Ch03 Lecture Notes

23 4 adjusting entries 4 adjusting entries

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Unformatted text preview: mounts from journal to ledger. Posting Illustration 3-8 22 LO 4 LO 3. Trial Balance 3. Trial Balance Illustration 3-19 Trial Balance – A list of each account and its balance; used to prove equality of debit and credit balances. 23 4. Adjusting Entries 4. Adjusting Entries Revenues ­ recorded in the period in which they are earned. Expenses ­ recognized in the period in which they are incurred. Expenses ­ recognized in the period in which they are incurred Adjusting entries ­ needed to ensure that the revenue recognition and matching principles are followed. 24 Types of Adjusting Entries Types of Adjusting Entries Illustration 3-20 Prepayments 1. Prepaid Expenses. Expenses paid in cash and recorded as assets before they are used or consumed. 3. Accrued Revenues. Revenues earned but not yet received in cash or recorded. 2. Unearned Revenues. Revenues received in cash and recorded as liabilities before they are earned. 25 Accruals 4. Accrued Expenses. Expenses incurred but not yet paid in cash or recorded. Adjusting Entries for Deferrals Adjusting Entries for Deferrals Deferrals are either prepaid expenses or unearned revenues. 26 Illustration 3-21 Adjusting Entries for “Prepaid Expenses” Adjusting Entries for “Prepaid Expenses” Payment of cash that is recorded as an asset because service or benefit will be received in the future. Cash Payment BEFORE Expense Recorded Prepayments often occur in regard to: insurance supplies advertising 27 rent maintenance on equipment fixed assets Adjusting Entries for “Unearned Revenues” Adjusting Entries for “Unearned Revenues” Receipt of cash that is recorded as a liability because the revenue has not been earned. Cash Receipt Revenue Recorded BEFORE Unearned revenues often occur in regard to: rent airline tickets school tuition 28 magazine subscriptions customer deposits Adjusting Entries for Accruals Adjusting Entries for Accruals Accruals are either accrued revenues or accrued expenses. 29 Illustration 3-27 Adjusting Entries for “Accrued...
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