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This 5 page Class Notes was uploaded by Annie Danyluk on Monday October 12, 2015. The Class Notes belongs to ACCT 2010 at Clemson University taught by Professor Annieka C Philo in Fall 2015. Since its upload, it has received 48 views. For similar materials see Financial Accounting Concepts in Accounting at Clemson University.
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Date Created: 10/12/15
09182015 Temporary Closing temporary accounts 0 Two closing journal entries are needed 0 Debit revenue accounts and credit expense accounts Debit or credit the difference to retained earnings 0 Credit dividends declared and debit retained earnings 0 FIRST ENTRY o 1 Debit revenues Decreases revenues o 2 Credit expenses Decreases expenses 0 3 Credit Retained earningsNet income Increases SE 0 If lossdebit retained earnings SE decreases SEOND ENTRY 0 Debit Retained earnings Decreases SE 0 Credit Dividend declared use CJE for Closing journal entries Final check that all debits still equal credits and that all temporary accounts have been closed Contains balances for only permanent accounts Is the last step in the accounting process 09142015 Why adjustments are needed 0 Accounting systems are designed to record most recurring daily transactions particularly any involving cash 0 Cash is not always received or pain in the period in which the company earns the related revenues or incurs the related revenues Two basic types 0 Was the cash paid before or after the revenue was earned or the expense was incurred Cash paidreceived beforedeferral Cash paidreceived after accrual Deferral adjustments 0 An expense or revenue has been deferred if we have postponed reporting it on the income statement until a later period 0 Cash is paid or received 1st lnvolve previously recorded transactions 0 KEY NOTES 0 Deferral adjustments are used to decrease a balance sheet account and increase corresponding income statement account 0 Each deferral adjustment involves one asset and one expense on account or one liability and one revenue account 0 Ex Debit Prepaid insurance increasing asset 1000 Credit cash decreasing assets 1000 AjE n Debit insurance expense Expense a Credit Prepaid insurance asset 1000 0 Ex Debit cash increasing assets 12000 Credit Unearned revenue increasing liability 12000 AjE n Debit unearned revenue decrease liabilities 1000 a Credit revenue increase revenue 1000 Accrual adjustments Accrual adjustments are needed when a company has earned revenue but is not paid yet 0 Used to record revenue or expenses when they occur prior to receiving or paying cash and adjust corresponding balance sheets accounts 0 Each accrual adjustment involves one asset and one revenue account or one liability and one expense account 0 Ex Debit lnterest receivable increase asset Credit interest revenue increasing revenue 0 Ex Wages Wages payable Making required adjustments Adjustments are not made on a daily basis because its more ef cient to do them all at once at the end of each period ALWAYS WRITE AjE 09162015 Adjustment 1 Purchased 1000 cups for 100 on 112015 Performed an inventory of the cups on 13115 nothing Before it would be Debit 100 dollars for supplies JUST THE AjE Credit supplies 80 1001000 cups 010 per cup 010 multiplied by 800 used cups80 So youre going to credit the 80 used cups and change the amount debited to 20 dollars Adjustment 2 Purchased 1000 cups for 100 on 112015 On 2112014 sky blue corp collected 2400 rent for the period December 1 2014 to February 28 2015 What adjusting entry should be made for the year ended December 312014 On 121 would of debited cash 2400 and credit unearned revenue 2400 dollars3 months 800 dollars per month AjE Debit unearned revenue 800 Credit Rent revenue 800 KEY WORD TO KNOW IT IS RENT REVENUE INSTEAD OF A PREPAID EXPENSE BECAUSE IT SAYS COLLECTED Adjustment 3 The company s unadjusted trial balance reports vehicles of 40000 and zero balance in Accumulated depreciation and depreciation expense Depreciation for the period is estimated to be 10000 Prepare the adjusting journal entry on 1231 Depreciation Deferred adjustments Depreciation expensencome statement Accumulated Depreciation SPECIAL ACCOUNT THAT WE ARE GOING TO CREDIT Contraaccount asset IT IS NOTED BY A SMALL LITTLE X AND PUTTING AN A NEXT TO IT Contra accounts are like a negative asset So you increase the contra and decrease the asset On the balance sheet We show vehicles AT COST 40000 Less Accumulated depreciation WHATS BEEN USED UP 10000 Vehicles net of accumulated depreciation BOOK VALUE OR CARRYING VALUE 30000 Additional comments Adjusting journal entries never involve cash Adjusting entries always include one balance sheet and one income statement account Dividends are not expenses Instead they are a reduction of the retained earnings 0 Debit dividends declared Contraequity account NOT an expense 0 Credit Cash
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