Accounting 215 Chapter 4 Textbook Notes
Accounting 215 Chapter 4 Textbook Notes
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Date Created: 04/16/14
Accounting 215 Pollock 1 Accounting Notes Chapter 4 Accounting Cycle 1 Analyze transactions 2 Record journal entries in the general journal Z 3 Post amounts to the general ledger 4 Prepare a trial balance to determine if debits equal credits 5 Adjust revenues and expenses and related balance sheet accounts record in journal and CL Lf post to ledger 6 Prepare a complete set of financial statements and distribute to users 7 Close revenues gains expenses and losses to retained earnings Record in journal and post to ledger F ntries necessary at the end of the accounting 0 Fi0d t0 measure 3quot F V nU S and expenses of that period kC revenues are recorded when they are earned expenses are recorded when they are incurred B previously recorded liabilities that were created when cash was received in advance and taht must be reduced for the amount of revenue actually earned during the period 2 P evenues that have been earned but not yet recorded because cashwill be received after the services are performed or goods are delivered previously recorded assets such as prepaid rent supplies and equipment that were created when cash was paid in advance and that must be reduced for the amount of expense actually incurred during the period through the use of the sli jjji g quot39i wiquot39 expenses that have been incurred but not yet recorded because cash will be paid after the goods or services are used Note The reference for making adjustments is AJE y y y Was the revenue earned or an expense incurred that is not yet recorded Yes gt Credit revenue account or debit expense account Select type of adustment see above Compute the amount of revenue earned or expense incurred Accounting 215 Pollock 2 X previously recorded liabilities that need to be adjusted at the end of the accounting period to relfect the amount of revenue earned p 39 39 P b c previously unrecorded revenues aht need to be adjusted at the end of the accounting period to reflect the amount earned and the related receivable account A 6 03 T ll39ll39l ll previously acquired assets that need to be adjusted at the end of the accounting period to reflect the amount of expense incurred in using the assets to generate revenue Depreciation is an allocation of an asset s cost over its estimated useful life to the organization 0 an account that is an offset to or reduction of the primary account Example The contra account for depreciation is called Accumulated Depreciation M E Kiwis C0 39r Note Because assets have a debit balance XA has a credit balance Di lx loilo l o f p h t the difference between its acquisition cost and accumulated depreciation its related contra account Depreciation is measured per time period ie quarter therefore if depreciation is 80400 a year it would be recorded on a quarterly report as 20100 it 0 previously unrecorded expenses that need to be adjusted at the end of the accounting period to reflect the amount incurred and the related payable account l ebt gt there are two components when borrowing money Principle the amount borrowedloaned Interest the cost of borrowinglending Notes Payable doesn t need to be adjusted but interest expense must be recorded Note Unless told othenvise the interest rate on loans to others and borrowing is always given as an annual percentage Each adjusting entry always includes one income statement account and one balance sheet account Balance sheet accounts are considered permanent indicating that they retain their balances from the end of one period to the beginning of the next Accounting 215 Pollock 3 Temporary Accounts accounts whose balances accumulate during a period and start with a zero balance at the beginning of the next period Includes revenues expense gain and loss accounts Assets Liabilities Stockholder s Equity Common stock and additional paid in capital Retained Earnings p s reported on the income statement used in evaluating the operating performance and profitability of a company and it is the only ratio required to be disclosed on the statement or in the notes to the statements Statement of Stockholder s Equity Net Income is carried fonvard to Retained Earnings Column of the Statement of Stockholder s Equ y statement of Stockholder s Equity are included Assets are listed in terms of liquidity and liabilities are listed in order of due dates Cash Flow categorized list of all transactions of the period that affect the cash account No adjustments affect cash therefore the cash flow accounts remain the same A seeks to answer the question how effecient is management at to generate sales Accounting 215 Pollock 4 Total Asset Turnover Ratio measures the sales generated Creditors use this ratio to assess a company s effectiveness at controlling both current and noncurrent assets T T the balance sheet accounts that carry their ending balances into the next accounting period T llll lnll 10l lllllllEl ll statement accounts that are closed to retained earnings at the end of the accounting period Closing Entry transers balances in temporary accounts to Retained Earnings and establishes zero balances in temporary accounts A urposes 1 To transfer the balances in the temporary accounts income statement accounts to Retained Earnings To establish a zero balance in each of the temporary accounts to start the accumulation in the next accounting period Temporary accounts with debit balances are credited and temporary accounts with credit balances are debited PostClosing Trial Balance is what it sounds like Should be prepared as an additional step of the accounting cycle to check that debits equal credits and all temporary accounts have been closed
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