New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Financial Accounting Chapter 3 Notes

by: bauer47 Notetaker

Financial Accounting Chapter 3 Notes ACC-142

Marketplace > Iowa Central Community College > Accounting > ACC-142 > Financial Accounting Chapter 3 Notes
bauer47 Notetaker

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

These notes cover the Adjusting Process (look out for an exercise that accompanies these notes).
Financial Accounting
DawnA. Humburg
Class Notes
25 ?




Popular in Financial Accounting

Popular in Accounting

This 4 page Class Notes was uploaded by bauer47 Notetaker on Wednesday March 2, 2016. The Class Notes belongs to ACC-142 at Iowa Central Community College taught by DawnA. Humburg in Fall 2015. Since its upload, it has received 28 views. For similar materials see Financial Accounting in Accounting at Iowa Central Community College.


Reviews for Financial Accounting Chapter 3 Notes


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 03/02/16
Chapter 3 The Adjusting Process Before we start Ch. 3, let’s review the accounting cycle as of the end of Ch. 2 (list the steps): 1 > Analyze Transaction 2 > Journal 3 > Post 4 > Unadjusted Trial Balance 1) What is the adjusting process? When we adjust our accounting records, we are really update  our accounts before we complete the adjusted trial balance (DRs=CRs) 2) Cash basis vs. accrual basis accounting: a. Cash basis > revenues are recorded when they are received; expenses are recorded  when they are paid; this basis of accounting is permitted for the following types of  business entities > small business, partnership, proprietorship, limited liability  corporation, but not for the corporate entity because it sells its stock to the public; this  basis does not conform with GAAP (act. Standards) b. Accrual basis > this is required for the corporate entity; revenues are recorded when  they are earned regardless of when we receive the cash; expenses are recorded when  they are incurred regardless of when we pay the cash; we have already been using this  basis!!!  3) Concepts and principles inherent in accrual basis accounting: a. Time period > we must split our time into equal intervals so we can compare from period to period b. A fiscal is any 12 month time period used for accounting i. What factors determine (b) above?  Highest revenue, lowest revenue, past  results/ history c. Revenue recognition principle > dictates both when and at what amount we record  revenue i. When do we record revenue? earned d. Matching principle > dictates when expenses are recorded; we must match revenues  with expenses during the same accounting period i. When do we record expenses? incurred 4) Adjusting entries: defined as journal entries that update our accounts before we complete the  adjusted trial balance a. What is the step immediately preceding the adjusting entries? Unadjusted trial balance b. What is the order of (a) above? ALSHERE c. When are these recorded? End of the business period d. The accounts used to adjust are also listed on two of the financial statements. What are  these statements? Balance sheet and income statement 5) Types of adjusting entries: a. PE (Prepaid expenses) > these must be adjusted to record the fact that a portion of the  asset is still available and a portion of the asset has been used i. For example: Paid for 12 months of rent on July 1, $24,000. 1. Initial journal entry: DR Prepaid Rent 24,000 CR Cash 24,000 2. December 31, record the adjusting entry: (income statement) DR Rent Expense     12000 (balance sheet) CR Prepaid Rent    12000 (to record the rent that has been used/ expensed/ expired/ incurred) What is the balance in the DR for #1 above after it is adjusted?  $12000; which financial statement will the balance be shown on? Balance  sheet b. UR (unearned revenue) > these must be updated to record the fact that a portion of the  liability is earned and the other portion of the liability is still owed i. For example: we sold $10,000 in gift cards. All but $2,500 of these were  redeemed. 1. Initial journal entry: DR Cash    10,000 CR Unearned Revenue    10,000 2. December 31 adjusting entry: (balance sheet)  DR Unearned Revenue   7500 (income statement) CR Service Revenue    7500 What is the balance for the CR account from #1 above after the Dec. 31  entry? $2500; which financial statement will the balance be shown on?  Balance sheet c. AE > (Accrued Expenses); these have been incurred, have not been paid, and have not been recorded yet in our accounting records i. For example: received the utility bill in the mail on Dec. 31, $2,500 1. Initial journal entry: THERE IS NO ORIGINAL JOURNAL ENTRY FOR  ANY accrual 2. December 31 adjusting entry: (income statement) DR Utilities Expense   2500 (balance sheet) CR Accounts Payable   2500 d. AR > (accrued revenue); these have been earned; have not been received, and have  not been recorded yet in our accounting records i. for example: discovered at Dec. 31 that we still needed to bill some of our  customers, $15,000 1. Initial journal entry: THERE IS NO ORIGINAL JOURNAL ENTRY FOR  ANY accrual 2. December 31 adjusting entry: (BS) DR Accounts Receivable     $15000 (IS) CR Service Revenue      $15000 6) Depreciation defined > we record depreciation when we use a fixed asset at the end of the  period; we leave the fixed asset on our accounting records at its original (historical) cost a. This is what type of adjusting entry? (PE, UR, AE, or AR) b. Formula for the method of depreciation (easiest): i. SL (straight line); (cost – residual(salvaged) value)/ useful life; this method yields  the same amount every year ii. December 31 adjusting entry: Record depreciation on our Equipment, cost of  $10,000; residual value of $2,000; 4 year life > (10000 ­2000)/4 = $2000 per year 1. Initial journal entry: DR Equipment     10000 CR Cash       10000 2. December 31 adjusting entry: (IS) DR Depr. Expense       2000 (BS) CR Accumulated Depr.          2000 3. All of the fixed assets like Equipment are disclosed at their original cost on the balance sheet; Book Value= Cost – Accumulated Depr. 7) Next step in the accounting cycle after adjusting is the Adjusted Trial Balance; order is  ALSHERE 8) Worksheet > a spreadsheet used internally to assist in the adjusting process; optional for  businesses 9) Alternative treatment of PE and UR a. PE > Prepaid Expense i. Initial journal entry, paid for rent for 12 months in advance on July 1st, $24,000 DR Rent Expense  24000 CR Cash  24000 st ii. December 31  adjusting entry: DR Prepaid Rent 12000 CR Rent Expense 12000 What is the balance of Prepaid Rent after ii above? 12000 b. UR > Unearned Revenue i. Initial journal entry, we sold $10,000 in gift cards. All but $2,500 of these were  redeemed.  1. Initial journal entry: DR Cash 10000 CR Revenue 10000  2. December 31 adjusting entry: (IS) DR Revenue 2500 (BS) CR Unearned Revenue  2500 What is the balance in Unearned Revenue after 2 above? 2500


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Janice Dongeun University of Washington

"I used the money I made selling my notes & study guides to pay for spring break in Olympia, Washington...which was Sweet!"

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."


"Their 'Elite Notetakers' are making over $1,200/month in sales by creating high quality content that helps their classmates in a time of need."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.