Lecture05_Spring_2009

Lecture05_Spring_2009 - Lecture 5 Spring 2009 Accounting...

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1 Lecture 5 Spring 2009 Accounting for Income: Revenues and Expenses
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2 Goals of Today’s Class Finish discussion of revenues, expenses and the income statement Discuss the accounting cycle Examples
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3 Permanent vs. Temporary Accounts At the end of the period, income accounts are closed back into the retained earnings. all revenues and gains must eventually be included as increases in RE and all expenses and losses must eventually be included as decreases in RE
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4 Accounting for Revenues and Expenses Revenue – Debit or Credit? Revenue represents an increase in Retained Earnings, a Shareholders’ Equity account, therefore increases in revenues are recorded as credits . Expense – Debit or Credit? An expense represents a decrease in Retained Earnings, therefore increases in expenses are recorded as debits .
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5 The Accounting Cycle What is Accounting Cycle? The sequence of accounting procedures used each period to record transactions and events and to prepare financial statements.
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6 Steps of the Accounting Cycle 1. Analyze events and make journal entries 2. Post to journal entries to the ledger 3. Calculate the ending balances and prepare the unadjusted trial balance . 4. Make adjusting entries in the journal. 5. Post the adjusting entries to the ledger. 6. Prepare an adjusted trial balance. 7. Prepare the Income Statement. 8. Close the temporary accounts. 9. Prepare the Statement of Retained Earnings. 10. Prepare the Balance Sheet. And… Start over!
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7 ABC Merchandise Co. Accounting Cycle 1. Make journal entries a) Issue 200 shares of $1 par value stock for $500 Cash 500 Common stock 200 Additional paid-in capital 300 Debit Credit
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8 b) Purchase property plant and equipment for $200 Property, plant and equipment (+A) 200 Cash (-A) 200 Debit Credit
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Lecture05_Spring_2009 - Lecture 5 Spring 2009 Accounting...

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