Notes for February 8-12
Notes for February 8-12 ACCT 2110 - 002
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ACCT 2110 - 002
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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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