5 takeatrialbalanceafteradjustingadjustedtrialbalance

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Unformatted text preview: g Trial Balance Illustration 3-38 39 9. Reversing Entries 9. Reversing Entries After preparing the financial statements and closing the books, a company may reverse some of the adjusting entries before recording the regular transactions of the next period. 40 Accounting Cycle Summarized Accounting Cycle Summarized 1. 2. Post from the journals to the ledger (or ledgers). 3. Take an unadjusted trial balance (trial balance). 4. Prepare adjusting journal entries and post to the ledger(s). 5. Take a trial balance after adjusting (adjusted trial balance). 6. Prepare the financial statements from the second trial balance. 7. Prepare closing journal entries and post to the ledger(s). 8. Take a trial balance after closing (post­closing trial balance). 9. 41 Enter the transactions of the period in appropriate journals. Prepare reversing entries (optional) and post to the ledger(s). Financial Statements of a Merchandising Company Financial Statements of a Merchandising Company Illustration 3-39 42 Financial Statements of a Merchandising Company Financial Statements of a Merchandising Company Illustration 3-40 43 Financial Statements of a Merchandising Company Financial Statements of a Merchandising Company Illustration 3-41 44 Accrual-Basis vs. Cash-Basis Accounting Accrual-Basis vs. Cash-Basis Accounting Most companies use accrual-basis accounting recognize revenue when it is earned and expenses in the period incurred, without regard to the time of receipt or payment of cash. Under the cash-basis accounting, companies record revenue only when they receive cash, and record expenses only when they disperse cash. Cash basis financial statements are not in conformity with GAAP. 45 Accrual-Basis vs. Cash-Basis Accounting Accrual-Basis vs. Cash-Basis Accounting Theoretical Weaknesses of the Cash Basis Today’s economy is considerably more lubricated by credit than by cash. The accrual basis, not the cash basis, recognizes all aspects of the credit phenomenon. Investors, creditors, and other decision makers seek timely information about an enterprise’s future cash flows. Financial statements prepared on a cash basis do not reflect the economic reality of what the entity did. 46...
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This document was uploaded on 02/14/2014.

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