Accounting Chapter 3 Notes

Adjusting entries never involve cash account 2

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Unformatted text preview: the amounts are incomplete b/c they omit various revenue and expense transaction. - EX: It is a waste of time to record supplies expense every time supplies are used. But by the end of the month, enough of the 700 dollars of Supplies on the unadjusted trial balance have probably been used that we need to adjust the Supplies Account. - Accrual accounting requires adjusting entries at the end of the period. - Adjusting Entries: Assigns revenues to the period when they are earned and expenses to the period hen they are incurred. - Adjusted are needed to properly measure two things: 1. Net income (loss) on the income statement 2. Assets and liabilities on the balance sheet - This end of the period process is called making the adjustments or adjusting the books Remember the following three facts about adjusting entries: 1. Adjusting entries never involve cash account 2. Adjusting entries either a. Increase revenue earned (Revenue credit) or b. Increase an expense (Expense Debit) 3. When information is provided about an adjustment to an account and the information is worded as “accrued” an amount for a particular account, you journalized the stated amount to the stated amount in your adjusting entry Categories of Adjusting Entries - Prepaid Adjustment: Cash payment occurs before an expense is recorded or the cash receipt occurs before the revenue is earned. Prepaid are also called deferrals b/c the recognition of revenue or expense is differed to a date after the cash is received or paid. - Accrual adjustment: Records an expe...
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