DOCSLIB.ORG

College Accounting Chapter 14

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
College Accounting Chapter 14 Heintz & Parry 20th Edition College Accounting Chapter 14 Adjustments and the Work Sheet for a Merchandising Business 1 Prepare an adjustment for merchandise inventory using the periodic inventory system. WORK SHEET OF A MERCHANDISING BUSINESS • Is similar to a service business work sheet • Used to record adjustments – Includes adjustments for: • Merchandise inventory • Unearned revenue • Used to prepare financial statements ADJUSTMENT FOR MERCHANDISE INVENTORY EXAMPLE: Ponder’s Bike Parts had a beginning merchandise inventory of $25,000. At the end of the accounting period, a physical inventory of the merchandise determined that merchandise costing $30,000 was still on hand. ADJUSTMENT FOR MERCHANDISE INVENTORY • More inventory at the END than at the BEGINNING of the year? ADJUSTMENT FOR MERCHANDISE INVENTORY • More inventory at the END than at the BEGINNING of the year? When PURCHASES EXCEED SALES, the inventory balance is HIGHER at the end of the year. ADJUSTMENT FOR MERCHANDISE INVENTORY MERCHANDISE INVENTORY BEG. BALANCE $25,000 ADJUSTMENT FOR MERCHANDISE INVENTORY MERCHANDISE INVENTORY $25,000 This account is NOT changed during the accounting period. ADJUSTMENT FOR MERCHANDISE INVENTORY MERCHANDISE INVENTORY PURCHASES $25,000 XXX Merchandise bought during the year is debited to Purchases instead of Merchandise Inventory. ADJUSTMENT FOR MERCHANDISE INVENTORY MERCHANDISE INVENTORY PURCHASES $25,000 XXX SALES XXX The COST of merchandise sold is NOT recorded. The selling price is credited to the sales account. ADJUSTMENT FOR MERCHANDISE INVENTORY MERCHANDISE INVENTORY $25,000 After a year of purchasing and selling merchandise, the balance is no longer accurate. ADJUSTMENT FOR MERCHANDISE INVENTORY MERCHANDISE INVENTORY $25,000 An adjustment is needed to update the balance of the merchandise inventory account. ADJUSTMENT FOR MERCHANDISE INVENTORY MERCHANDISE INVENTORY $25,000 TWO-STEP ADJUSTMENT! Ponder’s Bike Parts Work Sheet (partial) For Year Ended December 31, 20-- TRIAL BALANCE ACCOUNT TITLE DEBIT CREDIT Merchandise Inventory 25,000 Income Summary Purchases 80,000 Purchases Returns and Allowances 1,000 Purchases Discounts 500 Freight-In 700 Let’s look at the adjustment on a partial work sheet. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT Merchandise Inventory 25,000 Income Summary Purchases 80,000 Purchases Ret. and Allow. 1,000 Purchases Discounts 500 Freight-In 700 Step #1 REMOVE BEGINNING INVENTORY ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT Merchandise Inventory 25,000 (a) 25,000 Income Summary Purchases 80,000 Purchases Ret. and Allow. 1,000 Purchases Discounts 500 Freight-In By crediting700 Merchandise Inventory, the balance is reduced to zero. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT Merchandise Inventory 25,000 (a) 25,000 Income Summary (a)25,000 Purchases 80,000 Purchases Ret. and Allow. 1,000 Purchases Discounts 500 Freight-In 700 The corresponding debit is to Income Summary. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT Merchandise Inventory 25,000 (b) 30,000 (a) 25,000 Income Summary (a) 25,000 Purchases 80,000 Purchases Ret. and Allow. 1,000 Purchases Discounts 500 Freight-In STEP700 #2 INSERT ENDING INVENTORY ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT Merchandise Inventory 25,000 (b) 30,000 (a) 25,000 Income Summary (a) 25,000 Purchases 80,000 Purchases Ret. and Allow. 1,000 Purchases Discounts 500 Freight-InThe balance in the Merchandise700 Inventory account now reflects the actual amount of inventory on hand at the end of the year. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT Merchandise Inventory 25,000 (b) 30,000 (a) 25,000 Income Summary (a) 25,000 (b) 30,000 Purchases 80,000 Purchases Ret. and Allow. 1,000 Purchases Discounts 500 Freight-In Income Summary700 is credited. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ACCOUNT TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL. TITLE DR. CR. DR. CR. DR. CR. Merch. Inv. 25,000 (b) 30,000(a)25,000 30,000 Income Sum. (a)25,000(b) 30,000 Purchases 80,000 Purch. R & A 1,000 Purch. Disc. 500 Freight-In 700 The new balance is extended to the Adjusted Trial Balance columns. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ACCOUNT TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL. TITLE DR. CR. DR. CR. DR. CR. Merch. Inv. 25,000 (b) 30,000(a) 25,000 30,000 Income Sum. (a) 25,000(b) 30,000 25,000 30,000 Purchases 80,000 Purch. R & A 1,000 Purch. Disc. 500 Freight-In 700 BE CAREFUL WITH INCOME SUMMARY!!! BOTH the beginning and ending inventory amounts are extended to the Adjusted Trial Balance columns. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ACCOUNT TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL. TITLE DR. CR. DR. CR. DR. CR. Merch. Inv. 25,000 (b) 30,000(a) 25,000 30,000 Income Sum. (a)25,000(b) 30,000 25,000 30,000 Purchases 80,000 80,000 Purch. R & A 1,000 1,000 Purch. Disc. 500 500 Freight-In 700 700 The other accounts are extended with no adjustments. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ACCOUNT ADJUST. T/B INCOME STMT. BALANCE SHEET TITLE DR. CR. DR. CR. DR. CR. Merch. Inv. 30,000 30,000 Income Sum. 25,000 30,000 Purchases 80,000 Purch. R & A 1,000 Purch. Disc. 500 Freight-In 700 Merchandise Inventory is extended to the Balance Sheet columns. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ACCOUNT ADJUST. T/B INCOME STMT. BALANCE SHEET TITLE DR. CR. DR. CR. DR. CR. Merch. Inv. 30,000 30,000 Income Sum. 25,000 30,000 25,000 30,000 Purchases 80,000 Purch. R & A 1,000 Purch. Disc. 500 Freight-In 700 For the Income Summary account, BOTH the beginning and ending inventory amounts are extended to the Income Statement columns. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ACCOUNT ADJUST. T/B INCOME STMT. BALANCE SHEET TITLE DR. CR. DR. CR. DR. CR. Merch. Inv. 30,000 30,000 Income Sum. 25,000 30,000 25,000 30,000 Purchases 80,000 80,000 Purch. R & A 1,000 1,000 Purch. Disc. 500 500 Freight-In 700 700 Since the Purchases, Purchases Returns and Allowances, Purchase Discounts, and Freight-In Accounts are income statement accounts, they are extended to the Income Statement columns. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ACCOUNT ADJUST. T/B INCOME STMT. BALANCE SHEET TITLE DR. CR. DR. CR. DR. CR. Merch. Inv. 30,000 30,000 Income Sum. 25,000 30,000 25,000 30,000 Purchases 80,000 80,000 Purch. R & A 1,000 1,000 Purch. Disc. 500 500 Freight-In 700 700 Cost of goods sold can be computed from the Income Statement columns. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cost of goods sold: Merch. inv., January 1 $25,000 From the income summary account on the work sheet. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cost of goods sold: Merch. inv., January 1 $25,000 Purchases $80,000 Less: Purchases R & A $1,000 Purchases disc. 500 1,500 Net purchases $78,500 Before we can combine Purchases and beginning inventory, we must subtract the contra-purchases accounts to determine net purchases. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cost of goods sold: Merch. inv., January 1 $25,000 Purchases $80,000 Less: Purchases R & A $1,000 Purchases disc. 500 1,500 Net purchases $78,500 Add freight-in 700 Cost of goods purch. 79,200 Freight-in is added to net purchases to determine the cost of goods purchased. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cost of goods sold: Merch. inv., January 1 $25,000 Purchases $80,000 Less: Purchases R & A $1,000 Purchases disc.
Load more

Recommended publications
  • Budgeting 101
    Budgeting 101 April 18, 2018 9:00-12:30pm San Francisco Public Library Investing in Main Branch, Latino/Hispanic Community Room Opportunity, 100 Larkin Street Together. San Francisco, CA Agenda Introductions Setting The Stage Building & Monitoring Your Budget Developing Grant Budgets Becoming A Financial Leader Wrap-up 2 Who’s here? …in 30 seconds… Organization and name What describes your budget situation? I don’t have a budget (yet) I think I have a budget, not sure where it is I have a “wild guess” budget, not sure it is realistic I have a solid budget, want to learn more about it 7 Setting The Stage 4 Budgeting, Programs & Accounts Programs (functional expenses) Youth Teen Summit Meet Ticket Sales Line Items Grants (natural expenses) Supplies Printing 5 Pop Quiz Which of these are programs? Finance Freaks – a 2017 season play Number Ninjas – a youth parkour class Excel-lent – training seniors on the computer Answer: Excel-lent 6 Pro Tip 1. Look for language Finance Freaks – a 2017 season play Number Ninjas – Friday parkour class Excel-lent – training seniors in Excel 7 Pro Tip 2. Look for time Finance Freaks – a 2017 season play Number Ninjas – Friday parkour class Excel-lent – training seniors in Excel 8 Pro Tip 3. Look for mission Finance Freaks – a 2017 season play Number Ninjas – Friday parkour class Excel-lent – training seniors in Excel 9 What is a Program? Programs have: Unique audiences (youth, homeless, prenatal) Unique missions (house the homeless) Unique staff (prenatal program director) 10 What
    [Show full text]
  • Adjusting Entries and the Work Sheet Teacher Version
    Teacher Version chapter College Accounting 11th Edition Adjusting Entries and the Work Sheet 4© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4-1 You are Here © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4-2 Learning Objective • A fiscal period is any period of time covering a complete accounting cycle. • A fiscal year is a fiscal period consisting of twelve consecutive months. • A fiscal year does not have to coincide with the calendar year. • For income tax purposes, any period of twelve consecutive months may be selected. However, you must be consistent from year to year. • The accounting cycle represents the sequence of steps in the accounting process completed during the fiscal period. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4-3 The Work Sheet • The work sheet is a tool (working paper) used by accountants to record necessary adjustments and provide up-to-date account balances needed to help in preparing financial statements. • The heading consists of three lines: 1. The name of the company 2. The title of the working paper 3. The period of time covered © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4-4 The Columns of the Work Sheet Trial Balance Columns • Assuming normal balances, the account classifications are listed in the Trial Balance Debit and Credit columns of the work sheet: Adjusted Trial Balance Columns • The adjusted trial balance columns are merely extensions of the Trial Balance Columns, plus or minus any adjustment amounts.
    [Show full text]
  • Lecture 3 Adjusting the Accounts Time Period Assumption: an Assumption
    Lecture 3 Adjusting the accounts Time period assumption: An assumption that the economic life of a business can be divided into artificial time period. The time period assumption is called the periodicity assumption. Fiscal year : An accounting time period that is one year in length is a fiscal year. A fiscal year usually begins with the first day of a month and ends twelve months later on the last day of a month Accounting time periods are generally a month, a quarter, or a year. Monthly and quarterly time periods are called interim periods. Most large companies must prepare both quarterly and annual financial statements. Calendar year: An accounting period that extends from January 1 to December 31 is called the calendar year Accrual basis accounting : Under the accrual basis, companies record transactions that change a company’s financial statements in the periods in which the events occur. Under the accrual basis, revenues and expenses are recorded when they are earned, regardless of when the money is actually received or paid. This method is more commonly used than the cash method. Cash basis accounting: Under cash-basis accounting, companies record revenue when they receive cash. They record an expense when they pay out cash. The cash basis seems appealing due to its simplicity, but it often produces misleading financial statements. It fails to record revenue that a company has earned but for which it has not received the cash. Also, it does not match expenses with earned revenues. Cash-basis accounting is not in accordance with generally accepted accounting principles (GAAP).
    [Show full text]
  • Provision for Depreciation in Cash Flow Statement
    Provision For Depreciation In Cash Flow Statement Is Hadrian often when Jennings ears each? Darth formalizes his octanes carpetbagging celestially or geniculately after Hill whitewashes and beggar absurdly, statant and unremedied. Cockier Shep fertilizing some prowlers after basidiomycetous Tray tates advertently. As per hour worked in cash flow statement directly reflect the revenue prepayments, we conducted our sites reliable amount of various companies which the total in exchange rate Sized entities implementation of the direct cash and deferred tax is provision in about how cash amount represents the original cost of obligation. Stay in cash flow statement of provision may use of long term investments and establishing a possible to this. In cash flow statements, provision for freelancers, the depreciated to reliably forecast using this number that year. Here for depreciation provisions can improve the statement of financial position of the liability or cash flow statement and other technical skills in all capex or intangible assets? The cash flow statement and receivables is given but sales tax but not appear at the net cash. This statement for bad debts in excess of provisions can estimate of it depreciated asset abandonment on. Using depreciation provisions of cash flow statements of these contracts are used. The statement in income taxes method charges taken from shareholders on the first proposed investment in the payment period assumption for the column of machinery and detailed instructions which might not. What impact on an obligation could be something we did not affect taxes, we charge to be accompanied by the income is no impact the! The statements in the complexities faced in trial balance in earnings shows the info is buying back.
    [Show full text]
  • Chapter 3 Preparing Financial Statements
    Revised Summer 2012 CHAPTER 3 PREPARING FINANCIAL STATEMENTS Key Terms and Concepts to Know Accounting Period: Time Period Principle Calendar vs. Fiscal Year Accounting Cycle: Know the steps in order. Use the steps as a reference to insure that journal entries, trial balances and financial statements are prepared in the proper order. Accrual Basis Accounting: Accrual vs. Cash Basis Accounting Revenue Recognition Principle requires that revenues are reported in the period in which they are earned, regardless of when payment is received. Matching Principle requires that all expenses incurred (whether paid or not) are recorded in the same accounting period as the revenues earned as a result of these expenses. Adjusting Entries: Accrued revenues and accrued expenses Deferred revenues and deferred expenses Unbilled vs. unearned revenues Closing Process: Records the current year’s net income and dividends in retained earnings and zeros-out the balance in all revenue, expense and dividend accounts at year-end. Revenue and expense account balances are transferred into the Income Summary account. The balance in the income summary represents net income (revenues minus expenses) which is then transferred into retained earnings. Dividends are transferred directly into retained earnings, bypassing the income summary because dividends are not part of the calculation of net income and do not appear on the income statement. Profit Margin ratio and Current ratio Page 1 of 27 Revised Summer 2012 Key Topics to Know Adjusting Entries Adjusting entries are required to record internal transactions and to bring assets and liability accounts to their proper balances and record expenses or revenues in the proper accounting period.
    [Show full text]
  • Accounting for Accruals and Deferrals
    ACCOUNTING FOR ACCRUALS AND DEFERRALS LAVERNE FUNDERBURK, CPA UIL ACCOUNTING STATE CONTEST DIRECTOR BEFORE WE GET STARTED… Everyone should Submit Attendance for remain muted questions CPE credit through chat ACCOUNTING FOR ACCRUALS AND DEFERRALS LAVERNE FUNDERBURK, CPA UIL ACCOUNTING STATE CONTEST DIRECTOR FIRST LET’S REVIEW Basis of Accounting Revenue Recognition Matching Principle Accounting Period Cycle Basis of Accounting CASH BASIS—an accounting system that records revenue when cash is received and records expenses in the period the cash is paid. ACCRUAL BASIS—an accounting system that records revenue when it is earned regardless of when the cash is received AND records expenses when they are incurred regardless of when cash is paid out. Revenue Recognition The GAAP principle that revenue is RECORDED on the date it is earned, even if the cash has not yet been received. Matching Principle Revenue and the expenses associated with earning that revenue are recorded in the SAME accounting period. Accounting Period Cycle Financial Statements are prepared for a specific period of time. Accounting Equation: Assets = Liabilities + Capital Increases to Capital Owner Investments Revenue Decreases to Capital Owner Withdrawals Expenses Relationship Between Balance Sheet and Income Statement Assets = Liabilities + Capital Bal side Bal Side Bal Side + - - + - + DR CR DR CR DR CR Expense Revenue Bal Side Bal Side + - - + DR CR DR CR Adjusting Journal Entries (AJEs) Ø Before financial statements are prepared, the accountant must examine the general ledger accounts to make sure they are up-to-date. Ø The accountant may need to examine insurance policies or take a physical inventory of supplies, etc.
    [Show full text]
  • Chapter 5 Continued Cash Flow Versus Accrual Accounting
    Accrual Accounting Process 15.501/516 Accounting Spring 2004 Professor S. Roychowdhury Sloan School of Management Massachusetts Institute of Technology Feb 17/18, 2004 1 What is Cost of Goods Sold? Q Mart buys $10,000 worth of cereals from Special Foods for cash. Assets = L + OE Cash Inventory -10,000 +10,000 Exchange of one asset for another asset Operating outflow = $10,000 2 What is Cost of Goods Sold? Q Mart sold one-half of the cereals for $8,000 cash Assets = L + Owners’ Equity Cash Retained Earnings +8,000 +8,000 What is the most significant matching expense? 3 What is Cost of Goods Sold? The cost to Q Mart of buying the cereal that was sold for $8,000 one-half of $10,000 = $5,000 = Cost of Goods Sold or Cost of Sales Assets = L + Owners’ Equity Inventory Retained Earnings -5,000 -5,000 4 What is Gross Profit or Margin? Assets = L + Owners’ Equity Cash Inventory Retained Earnings -10,000 +10,000 +8,000 +8,000 -5,000 -5,000 Increase in retained earnings +3,000 Gross Profit or Margin = Sales Revenue (-) Cost of Goods Sold = $3,000 GM rate = $3,000/$8,000 = 37.5% 5 Components of Income Sales or Service Revenue (-) Cost of Goods Sold (-) Operating Expenses (-) Unusual or Infrequent items (-) Income Tax Expense = Income from Continuing Operations (ICO) All items disclosed below ICO are referred to as “below the line” items. The below-the-line items are each shown net of income tax. 6 Components of Income - Staples Sales 11,596,075 Cost of goods sold& Occupancy costs 08,652,593 Gross Profit 02,943,482
    [Show full text]
  • General Ledger and Position Budgeting
    General Ledger INFINITE VISIONS and Position ACCOUNTING Budgeting Student Guide PREREQUISITES None COURSE OVERVIEW This session explores the different methods of budgeting within the General Ledger. During this session, participants learn how to: • Create budget columns • Input budget • Use budget utilities • Budget for payroll expenses Copyright ©2018 Tyler Technologies, Inc. Revised: February 2018 This document applies to Infinite Visions Accounting 2018.1 software. The data used to illustrate the reports and windows may include names of individuals, companies, brands, and products. These names are fictitious; any similarities to actual names are entirely coincidental. Further, any illustrations of report formats or window images are examples only and reflect how a typical customer would install and use the product. Infinite Visions Accounting is a registered trademark of Tyler Technologies, Inc. Contents GENERAL LEDGER AND POSITION BUDGETING GENERAL LEDGER BUDGETING ............................................................................................................................. 5 BUDGET CONFIGURATION ...................................................................................................................................................... 5 Add a New Budget Column ............................................................................................................................................................. 5 Add a Budget Control Group .........................................................................................................................................................
    [Show full text]
  • GUIDE for BASIC ACCOUNTING and REPORTING for UPWARD and DOWNWARD ADJUSTMENTS to PRIOR YEAR OBLIGATIONS (Effective Fiscal Year 2018)
    GUIDE FOR BASIC ACCOUNTING AND REPORTING FOR UPWARD AND DOWNWARD ADJUSTMENTS TO PRIOR YEAR OBLIGATIONS (Effective Fiscal Year 2018) GENERAL LEDGER AND ADVISORY BRANCH FISCAL ACCOUNTING OPERATIONS BUREAU OF THE FISCAL SERVICE U.S. DEPARTMENT OF THE TREASURY UPWARD AND DOWNWARD ADJUSTMENTS TO PRIOR YEAR OBLIGATIONS Version Number Date Description of Change Effective USSGL TFM 1.0 2005 Original Version Not in Archives 2.0 09/01/2018 Updated Transaction Codes, financial statements and Bulletin 2017-16 appendices 2 Final Upward and Downward Scenario 2018 UPWARD AND DOWNWARD ADJUSTMENTS TO PRIOR YEAR OBLIGATIONS Overview This guide is designed for those who: • Prepare agency Financial and non-Financial statements; • Audit the agency financial statements; • Manage or provide service to participants in upward and downward adjustments • Design and maintain computer systems for financial programs; • Instruct others in basic accounting and reporting. In order to understand and gain the most from this guide, users must have a working knowledge of the following: • Budgetary and proprietary accounting, reporting, and terminology; • The United States Standard General Ledger (USSGL) accounts for basic multiyear and annual appropriations, revolving fund and Special and Trust Funds • The concepts of Federal credit program accounting and reporting, fund structures, and terminology. Scenario Assumptions Scenarios can vary depending on many variables. Below is clarifying guidance to assist in the identification of an upward or downward adjustment. In general, the status of the appropriation (unexpired vs. expired) is not used as a basis for determining upward or downward adjustments. This scenario can be applied to annual, no year as well as multiple year appropriations.
    [Show full text]
  • The Matching Concept and the Adjusting Process 3
    The Matching Concept and the Adjusting Process 3 objectives After studying this chapter, you should be able to: Explain how the matching concept 1 relates to the accrual basis of ac- counting. Explain why adjustments are nec- 2 essary and list the characteristics of adjusting entries. Journalize entries for accounts 3 requiring adjustment. Summarize the adjustment process 4 and prepare an adjusted trial bal- ance. Use vertical analysis to compare 5 financial statement items with each other and with industry averages. Setting the Stage ssume that you rented an apartment last month and signed a nine-month A lease. When you signed the lease agreement, you were required to pay A the final month’s rent of $500. This amount is not returnable to you. You are now applying for a student loan at a local bank. The loan appli- cation requires a listing of all your assets. Should you list the $500 deposit as an asset? The answer to this question is “yes.” The deposit is an asset to you until you receive the use of the apartment in the ninth month. A business faces similar accounting problems at the end of a period. A business must determine what assets, liabilities, and owner’s equity should be reported on its balance sheet. It must also determine what revenues and expenses should be re- ported on its income statement. As we illustrated in previous chapters, transactions are normally recorded as they take place. Periodically, financial statements are prepared, summarizing the effects of the transactions on the financial position and operations of the business.
    [Show full text]
  • Introduction to Business Accounting Chapter 7 - Adjusting Entries Slide 1
    Introduction to Business Accounting Chapter 7 - Adjusting Entries Slide 1 Adjusting Entries – Prepaid Expenses Situation: You have created an Unadjusted Trial Balance for the period ending March 31, 2015. You know that Maintenance Supplies have been used during the month. You complete an inventory (count) of the supplies which reveals that there is currently $275 remaining. You calculate the amount used by subtracting the ending balance from the balance at the beginning of the period: Maintenance supplies available during March $700 Maintenance supplies value on March 31 ($275) Supplies used during March (which is the adjustment amount required) $425 _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ Slide 2 Adjusting Entries – Prepaid Expenses
    [Show full text]
  • ACCRUAL ACCOUNTING CONCEPTS LO 1: Explain the Accrual Basis of Accounting and the Reasons for Adjusting Entries
    Revised Summer 2018 Chapter 4 Review 1 ACCRUAL ACCOUNTING CONCEPTS LO 1: Explain the accrual basis of accounting and the reasons for adjusting entries. Periodicity Assumption: Accounting divides the economic life of a business into artificial time periods (ex: month, quarter, or year) o Fiscal Year: an accounting time period that is one year long. Revenue Recognition Principle: requires that companies recognize revenue in the accounting period in which the performance obligation is satisfied (when the money is EARNED, not collected.) Ex: John mowed Danny’s lawn for $40 on May 15. Danny didn’t have the money to pay John until May 26. What are the journal entries for George on May 15 and May 26? Expense Recognition (Matching) Principle: requires that companies match expenses with revenues in the period when the company makes efforts to generate those revenues. (when the expense has been INCURRED, not paid.) ACCRUAL VERSUS CASH BASIS OF ACCOUNTING Accrual-Basis Accounting Transactions recorded in the periods in which the events occur. Revenues are recognized when services performed, even if cash was not received. Expenses are recognized when incurred, even if cash was not paid. Cash-Basis Accounting Revenues are recognized only when cash is received. Expenses are recognized only when cash is paid. Not in accordance with generally accepted accounting principles (GAAP). Ex: Suppose that P Company paints a large office building in 20 YR 1. In 20 YR 1, it incurs and pays total expenses (salaries and paint costs) of $30,000. It bills the customer $50,000, but does not receive payment until 20 YR 2.
    [Show full text]