Chapter_4_Lecture_Notes_4th_Edition_Libby_Student_Version

Chapter_4_Lecture_Notes_4th_Edition_Libby_Student_Version -...

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Chapter 4 12/29/11 1 Adjustments, Financial Statements, and the Quality of Earnings
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Learning Objectives 1. Understand the accounting cycle: Preparation of the unadjusted trial balance- summary of chapters 1 to 3 Analyze the adjusting and closing processes- summary of chapter 4 1. Analyze 5 adjustments necessary to complete the financial statement process: Accruals-2 types Deferrals-2 types Accounting Estimates- depreciation 1. Prepare a complete set of financial statements 12/29/11 2 After studying this chapter, you should be able to:
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12/29/11 3 Chart of Accounts Opening balances Transactions or events Transaction analysis Journal entries Posting Unadjusted Trial balance Adjusting entries Adjusted trial balance Preparation of financial statements Closing entries The Accounting Cycle Complete the worksheet and adjust the ledger account Analyze the accounts Phase 1: During the Accounting Period. Phase 2: End of the Accounting Period.
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Phase 2: The 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. 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. 12/29/11 4
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Cash vs. Accrual Accounting 12/29/11 5 Accrual basis: Assets, liabilities, revenues, and expenses should be recognized when the transaction that causes them occurs, not necessarily when cash is paid or received . Accrual basis is required by GAAP Cash basis : Revenue and expenses are recorded when cash is received.
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Adjusting Entries At the end of the accounting period, the account balances are analyzed and adjusting journal entries are recorded for internal transactions, particularly for revenue and expense recognition. At the end of the accounting period, the account balances are analyzed and adjusting journal entries are recorded for internal transactions, particularly for revenue and expense recognition. 12/29/11 6 ACCRUALS ACCRUALS Revenues earned or expenses incurred that have not been previously recorded. Revenues earned or expenses incurred that have not been previously recorded. DEFERRALS DEFERRALS Cash receipts or payments in advance of revenue or expense recognition. Cash receipts or payments in advance of revenue or expense recognition.
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12/29/11 7 End of accounting period Cash received Or paid Revenues earned or Expenses incurred Example: interest earned during the period but not received until the next period. Example: interest earned during the period but
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Chapter_4_Lecture_Notes_4th_Edition_Libby_Student_Version -...

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