1、Chp4 Adjusting the accounts,Glossary,Accrual-basis accounting(权责发生制)Accrued expenses（应计费用）Accrued revenues（应计收入）Adjusted trial balance（调整后试算平衡）Adjusting entries（调整分录）Book value（账面价值）Calendar year（日历年）,Glossary,Cash-basis accounting（收付实现制会计）Contra asset account（资产抵消账户）Depreciation（折旧）Fiscal year（会计年度
2、）Interim periods（会计期间）Matching principle（配比原则）Prepaid expenses（预付费用）,Glossary,Revenue recognition principle（收入确认原则）Time period assumption（会计分期假设）Unearned revenues（预收收入）Useful life（使用年限）,Study Objectives,The accrual basis of accountingWhy adjusting entries are neededThe major types of adjusting entri
3、esAdjusting entries for prepayments Adjusting entries for accruals,Study Objectives,The nature and the purpose of an adjusted trial balanceAdjusting entries for the alternative treatment of prepayments,The content and organization of Chapter 4,Adjusting the Accounts,1.Time Issues1)Time period Assump
4、tion2)Fiscal and calendar years3)Accrual- vs. cash-basis4)Recognizing revenues and expenses,2.The basics of Adjusting Entries1)Types of adjusting entries2)Adjusting entries for prepayments3)Adjusting entries for accruals4)Summary,3.The adjusted trial balance and financial statements1)Preparing the a
5、djusted trial balance2)Preparing financial statements,1.Time Issues,1）Time-period assumption,The economic life of a business can be divided into artificial time period.,Accounting time periods are generally a month,a quarter, or a year.,The accounting period one a year in length is usuallyKnown as a
6、 fiscal year.,1.Time Issues,2）Accrual basis of accounting,The revenue recognition and matching principleare used under the accrual basis of accounting.,GAAP require accrual basis accounting rather thancash basis accounting.,1.Time Issues,3) Revenue Recognition Principle,Service performed,Cash receiv
7、ed,Customer requests service,Unearned revenue, liability,Accrued revenue, asset,Time period assumption,Revenue Recognition Principle,Matching Principle,2. The basic of adjusting entries,Why adjusting entries are needed?Revenues to be recorded in the period in which they are earned, and for expenses
8、to be recognized in the period in which they are incurred.The revenue recognition and matching principle to be followed.,2. The basic of adjusting entries,Adjusting entries are required every time financial statement are prepared.,Every entries involves a balance sheet account and income statement a
9、ccount.,No adjusting entry involves cash.,2. The basic of adjusting entries,1)Types of adjusting entries,Adjusting entries are required every time financial statements are prepared.,Prepayments,Accruals,Prepaid expenses,Unearned revenues,Accrued revenues,Accrued expenses,2. The basic of adjusting en
10、tries,2)Prepayments,Prepaid expenses are expenses paid in cash and recordedas assets before they are used or consumed.,Prepaid Expenses,Assets,Unadjusted balance,credit,DebitAdjusting Entry(+),Expense,2. The basic of adjusting entries,2)Prepaymentsf. Assume on October 1, Catering pays 2400 cash to S
11、andy Insurance co. for a one-year insurance policy effective October 1.,Insurance Expense - 200 Prepaid Insurance -200,2. The basic of adjusting entries,3)Supplies,f. Premier agency purchased supplies costing 2500 on October 5, An inventory count at the close of business onOctober 31 reveals that 10
12、00 of supplies are still on hand.,Supplies Expense - 1500 Supplies - 1500,2. The basic of adjusting entries,4)DepreciationIs the process of allocating the cost of an asset to expense over its useful life in a rational and systematic manner.The purchase of equipment or a building is viewed as a long-
13、term prepayment of service.,2. The basic of adjusting entries,4)Depreciation,Depreciation is an estimate rather than a factual measurement of the cost that has expired.,Depreciation,Accumulated Depreciation,Unadjusted balance,credit,DebitAdjusting Entry(+),Depreciation Expense,2. The basic of adjust
14、ing entries,4)Depreciation,Book value=Cost of asset accumulated depreciation.,Accumulated depreciation is the contra account, use of the contra account provides disclosure of both the original cost of the equipment and the total cost that has expired to date.,2. The basic of adjusting entries,4)Depr
15、eciation,f. R Restaurant purchases equipment for $6000 cash on January 1,2004.Assuming that annual depreciation is $1200, the adjusting entry at December 31, 2004 is:,Depreciation Expense - 1200 Accumulated Depreciation-Equipment -1200,2. The basic of adjusting entries,5)Unearned revenuesUnearned re
16、venues are subsequently earned by rendering service to a customer.A liability-revenue account relationship exists with unearned revenues.,2. The basic of adjusting entries,5)Unearned revenues,Unearned revenues include rent, customer deposits for future service.,Unearned revenues,Unearned revenues,Li
17、abilities are overstated,debit,Credit to a revenue account,revenues,2. The basic of adjusting entries,5)Unearned revenues,f. Assume on October 1, Schoen Hotel receives $3000 cash for restaurant rental in payment of monthly rent for the period October through December, at October 31, the adjusting en
18、try to record the rent earned in October is:,Unearned Rent Revenue - 1000 Rent Revenue -1000,2. The basic of adjusting entries,6) Accrued Revenues,Accrued revenues are revenues earned but not yet received in cash or recorded.,An asset-revenue account relationship exists with accrued revenues.,2. The
19、 basic of adjusting entries,6) Accrued Revenues,Accruals Revenues,Unearned revenues,assets are understated,debit,revenue are understated,revenues,Credit,2. The basic of adjusting entries,6) Accrued RevenuesF. P116,2. The basic of adjusting entries,7) Accrued Expenses,Accrued expenses are expenses in
20、curred but not yet paid or recorded.,Accrued expenses include interest, rent, taxes, and salaries.,A liability-expense account relationship exists with accrued expenses.,2. The basic of adjusting entries,7) Accrued Expenses,Accrued Expenses,Liability account,liabilities are understated,Cr.,expenses
21、are understated,Expenses account,Dr.,2. The basic of adjusting entries,7) Accrued Revenues,F. Assume Schwenk Catering incurs salaries of $4000 during the last week of October that will be paid in November.The adjusting entry at October 31 is:,Salaries Expense - 4000 Salaries Payable -4000,2. The bas
22、ic of adjusting entries,Summary,Each adjusting entry affects one balance sheet account and one income statement account.,Impact on Financial statement of Failure to Prepare Adjustment,Impact on Financial statement of Failure to Prepare Adjustment,3. Adjusted Trial Balance,After all adjusting entries
23、 have been journalized and posted an adjusted trial balance is prepared.,This trial balance shows the balances of all accounts, including those that have been adjusted, at the end of the accounting period.,The purpose of an trial balance is to prove the equality of the total debit balances and the t
24、otal credit balances in the ledger.,The accounts in the adjusted trial balance contain allData that are needed for the preparation of financial statements.,Exercise,True or False1. Monthly and quarterly time periods are commonly referred to as fiscal periods.2.Payments of expenses that will benefit
25、more than one accounting period are referred to as prepaid expenses.,True or False,3. Cost less accumulated depreciation is a measurement of the current value of an asset such as equipment or a building.4.A contra-asset account is an account whose balance is deducted from a related asset in the fina
26、ncial statements.,True or False,5. The adjusting entry for unearned revenues results in a debit to an asset account and a credit to a revenue account.6. An adjusting entry always involves two balance sheet accounts.,True or False,7.Accrued revenues are revenues which have been received but not yet e
27、arned.8.The balance of the Depreciation Expense and the Accumulated Depreciation accounts should always be the same.,True or False,9.Accrued revenues are revenues that have been earned and received before financial statements have been prepared.,Choice,1.The recording of wages earned but not yet pai
28、d is an example of an adjustment thatA recognizes an accrued expense.B recognizes an unrecorded revenue.C apportions revenues between two or more periods.D apportions costs between two or more periods.,Choice,2.A list of the accounts and their balances after all adjustments have been made is known a
29、sA adjusting entries.B adjusted trial balance.C book values.D accrued accounts.,Choice,3.Prior to recording of adjusting entries, revenues exceed expenses by 50000.Adjusting entries for accrued wages of 10000 and depreciation expense of 10000 were made. Net income for the year would beA 40000.B 6000
30、0.C 30000.D none of the above.,Choice,4.The adjustment for depreciation is an example of A recognizing an accrued expense.B apportioning costs between two or more periods.C apportioning revenues between two or more periods.D recognizing an unrecorded revenue.,Choice,5. Businesses could choose fiscal
31、 years which correspond toA the calendar year.B any twelve-month period.C their natural business year.D any of the above.,Choice,6. Management usually desires _ financial statements and the IRS requires all business to file _ tax returns.A, annual, annualB, monthly, annualC, quarterly, monthlyD, mon
32、thly, monthly,Choice,7. In general, the shorter the time period, the difficulty of making the proper adjustments to accountsA, is increasedB, is decreasedC, is unaffectedD, depends on if there is a profit or loss,Choice,8.The fiscal year of a business is usually determined byA, the IRSB, A lotteryC,
33、 the businessD, the SEC,Choice,9.A company spends 2 million dollars to build a restaurant. Over what period should the cost be written off?A, When the 2 million is expended in cashB, All in the first yearC, over the useful life of the buildingD, after 2 million in revenue is earned,Matching,A .Time
34、period assumptionB. Fiscal yearC. Revenue recognition principleD. Prepaid expensesE. Matching principle,F. Accrued revenuesG. DepreciationH. Accumulated depreciationI. Accrued expensesJ. Book value,Matching,_1.A twelve-month accounting period_2.Expenses paid before they are incurred._3.Cost less acc
35、umulated depreciation_4.Divides the economic life of a business into artificial time periods,Matching,_5.Efforts are related to accomplishments._6.A contra asset account._7.Recognition of revenue when it is recorded when earned_8.Revenues earned but not yet received,Matching,_9.Expenses incurred but not yet paid_10.A cost allocation process.,
