Nguyên lý kế toán - Chapter 4: Adjustments, financial statements, and financial results

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinChapter 4Adjustments, Financial Statements, and Financial ResultsPowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Fred Phillips, Ph.D., CASolution: Adjustments are made to the accounting records at the end of the period to state assets, liabilities, revenues, and expenses at appropriate amounts. Why Adjustments Are NeededHowever, cash is not always received in the period in which the company earns the related revenue; likewise, cash is not always paid in the period in which the company incurs the related expense.Accounting systems are designed to record most recurring daily transactions, particularly any involving cash.4-31. Deferral AdjustmentsAn expense or revenue has been deferred if we have postponed reporting it on the income statement until a later period.Sept. 1Sept. 30Use-up rent benefitsCash paid for rent in advanceAdjustment neededJan. 1Jan. 31Deliver subscription serviceCash received for subscription in advanceAdjustment needed4-41. Deferral AdjustmentsDeferral adjustments are used to decrease balance sheet accounts and increase corresponding income statement accounts. Each deferral adjustment involves one asset and one expense account, or one liability and one revenue account.4-52. Accrual AdjustmentsAccrual adjustments are needed when a company has earned revenue or incurred an expense in the current period but has not yet recorded it because the related cash will not be received or paid until a later period.Sept. 1Sept. 30Incur income taxesAdjustment neededJan. 1Jan. 31Earn interestAdjustment neededDec. 31Cash paid for income taxesMar. 31Cash received for interest4-62. Accrual AdjustmentsAccrual adjustments are used to record revenue or expenses when they occur prior to receiving or paying cash, and to adjust corresponding balance sheet accounts. Each accrual adjustment involves one asset and one revenue account, or one liability and one expense account.4-7Making Required AdjustmentsAdjustments are not made on a daily basis because it’s more efficient to do them all at once at the end of each period.4-8DepreciationAccumulated DepreciationBalance SheetDepreciation ExpenseIncome StatementNote 1Accumulated DepreciationTotal Amount DepreciatedEquipmentOriginal costNote 2Contra-AccountOpposes account it offsets Note 3Depreciation AmountDepends on method usedNote 44-9Partial Listing of T-accounts4-104-114-12Closing Temporary AccountsTransfer net income (or loss) and dividends to Retained Earnings.Establish zero balances in all income statement and dividend accounts. 4-13Temporary accounts track financial results for a limited period of time.Closing Temporary AccountsRevenuesExpensesDividendsTemporaryAccountsPermanent AccountsAssetsLiabilitiesEquityPermanent accounts track financial results from year to year.4-14Two closing journal entries are needed.Closing Temporary AccountsDebit Revenue accounts and credit Expense accounts. Debit or credit the difference to Retained Earnings.Credit Dividends Declared and debit Retained Earnings.4-15Post-Closing Trial BalanceFinal 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. 4-16End of Chapter 4