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by: Julian Carter II


Marketplace > Idaho State University > Accounting > ACCT 323 > INTERMEDIATE ACCOUNTING I
Julian Carter II
GPA 3.99

M. Bezik

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M. Bezik
Class Notes
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This 2 page Class Notes was uploaded by Julian Carter II on Monday October 12, 2015. The Class Notes belongs to ACCT 323 at Idaho State University taught by M. Bezik in Fall. Since its upload, it has received 14 views. For similar materials see /class/222186/acct-323-idaho-state-university in Accounting at Idaho State University.




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Date Created: 10/12/15
Accounting for Deferrals and Accruals I Revenue amp Expenses V Cash Flow a reminder A RevenueExpense AT THE SAME TIME AS the Cash Flow Cash Transaction COD B RevenueExpense happen AFTER the Cash Flows 7 these are Deferrals 7 is usually NOT deferredI but the Revenue 0r Expense IS C RevenueExpense happen BEFORE the Cash Flow iAccmals of revenue or expense II Deferred Revenues A De ned Revenue is earned AFTER the cash or other asset in ow occurs 1 We must record the receipt of cashother asset Theoretically on the date the cash is received no revenue has been earned but the key is WHEN do we need the nancial statements prepared and what will be the status of the amount EARNED I S vs UNEARNED B S at the time the financial reports are prepared a Balance Sheet approach usually used when you are taught the basics of nancial accounting in this case you would initially record a LIABILITY such as UNEARNED REVENUE a Balance Sheet account and adjust for the amount EARNED Revenue at the next balance sheet date b Income Statement approach record Revenue when cash is received hence the Income Statement approach and then adjust DEFER for the amount that is NOT EARNED at the next balance sheet date N Example On September 1 2009 we enter into a contract to provide consulting services to Mrs O Bamma This consulting will be done on a daily basis for the next 90 days She agrees to prepay us the total price 210000 at 912009 Our quarter ends on 93009 and we need to prepare accurate nancial statements The bookkeeper recorded the receipt of cash as revenue per company policy a Income Statement method of recording cash receipt Step 1 Where did you put the noncash portion of the entry Step 2 analysis How much is EARNED at 930 How much is unearned at 930 Step 3 Based on stepsl and 2 above what entry is needed at 930 b Repeat steps 12 and 3 using the Balance Sheet approach to record the transaction III Deferred Expenses A De ned Expense is incurred AFTER the cash out ow occurs or better yet AFTER an asset is acquired and put to use regardless of any cash ow 1 We must record the out ow of cash if spent Theoretically on the date the cash is spent no expense has been incurred but the key is WHEN do we need the nancial statements prepared and what will be the status of the asset acquired by the time the nancial reports are prepared Income Statement approach Balance Sheet approach IV IF Income Statement approach is used to record the original cash entry then you MAY REVERSE the AJE Else do not reverse if B S approach was used V Accruals of Revenue and Expense Easier because nothing has previously been recorded A Accrue Revenue with an Asset some type of Receivable B Accrue an Expense with a Liability some type of Payable C Adjusting entries for Accruals can always be reversed AFTER closing the accounts VI Review DEFER REVENUE USE A LIABLITY UNEARNED DEFER EXPENSE USE AN ASSET many types supplies inventory prepaids PPampE etc ACCRUE REVENUE USE AN ASSET RECEIVABLE ACCRUE EXPENSE USE A LIABILITY PAYABLE


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