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Week 3 (ch. 3)

by: Jenna Sminkey

Week 3 (ch. 3) BMGT220

Jenna Sminkey
GPA 3.7
Principles of Accounting 1
Progyan Basu

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Principles of Accounting 1
Progyan Basu
Class Notes
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This 3 page Class Notes was uploaded by Jenna Sminkey on Friday September 18, 2015. The Class Notes belongs to BMGT220 at University of Maryland taught by Progyan Basu in Summer 2015. Since its upload, it has received 50 views. For similar materials see Principles of Accounting 1 in Business at University of Maryland.

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Date Created: 09/18/15
Week 3 Pridan September 1L 2 15 1215 PM Chapter 3 Accounting period concept 0 Revenues and expenses are reported in the income statement in the period in which they were earned or incurred Revenue recognition concept 0 Supports reporting revenues when the services are provided to customers Cash basis of accounting 0 Revenues and expenses are reported on the income statement in the period in which cash is received or paid Adjusting process 0 Analysis and updating of accounts at the end of the period before the financial statements are prepared Adjusting entries 0 Journal entries that bring the accounts up to date at the end of the accounting period 0 Types of accounts that require adjusting entries 1 Prepaid expenses i Advance payment of future expenses ii Recorded as assets when cash is paid iii Become expenses over time 2 Unearned revenues i Advance receipt of future revenues ii Recorded as liabilities when cash is paid iii Become earned revenues over time 3 Accrued revenues i Unrecorded revenues that have been earned but cash has yet to be received ii Recorded with an adjusting entry 4 Accrued expenses i Unrecorded expenses that have been incurred but cash has yet to be paid ii Recorded with an adjusting entry Balance Sheet Accounts Income Statement Accounts 1 Assets 4 Revenue ii ash 11 Few tamed U Accounts Ri Lvl Jdblo Hw r Cwv39 H Supplles S Expenses 15 l39ivpdlil Insurance 395 Wmva t xponsv l7 l dild 3 Rent hymns is 0mm LQLlipii iaQni w 4 1 n lg 394 t w lUlnl ugh1W w I39l39h 54x mum 5 Utilities Expense 2 Llabllltles SE Supplwktxpens 2i Account Payable l 139 IL39 I iwal AM r I tl he 50 Misteilmwous Expense 33 lln nnml Rent 3 Stockholders39 Equity 9 51 capital 510d 3 HetJIned i arnmqs 33 Dividends Fixed assets 0 Physical resources that are permanent or have a long life Depreciation 0 Periodic transfer of the cost of a fixed asset to an expense account during its expected useful life 0 All assets depreciate except for land Depreciation expense 0 Portion of the cost of a fixed asset that is recorded as an expense each year of its useful life Accumulated depreciation 0 Contra asset account an account used to offset another account that is credited when recording the depreciation of a fixed asset Book value of the asset 0 Difference between the cost of a fixed asset and its accumulated depreciation Fall 2015 Page 1 Book value of the asset 0 Difference between the cost of a fixed asset and its accumulated depreciation Pc 1 x J a t b i A u of 9 o PREPAID EXPENSES ea 9 Reason to Financial Statomontlm actlf 9 93quot Examples Adjusting Entry Examples hom NotSolulIom p w Adjustment Adjusting EntvyISOmlttod 0 9 9 L4 L 0 211 Itquot l h I lul vfl39J39 lu1 E39 39lunu 1439 WHr XI39tt39 39 b pug I11 r 39 quotI39 A 391 I ap 1quot L 14quot V g P 39 K v I w cgquot 0 3 sec 3 V 1 I 11 1 139w I mgtrl 1 I ll 0 w M w 39 39 quotI39 1 Q r v J y e y l i p n 1 I w o 7 39 n 1 1 ob a 39lt Ll39 l vv 39 r 0 I I 1 6 ob W J J a Pn 1I39l13 39 0 o uNEAImEo REVENUES 09 5 db C a ll x 1 L 1 l I I1 1 1 I a b 20 lt V i 39lw 3942 v i r i 1 u 1 I l l 391 glt 6 Al 1quot 39I gr lgv 39 1 1 I gt 1 39 1 l n l 1 39u 1 I r 4 1 I39 I Ml II t I d 11 1 MI n 39 3 1 b 05 m b N 390 P 1 111v1o1 II39i 3939I 1 0 60A 1 39Y 1 mi V 03914 1 139 111 I 1 A I1m t quoth rfw L39391fIIII 1 L Qamp I quot I I 39 Irv 1 M m 3 5 c 9 7 ACCRUED REVENUES r b 0 0 oo 03 I lvu V l 11 Ill quotI In 39I w 39 l lt u 1139 b I w E I l 1rf39l J 2m 39 Hu 39 a I 111 I o 1 0 b r 0 t 1 Inn h r Hi I 39 r l nr v 1 13939391 9quot wr o 0 r39 3 11 1 I39 3911 r lI39quotquot39 a 1 l39I 139tI 1rquot A w I I391I39I391 4 rJlll il39lllI uf l39u39 39uw l a g 11v 139 lu 39 rr r1r1 I gt hr r 39 v1 rYI39 1 0quot 39H mumquot1H1 39rquotI39ulI39I quot 39 J o O Accauso EXPENSES a 0 5 W161 an n y r LIV 39 uhw 1 393939 fgw 1 I I39w H39 r Y b by 11139 rr 1 iiv1 i If 39 t v 39I n Il quot39 r 39 f 1 pd 14 iquotil3939 I391 39I39 39 Etw I I391 sac eo 39J39e 0 39 Jill1 1squot1 hlquot nquot 391 l39M 39YI39 1 amp u39w rr I11 win wryquot W 11quotI39Ill 39 f a quot H vquot 1 39 1111 tllnz39v 39 lt1quot1I39v1 H 1r39 m 1 39I it I 11 DEPRECIATION 1 I 39 I I in I A I In 1 39 1 111 I I n I wt39lwil39 quot 1 ill quot I i 1 1 a fJ39II39I391 39 w 1 1 1 I I 1quot 11 llu I l quot 111 I 1 1 1 HIKH g r39 1 I quotI 1 I K In t D 1 q o 1 a I 1Ir I Adjusted trial balance 0 Trial balance prepared after all the adjusting entries have been posted Vertical analysis 0 Compares each item in a financial statement with a total amount within the same statement Dr Basu39s video lecture 0 Generally an accounting period is a month quarter or year 0 Revenue recognition principle 0 Order received on 121 0 Shipped on 125 0 Delivery made on 1210 0 Amazon recognizes the revenue on 125 because that is when they finished their work 0 Matching principle 0 Revenues and expenses must be matched in the same time period 0 Imagine that a company paid 2400 for a 24 month insurance policy on 9113 0 On the cash basis of accounting the entire 2400 would be recognized as an insurance expense in 2013 no insurance expense would be recognized in 2014 or 2015 0 On the accrual basis of accounting required by GAAP only 400 would be recognized as an insurance expense in 913 1200 in 2014 and 800 in 2015 since they pay 100 per month Fall 2015 Page 2 Qd WS CMC t S J z Qa DQJEQCQ re t 5 R LU A AL C C repexvhLS we A v c aoxs ceW W Above e A be 055 0 Tips for adjusting entries BICE 1 Each adjusting entry involves at least one Ialance sheet account assetliability and one Income statement account revenueexpense 2 Adjusting entries never involve the lash account 3 Adjusting entries are generally made at the Ind of the accounting period 0 For prepaid expenses resources paid for prior to receiving actual benefits 0 Credit assets H 0 Debit expenses 0 For unearned revenues cash received in advance of providing products or services 0 Debit liabilities H 0 Credit revenues 0 For accrued expenses costs incurred in a period that are unpaid and unrecorded 0 Debit expenses 0 Credit liabilities 0 For accrued revenues revenues earned in a period that are not received or recorded 0 Debit assets 0 Credit revenues The adjusted trial balance is used to prepare an income statement retained earnings statement and balance sheet in that order Fall 2015 Page 3


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