjusting entries. Prepare financial statements. Record and post closing entries. Phase 2: End of the Accounting Period (internal transactions) Perform transaction analysis. Record journal entries. Post amounts to general ledger. The Accounting Cycle
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Financial Accounting, Third Canadian Edition 4-3 Business Background Revenues are  recorded when  earned. Expenses are  recorded when  incurred. Because transactions occur over time, ADJUSTMENTS are Because transactions occur over time, ADJUSTMENTS are required at the end of each fiscal period to get the revenues required at the end of each fiscal period to get the revenues and expenses into the “right” period. and expenses into the “right” period.
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Financial Accounting, Third Canadian Edition 4-4 End of Accounting Period Start of Accounting Period External Transactions Adjusting Entries At the end of the accounting period, the account balances are analyzed and adjusting journal entries are recorded for internal transactions that have a direct and measurable effect on the accounting entity, particularly for revenue and expense recognition. During the accounting period, external transactions between the business and other external parties are recorded as they occur. Business Background
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Financial Accounting, Third Canadian Edition 4-5 The Unadjusted Trial Balance A listing of individual accounts, usually in financial statement order (A, L, SE , R, E ). 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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Financial Accounting, Third Canadian Edition 4-6 Note that total debits = total credits
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Financial Accounting, Third Canadian Edition 4-7 Accumulated amortization is a contra-asset account. It is directly related to an asset account but has the opposite (credit) balance.
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Financial Accounting, Third Canadian Edition 4-8 Cost - Accumulated amortization = NET BOOK VALUE (ie. $4,800 - $1,440 = $3,360)
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Financial Accounting, Third Canadian Edition 4-9 The Unadjusted Trial Balance If total debits do not do not equal total credits on the trial balance, errors have occurred . . . in preparing balanced journal entries, in posting the correct dollar effects of a transaction, in computing ending balances in accounts, or in copying ending balances from the ledger to the trial balance.
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Financial Accounting, Third Canadian Edition 4-10 Adjusting Entries There are two types of adjusting entries.
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LN04-ch4-AFM101s10 - Chapter 4 Adjustments, Financial...

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