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UnitFour
AccountingCycle
(3)Adjustments
第一頁,共二十九頁。Objectives:1Explainhowthematchingconceptrelatestotheaccrualbasisofaccounting.2Explainwhyadjustmentsarenecessaryandlistthecharacteristicofadjustingentries.3Journalizeentriesforaccountsrequiringadjustment.4Summarizetheadjustmentprocessandprepareanadjustmenttrialbalance.第二頁,共二十九頁。一accountingperiod→cashbasis(receivedorpaid)accrualbasis(earnedorrelate):revenuerecognitionconcept→matchingprincipleGAAPrequiretheuseoftheaccrualbasis,smallservicebusinessesmayusethecashbasisbecausetheyhavefewreceivablesandpayables.第三頁,共二十九頁。Thematchingprinciplesupportsrecordingrevenuesandrelateexpensesinthesameperiod.二Attheendofanaccountingperiod,someaccountsintheledgerrequireupdating.Thejournalentriesthatbringtheaccountsuptogateattheendoftheaccountingperiodarecalledadjustingentries.第四頁,共二十九頁。三Fourtypicaladjustingentries:Deferrals---------arecreatedbyrecordingatransactioninawaythatdelaysordeferstherecognitionofanexpenseorarevenue.㈠Deferredexpenses(prepaidexpenses)→becomeexpenseovertime
第五頁,共二十九頁。(1)supplies
(2)
prepaidinsurance(3)prepaidadvertising(4)prepaidinterest㈡Deferredrevenues(unearnedrevenue)→becomerevenuesovertime
第六頁,共二十九頁。(1)unearnedrent(2)tuition(3)annualretailerfee(4)premium(5)magazinesubscriptionsAccruals---------arecreatedbyanunrecordedexpensethathasbeenincurredoranunrecordedrevenuethathasbeenearned.第七頁,共二十九頁。㈢Accruedexpenses(accruedliabilities)→expensehavebeenincurredbutnotrecorded(1)accruedwages(2)accruedinterestonnotespayable(3)accruedtaxes第八頁,共二十九頁。㈣Accruedrevenues(accruedassets)→revenuesearnedbutnotrecorded(1)feesforservices(2)unbilledcommissions(3)accruedinterestonnotesreceivable(4)accruedrent第九頁,共二十九頁。Summarize:1Howdoyoutellthedifferencebetweendeferralsandaccruals?
Ifcashisreceivedorpaidinthecurrentperiod,buttherevenueorexpenserelatestoafutureperiod,therevenueorexpenseisadeferreditem.Ifcashwillnotbereceivedorpaiduntilafutureperiod,buttherevenueorexpenserelatestothecurrentperiod,therevenueorexpenseisanaccrueditem.第十頁,共二十九頁。Currentaccountingperiod→(cashreceivedorpaid)(revenueorexpenseincurred)→futureaccountingperiod(revenueorexpenseincurred)(cashreceivedorpaid)2Alladjustingentriesaffectatleastoneincomestatementaccountandonebalancesheetaccount.第十一頁,共二十九頁。四Examples:1AssumingthatonDecember31theamountofsuppliesonhandis$760,theamounttobetransferredfromtheassetaccounttotheexpenseaccountis$1240.(suppliesusedistheamountofadjustment)Dr.SuppliesExpense$1240Cr.Supplies$1240第十二頁,共二十九頁。2Thedebitbalanceof$2400inAprepaidinsuranceaccountrepresentsaDecember1prepaymentofinsurancefor24months.AttheendofDecembertheinsuranceforonemonthturnintoreality.Dr.InsuranceExpense$100Cr.PrepaidInsurance$100第十三頁,共二十九頁。Attention:(1)thebalanceofaprepaid(deferred)expenseisanassetthatwillbecomeanexpenseinafutureperiod.(2)Whatistheeffectofomittingadjustingentries?Ontheincomestatement,SuppliesExpenseandInsuranceExpensewillbeunderstatedbyatotalof$1340.Onthebalancesheet,SuppliesandPrepaidInsurancewillbeoverstatedbyatotalof$1340.第十四頁,共二十九頁。(3)
Prepaymentsofexpensesaresometimesmadeatthebeginningoftheperiodinwhichtheywillbeentirelyconsumed.3AccordingtoA’strialbalanceonDecember31,thebalanceintheunearnedrentaccountis$360.Thisrepresentsthereceiptofthreemonths’rentonDecember1forDec.Jan.Feb,AttheendofDecember$120rentshouldbeturnintoreality.第十五頁,共二十九頁。Dr.UnearnedRent$120Cr.RentRevenue$120Inthecaseofwagesexpense,ifthelastdayofapaidperiodisnotthelastdayoftheaccountingperiod,theaccruedwagesexpenseandtherelatedliabilitymustberecordedintheaccountsbyanadjustingentry.第十六頁,共二十九頁。4AttheendofDecember,accruedwagesforAwere$250.Dr.WagesExpense$250Cr.WagesPayable$250(1)wagesarepaidonthesecondandfourthFridaysforthetwo-weekperiodendingonthoseFridays.Thepaymentswere$950onDecember13and$1200onDecember27.第十七頁,共二十九頁。(2)ThewagesaccruedforMondayandTuesday,December30and31,are$250.(3)WagespaidonFriday,January10,totals$1275.第十八頁,共二十九頁。SundayMondayTuesdayWednesdayFourthdayFridaySaturday12345678910111213141516171819202122232425262728293031第十九頁,共二十九頁。13-------wagesexpense(paid)$95027-------wagesexpense(paid)$120030,31--wagesexpense(accrued)$250Jan,10:Dr.WagesPayable$250Cr.Cash$250第二十頁,共二十九頁。5AssumethatAsignedanagreementwithBonDecember15.TheagreementprovidesthatAwillbeoncalltoanswercomputerquestionsandrenderassistancetoB’semployees.TheservicesprovidedwillbebilledtoBonthefifteenthofeachmonthatarateof$20perhour.AsofDecember31,Ahadprovided25hoursofassistancetoB.第二十一頁,共二十九頁。Dr.AccountsReceivable$500Cr.FeesEarned$5006Fixedassetsareatypeoflong-termdeferredexpense.Thedecreasesinusefulnessiscalleddepreciation.Allfixedasset,expectland,losetheirusefulness.Theestimatedamountofdepreciationforthemonthisassumedtobe$50inDec.ofA.第二十二頁,共二十九頁。Dr.DepreciationExpense$50Cr.AccumulatedDepreciation__officeequipment$50
(contraaccountorcontraassetaccount)
Theremindervalueofofficeequipment$1750iscalledthebookvalueoftheassetornetbookvalue.Result:depreciationallocatesthecostofafixedassettoexpenseoveritsestimatedlife.第二十三頁,共二十九頁。Question:1IfA’sadjustmentforunearnedrenthadincorrectlybeenmadefor$180insteadof$120,whatwouldhavebeentheeffectonthefinancialstatements?Revenuewouldhavebeenoverstatedby$60;netincomewouldhavebeenoverstatedby$60;liabilitywouldhavebeenunderstatedby$60;andOwner’sequitywouldhavebeenoverstatedby$60.第二十四頁,共二十九頁。2whichoftheaccounts_____feesearned;misc.expenses;cash;wagesexpense;supplies;accountsreceivable;drawing;equipment;accumulateddepreciation______wouldnormallyrequireanadjustingentry?feesearned;
wagesexpense;
supplies;
accountsreceivable;
accumulateddepreciation第二十五頁,共二十九頁。SummaryofbasicadjustmentsTypesofadjustment
Adjustingentry
EffectofomittingitonBSandonIS
Deferredexpense
Dr.ExpenseCr.Assets
ExpenseunderstatedandnetincomeoverstatedAssetsoverstatedandowner’sequityoverstated
第二十六頁,共二十九頁。
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