Kế toán, kiểm toán - Adjusting entries

Adjusting EntriesMeasuring Business IncomeAccounting period assumptionCash accounting versus accrual accountingMatching principleMateriality conceptAdjusting EntriesJournal entries that update the general ledger accounts to state revenues, expenses, assets, and liabilities more accuratelyInvolveOne balance sheet accountOne income statement accountNever cashAdjusting ProcessIdentify the accounts requiring adjustmentDetermine unadjusted balancesDetermine correct (adjusted) balances for each accountPrepare adjusting entry to bring accounts in agreement with adjusted balancesDeferralsA cash payment or receipt occurred in current periodMust defer a portion of expense or revenue until a future periodDeferralsTwo situationsPay a cost of benefit in advance and allocate cost as expenses to periods that receive benefitDeferralsTwo situationsPay a cost of benefit in advance and allocate cost as expenses to periods that receive benefitReceive a cash revenue in advance and allocate amounts as revenues to periods in which revenues earnedPrepaid InsuranceDec. 1, paid $600 for 12 month insurance premium recording as asset, Prepaid InsuranceAt Dec. 31Prepaid Insurance balance $600Insurance Expense balance $0Prepaid InsuranceAs of Dec. 31, one month’s insurance has expired and become expenseCorrect Dec. 31 balancePrepaid Insurance $550Insurance Expense $50Prepaid InsuranceAdjusting entryDebit Insurance Expense $50Increases Insurance Expense to correct balance $50Credit Prepaid Insurance $50Decreases Prepaid Insurance to correct balance $550Depreciation ExpenseSimilar to prepaid insurance but for long-term assetDecrease in asset not recorded in asset accountRecorded as increase in contra asset - Accumulated DepreciationDepreciation ExpenseBeforeAfterBalance SheetTrucksAccum Deprec$26,000400$26,000800Income StatementDepreciation expense$0$400Unearned RevenuesDec. 1, received $600 for 6 month rent recording as liability, Unearned RentAt Dec. 31Unearned Rent balance $600Rent Revenue balance $0Unearned RevenuesAs of Dec. 31, one month’s rent has been earned and become revenueCorrect Dec. 31 balanceUnearned Revenue $500Rent Revenue $100Unearned RevenuesAdjusting entryDebit Unearned Rent $100Decreases Unearned Rent to correct balance $500Credit Rent Revenue $100Increases Rent Revenue to correct balance $100AccrualsRecognize revenues and expenses that have accumulated (accrued) during the accounting period but have not been recordedAccrued RevenuesDec.11, received 30-day, 15% note from customer.At Dec. 31Interest Revenue balance $0Interest Receivable balance $0Accrued RevenuesAs of Dec. 31, 20 days interest has been earned and become revenue$1,200 x 0.15 x 20/360 = $10Correct Dec. 31 balanceInterest Revenue $10Interest Receivable $10Accrued RevenuesAdjusting entryDebit Interest Receivable $10Increases Interest Receivable to correct balance $10Credit Interest Revenue $10Increases Interest Revenue to correct balance $10Accrued ExpensesEmployees paid Friday for 5-day work week at $1,000 per weekAt Dec. 31, a TuesdayWages Expense balance $50,000 - represents past weeks wagesWages Payable balance $0Accrued ExpensesAs of Dec. 31, 2 days wages have been incurred and become expenseCorrect Dec. 31 balanceWages Expense $50,200Wages Payable $200Accrued ExpensesAdjusting entryDebit Wages Expense $200Increases Wages Expense to correct balance $50,200Credit Wages Payable $200Increases Wages Payable to correct balance $200Summarize AdjustmentsAnalyzing InformationUse questions to compare companiesIncome StatementWhich company has the higher revenues?Which company has the higher percentage change in revenues?Which company has the lower percentage of expenses to revenues?Balance SheetWhich company has the higher assets?What is the percentage change in assets for each company?Is the percent of total liabilities to total liabilities plus owners’ equity increasing or decreasing? Which company is more risky?Integrative AnalysisAre companies operating efficiently by using least amount of assets to generate a given level of revenues?Calculate total asset turnoverAre companies operating efficiently by using least amount of assets to generate a given net income?Calculate return on assets