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Notes for February 8-12

by: Callisa Ruschmeyer

Notes for February 8-12 ACCT 2110 - 002

Marketplace > Auburn University > Accounting > ACCT 2110 - 002 > Notes for February 8 12
Callisa Ruschmeyer
GPA 4.0

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About this Document

Continuation of the Accounting Cycle Main Topic- Adjusting Financial Accounts Chapter 3
Principles of Financial Accounting
Elizabeth G Miller
Class Notes
Financial Accounting; Chapter 3, Adjusting Accounts, Miller, auburn
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This 7 page Class Notes was uploaded by Callisa Ruschmeyer on Friday February 12, 2016. The Class Notes belongs to ACCT 2110 - 002 at Auburn University taught by Elizabeth G Miller in Fall 2015. Since its upload, it has received 42 views. For similar materials see Principles of Financial Accounting in Accounting at Auburn University.


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Date Created: 02/12/16
Week of February 8-12 Chapter 3 Review Recap of the Previous Accounting Cycle Steps  Step 1: Analyze the transaction  Step 2: Record transactions in the journal  Step 3: Post transactions in the t-accounts found on the ledger  Step 4: Preform the trial balance Completing the Accounting Cycle  Prepare the adjusting journal entries  Prepare the financial statements with the adjusted accounts  Close any temporary accounts o Usually retained earnings gets updated within the final steps of the accounting cycle Accrual vs. Cash Basis Accounting  Cash-basis accounting- revenue is recorded when cash is received (not when it is actually earned)  Accrual-basis accounting- follows the generally accepted accounting principles; transactions are recorded when goods and services are preformed; this type of accounting links income measurement to selling o Alternative to cash-basis accounting o Follow the revenue recognition principle matching principle, and time-period assumption o Publically trading companies must use this type of accounting Step 5: Adjusting Entries  Adjusting entries are entries that complete the portion of partially completed transactions form the original journal entries  Necessary to apply the revenue recognition and matching principles  Help ensure that financial statements are correct in regards to: revenues, expenses, assets, liabilities, and stockholders' equity  IMPORTANT: adjusting entries affect at least one income statement and one balance sheet account o Cash is never affected by adjustments  Remember: revenues are increased with credits and expenses are increased with debits Types of Adjusting Entries  Accruals- "build up"; money will later change hands o Accrued revenues- unrecorded revenues- revenues have been earned but cash has not been received o Accrued expenses- expenses have been incurred but cash has not been used to pay it yet  Deferrals- "put off"; money changes hands up front o Deferred (unearned) revenues- cash has been exchanged, but revenue has not been earned (have not provided goods or services yet)  Creates a liability (accounts payable and cash accounts are originally affected) o Deferred (prepaid) expenses- cash has been used to prepay for something, but that something has not been consumed by the end of the period Accrued Revenues  Cash has NOT exchanged hands  Good or service has been given but company has not paid for it yet  Examples: interest earned, but has not been received yet (on a loan)  Accrued Revenues are not always account receivables  Debit: Receivable; Credit: Accrued Revenue (Cash is received) Accrued Expenses  Expanses have been incurred, but cash has not been paid o "I have used something but have not paid for it yet"  Debit: Accrued Expense; Credit: Payable (Cash is paid) Deferred (Unearned) Revenue  Received cash but has not yet earned the revenue Deferred (Prepaid) Expense  Goods and services acquired before they are used  The prepayments are recorded as assets --> we call them deferred (or prepaid) expenses Depreciation  Adjust to acknowledge that an expense was incurred (from being used) during a certain period --> and then reduce the long-lived asset (property, plant, and equipment)  The unused portion of a long-lived asset is then recorded on the balance sheet  Contra Accounts o Use contra accounts to reduce the amount of long-lived assets o Accumulated depreciation is the contra account for depreciable property, plant and equipment o Have a normal credit balance Notes on Adjusted Trial Balance and Financial Statements  Accounts can be added to the adjusted trial balance o Interest and depreciation o Also various expenses- like salaries, interest, insurance, etc  You can clearly see accounts on the trial balance sheet increasing and decreasing before and after the adjustments  On the Adjusted Trial Balance- Debits and Credits must still equal each other  Summary of Steps: Analyze --> Journalize --> Post --> First Trial Balance --> Adjustments --> Adjusted Trial Balance o THEN the financial statements are made: income statement, retained earnings statements, and balance sheet Worked Out Problems and other Notes


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