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Chapter Two Part Two Adjusting Entries and Completing The Accounting
Chapter Two Part Two Adjusting Entries and Completing The Accounting
Learning Objectives
After studying this chapter, you should be able to:
3-1
Completing the
Learning Objectives
Accounting Cycle
After studying this chapter, you should be able to:
8. Prepare a worksheet.
3-2
Timing Issues
.....
Jan. Feb. Mar. Apr. Dec.
In a service enterprise,
revenue is considered to be
earned at the time the service
is performed.
Adjusting Entries
Ensure that the revenue recognition and expense
recognition principles are followed.
Necessary because the trial balance may not contain
up-to-date and complete data.
Required every time a company prepares financial
statements.
Will include one income statement account and one
statement of financial position account.
Deferrals Accruals
Trial Balance –
Each account is
analyzed to
determine whether
it is complete and
up-to-date.
Illustration 3-3
OR
Unearned revenues.
Prepaid Expenses
Payment of cash, that is recorded as an asset because
service or benefit will be received in the future.
Prepaid Expenses
Expire either with the passage of time or through use.
Adjusting entry:
► Increase (debit) to an expense account and
► Decrease (credit) to an asset account.
Illustration 3-4
3-17 LO 5
The Basics of Adjusting Entries
3-19 LO 5
The Basics of Adjusting Entries
Depreciation
Buildings, equipment, and vehicles (assets with long
lives) are recorded as assets, rather than an expense,
in the year acquired.
Oct. 31
Depreciation expense 40
Accumulated depreciation 40
3-22 LO 5
The Basics of Adjusting Entries
Statement Presentation
Accumulated Depreciation is a contra asset account
(credit).
Appears just after the account it offsets (Equipment) on
the statement of financial position.
Book value is the difference between the cost of any
depreciable asset and its accumulated depreciation.
Illustration 3-8
Illustration 3-9
Unearned Revenues
Receipt of cash that is recorded as a liability because service
has not be performed.
Unearned Revenues
Adjusting entry is made to record the revenue for
services performed and to show the liability that remains.
Results in a decrease (debit) to a liability account and an
increase (credit) to a revenue account.
Illustration 3-10
3-28 LO 5
The Basics of Adjusting Entries
Illustration 3-12
OR
Expenses incurred
Accrued Revenues
Revenues for services performed but not yet received in cash
or recorded.
Accrued Revenues
Adjusting entry shows the receivable that exists and
records the revenues for services performed.
Adjusting entry:
► Increases (debits) an asset account and
► Increases (credits) a revenue account.
Illustration 3-13
3-32 LO 6
The Basics of Adjusting Entries
Oct. 31
Accounts receivable 200
Service revenue 200
3-34 LO 6
The Basics of Adjusting Entries
Illustration 3-15
Accrued Expenses
Expenses incurred but not yet paid in cash or recorded.
Accrued Expenses
Adjusting entry records the obligation and recognizes
the expense.
Adjusting entry:
► Increase (debit) an expense account and
► Increase (credit) a liability account.
Illustration 3-16
3-37 LO 6
The Basics of Adjusting Entries
3-39 LO 6
The Basics of Adjusting Entries
3-41 LO 6
The Basics of Adjusting Entries
Illustration 3-21
3-45
Adjustment Class exercise
September 1. Paid office rent of 6,000 for three months.
12. Received Br.3,200 advance on a management
consulting engagement.
15. Hired a secretary-receptionist at a Br. 5000 a monthly.
Information for Adjustment
(A) Salaries and wages accrued but unpaid Br. 2,500.
(B). Services performed for clients that were not recorded
by September 30, Br.3,000.
(C). Unearned management consulting service of Br. 1,200
Retained Statement
Income
Earnings of Financial
Statement
Statement Position
Preparing a Worksheet
Multiple-column form used in preparing financial
statements.
Adjusting
Journal
Entries
(Chapter 3)
3-61 LO 8
Using a Worksheet
Note:
Dividends are closed directly Illustration 4-6
3-65 LO 9
Closing the Books
Closing
Entries
Illustrated
Illustration 4-7
Closing entries
journalized
3-66
Closing the Books
Posting
Closing
Entries
Illustration 4-8
3-67 LO 9
Preparing a Post-Closing Trial Balance
Illustration 4-9
3-68 LO 10
Summary of the Accounting Cycle
Illustration 4-12
7. Prepare financial
4. Prepare a trial balance
statements
3-70