ORIE 3150 Slides September 13 2011

ORIE 3150 Slides September 13 2011 - ORIE3150 Sept. 13,...

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ORIE 3150 Sept. 13, 2011 Adjusting Entries Closing Entries
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Homework Due Date Delayed Due to class being cancelled on September 8, the due date of the homework has been extended to 4:30 PM on Friday, September 16. We will have to adjust the schedule at some point, I think we can compress leases into one lecture (was two lectures).
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CEO Cornell Entrepreneur Organization Tuesday, September 20, 2011, 4:30 PM Upson Hall Lounge (Room 117) CEO is a student organization that brings students together from all colleges and academic disciplines at Cornell to promote entrepreneurship . Help us plan the world famous 4 th annual Elevator Pitch Competition! Free Pizza and Red Bull (and Pepsi/Diet Pepsi/bottled water)
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Accounting Transactions Consider ABC Company. It sells most of its goods on account. During December 2004, ABC sell goods costing $40,000 for $80,000 on account. If ABC waits until it collects the cash to record the sale, it will record the expense (incurred to buy the goods) in 2004, the revenue in 2005!
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Matching Rule The Matching Rule: We want to record revenues during the same time period as the expenses incurred to earn them. Hence, we use accrual accounting and record expenses when they are incurred and revenues when they are earned. The timing of cash outflows or inflows is irrelevant!
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ABC’s Entry Upon sale of the items in 2004: Accts. Receivable 80,000 Cost of Goods Sold 40,000 Inventory 40,000 Sales Revenue 80,000
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ABC’s Entry Upon collection of the cash in 2005: Cash 80,000 Acct. Receivable 80,000 Merely exchange of one asset for another. Sales revenue was already recognized in year 2004.
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   Accrual accounting consists of all techniques used to apply the matching rule. When revenue is recorded before cash is received, a receivable is also recorded. When an expense is recorded before cash is paid, a payable is also recorded. Determining when a sale takes place is known as revenue recognition.
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Adjusting entries Adjusting entries ensure that transactions appear in the proper accounting period. They are needed when either revenues or expenses extend over several accounting periods.
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   For example, if you are running a magazine, and you sell three-year subscriptions to the magazine on January 1, 2004, you should not recognize all of that revenue in the year 2004. Rather, you earn the revenue each time you
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ORIE 3150 Slides September 13 2011 - ORIE3150 Sept. 13,...

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