UGBA102A_6P - Contact Details Introduction to Financial...

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1Introduction to FinancialAccountingUGBA102ALecture 6John BriginshawContact DetailsProfessor: John BriginshawEmail: [email protected]• Office hours: Tuesday and Thursday 11am –Office hours: Tuesday and Thursday 11amnoonOffice F502JLecture 6 AgendaLLS Chapter 4: Principles of Adjusting EntriesLLS Chapter 4: Principles of Adjusting EntriesPapa John’s adjusting entriesLLS Chapter 4: Closing the BooksApplying the Matching PrincipleIf the revenue earning process is spread outover multiple periods, adjusting entries areneeded• Adjusting the AccountsAdjusting the Accounts– Needed to ensure revenues and expenses areappropriate– Accrual: recognize a revenue or expense eventhough we received/paid no cash yet– Deferral: we received/paid cash already, but wedeferrecognition to a later periodSteps in the Accounting CycleDuring the Period1.Analyzebusiness transactions from source documents2.Recordthe entries in the journal3.Postthe entries to the ledgerEnd of Each Period4.Preparean unadjusted trial balance5.Adjustthe accounts and prepare an adjusted trial balance6.Preparefinancial statements7.Closethe accounts and prepare a post-closing trial balance ``Adjusting Entries: GeneralPrinciplesAlthough operating a business is a continuousprocess, there must be a cutoff point for periodicreports (often Dec 31)Reports are prepared at the end of an accounting periodBalance sheet must list all assets and liabilities at the end of theaccounting periodIncome statement must list all revenues and expensesapplicable to the accounting periodBUTsome transactions span more than oneaccounting periodThese transactions requireadjustmentsto get therevenues and expenses into the “right” period.
2Adjusting Entries… are used to apply accrual accounting totransactions that span more than oneaccounting periodEach adjusting entry must– Include at least one balance sheet account– Include at least one income statement account– Never include the Cash accountWhen to Make AdjustmentsAdjusting entries are required when1.Recorded unearned revenues are allocatedbetween two or more accounting periodsbetween two or more accounting periods2.Revenues are earned but not yet recorded3.Prepaid expenses are allocated between twoor more accounting periods4.Expenses are incurred but not yet recordedAdjustment Checklist at the Endof the PeriodWas revenue earned or expenses incurredthat have not yet been recorded?• Was the related cash received in the past orWas the related cash received in the past orwill be received in the future?– In the past: deferred (unearned) revenue ordeferred (prepaid) expense– In the future: accrued revenue or expenseCompute the amount earned or incurredFour Types of AdjustmentsNotice that eachadjusting entryinvolves onebalance sheetATEMENTBALANCE SHEETLiabilityAssetExpense3. Prepaid expensesare allocated betweentwo or more accountingperiods4. Expenses areincurred but not yetpaid(Deferred Expenses)(Accrued Expenses)accountAnd one incomestatement

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Term
Summer
Professor
Udpa
Tags
Income Statement, Trial Balance, Generally Accepted Accounting Principles, Papa John

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