acct2020 introduction to accounting for non-business majors chapter 4
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7/23/2019 ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 4
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Adjustments, FinancialAdjustments, Financial
Statements, and the Quality ofStatements, and the Quality ofEarningsEarningsChapter 4
McGraw!ill"#rwin $ %&&' (he McGraw!ill Companies, #nc)
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Accounting Cycle
Prepare financialstatements. Disseminate
statements tousers.
Prepare financialstatements. Disseminate
statements tousers.
Close revenues,
gains, expenses, and
losses to Retained
Earnings.
Close revenues,
gains, expenses, and
losses to Retained
Earnings.
During the period: Analyze transactions. Record ournal entries. Post amounts to general
ledger.
During the period: Analyze transactions. Record ournal entries. Post amounts to general
ledger.
At the end of the period: Adust revenues and
expenses.
At the end of the period: Adust revenues and
expenses.
!tart of Period
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(ypes of Adjustments
(here are four types of adjustments)
ExpensesExpenses
ExpensesExpenses
3. Prepaid
Expenses.
4. Accrued
Expenses.
3. Prepaid
Expenses.
4. Accrued
Expenses.
RevenuesRevenues
RevenuesRevenues
1. Unearned
Revenues.
2. Accrued
Revenues.
1. Unearned
Revenues.
2. Accrued
Revenues.
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End ofaccounting period.
Cash received. Revenues earned.
Example includes rent received inExample includes rent received inadvance an unearned revenue!.advance an unearned revenue!.
Example includes rent received inExample includes rent received inadvance an unearned revenue!.advance an unearned revenue!.
*nearned +eenues
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End ofaccounting period.
Cash receivedRevenues earned
Example includes interest earned
during the period accrued revenue!.
Example includes interest earned
during the period accrued revenue!.
Accrued +eenue
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End ofaccounting period.
Cash paid.
Examples include prepaid rent"Examples include prepaid rent"advertising" and insurance.advertising" and insurance.
Examples include prepaid rent"Examples include prepaid rent"advertising" and insurance.advertising" and insurance.
-repaid E.penses
Expense incurred.
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Accrued E.penses
As of /%"%0"&', 1enton, #nc) had already paidAs of /%"%0"&', 1enton, #nc) had already paid2/,'&&,&&& in wages for the year) 1enton pays its2/,'&&,&&& in wages for the year) 1enton pays its
employees eery Friday) 3earend, /%"/"&', falls on aemployees eery Friday) 3earend, /%"/"&', falls on a
5ednesday) (he employees hae earned total wages of5ednesday) (he employees hae earned total wages of
26&,&&& for Monday through 5ednesday of the wee726&,&&& for Monday through 5ednesday of the wee7
ending /"&%"/&)ending /"&%"/&)
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Certain circumstances re8uireadjusting entries to record
accounting estimates)E.amples include ) ) )1epreciation
9ad de:ts #ncome ta.es
Certain circumstances re8uireadjusting entries to recordaccounting estimates)
E.amples include ) ) )1epreciation
9ad de:ts #ncome ta.es
Accrued E.penses #noling Estimates
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#he income
statementcontains
revenues and
expenses.
#he income
statement
contains
revenues and
expenses.
Earnings PerEarnings Per
$hare EP$! must$hare EP$! must
%e reported on%e reported on
the incomethe incomestatement.statement.
Earnings PerEarnings Per
$hare EP$! must$hare EP$! must
%e reported on%e reported on
the incomethe incomestatement.statement.
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Statement of Stoc7holders; E8uity<et income appears on the statement of stoc7holders;
e8uity as an increase in +etained Earnings)
)rom the
*ncome
!tatement
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9alance Sheet = >ia:ilities ?Stoc7holders; E8uity
&rom the&rom the
$tatement of$tatement of
$toc'holders($toc'holders(
E)uit*.E)uit*.
&rom the&rom the
$tatement of$tatement of
$toc'holders($toc'holders(
E)uit*.E)uit*.
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Closing the 9oo7s
Een though the:alance sheet
account :alances
carry forward fromperiod to period,
the incomestatement accounts
do not )
Closing entries@Closing entries@
/)/) (ransfer net income or (ransfer net income or
lossB to +etainedlossB to +etained
Earnings)Earnings)
%)%) Esta:lish a ero :alanceEsta:lish a ero :alance
in each of thein each of the
temporary temporary accounts toaccounts to
start the ne.t accountingstart the ne.t accountingperiod)period)
Closing entries@Closing entries@
/)/) (ransfer net income or (ransfer net income or
lossB to +etainedlossB to +etained
Earnings)Earnings)
%)%) Esta:lish a ero :alanceEsta:lish a ero :alance
in each of thein each of the
temporary temporary accounts toaccounts to
start the ne.t accountingstart the ne.t accounting
period)period)
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Closing the 9oo7s
(wo steps are used in the (wo steps are used in the
closing process ) ) )closing process ) ) )
/)/)Close reenues and gainsClose reenues and gainsto +etained Earnings)to +etained Earnings)
%)%)Close e.penses and lossesClose e.penses and losses
to +etained Earnings)to +etained Earnings)
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-ostClosing (rial 9alance
After all temporary accounts have een closed, -e After all temporary accounts have een closed, -eprepare a postclosing trial alance. /nly assets,prepare a postclosing trial alance. /nly assets,
liailities, and stoc0holders1 e2uity accounts -ill appear. Allliailities, and stoc0holders1 e2uity accounts -ill appear. All
revenue, expense, gain and loss accounts -ill have a zerorevenue, expense, gain and loss accounts -ill have a zero
alance.alance.
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End of Chapter 4