chapter 3- financial accounting i - p
TRANSCRIPT
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Financial Accounting I
Chapter 3: The Adjusting Process
Pamela Gonzalez, MBA
September 25th, 2013
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The Adjusting Process
Adjusting the
Books
Process of updating the
accounts at the end of the
period, this requires special
journal entries.
Accrual Accounting Record effects as it occurs
Cash-basis Accounting
Records effects when cash
is received or paid
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Accounting Principles and Concepts
GAAP
(Generally Accepted Accounting Principles)
Entity Concept
FaithfulRepresentation
Principle
Cost PrincipleGoing Concern
Principle
StableMonetary Unit
Concept
One business
separate from
its owners
Data faithfully representsthe measurement or
description of that data
Assets and servicesshould be recorded at
their actual cost
(amount paid).
Will remain in
operation for the
foreseeable future
Stable currency
buying power
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Why We Adjust the Accounts
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Adjusting Entries
AccrualsPrepaids
Cash payment
occurs before an
expense is recorded
or receipt occursbefore the revenue
is earned
Records an expense
before the cash
payment or it
records the revenuebefore the cash is
received.
1. Prepaid expenses (prepaid)
2. Depreciation (prepaid)3. Accrued expenses (accrual)
4. Accrued revenues (accrual)
5. Unearned revenues (prepaid)
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Adjusting Entries
Prepaid Expenses
Prepaid Rent
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Adjusting Entries
Depreciation
Plant assets are long-lived tangible assets used in the operation of a
business. Examples include buildings, equipment, furniture, and
automobiles. As a business uses the assets, their value and usefulness
decline. The allocation of a plant assets cost to expense is called
depreciation.
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Adjusting Entries
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Adjusting Entries
Accrued Expenses
Salary
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Adjusting Entries
Accrued Revenue
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Adjusting Entries
Unearned Revenues
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Practice!
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Financial Accounting I
Chapter 3: The Adjusting Process
Pamela Gonzalez, MBA