ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 4

7/23/2019 ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 4

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Adjustments, FinancialAdjustments, Financial

Statements, and the Quality ofStatements, and the Quality ofEarningsEarningsChapter 4

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Accounting Cycle

Prepare financialstatements. Disseminate

statements tousers.

Prepare financialstatements. Disseminate

statements tousers.

Close revenues,

gains, expenses, and

losses to Retained

Earnings.

Close revenues,

gains, expenses, and

losses to Retained

Earnings.

During the period: Analyze transactions. Record ournal entries. Post amounts to general

ledger.

During the period: Analyze transactions. Record ournal entries. Post amounts to general

ledger.

At the end of the period: Adust revenues and

expenses.

At the end of the period: Adust revenues and

expenses.

!tart of Period



McGraw!ill"#rwin !lide "

(ypes of Adjustments

(here are four types of adjustments)

ExpensesExpenses

ExpensesExpenses

3. Prepaid

Expenses.

4. Accrued

Expenses.

3. Prepaid

Expenses.

4. Accrued

Expenses.

RevenuesRevenues

RevenuesRevenues

1. Unearned

Revenues.

2. Accrued

Revenues.

1. Unearned

Revenues.

2. Accrued

Revenues.



McGraw!ill"#rwin !lide #

End ofaccounting period.

Cash received. Revenues earned.

Example includes rent received inExample includes rent received inadvance an unearned revenue!.advance an unearned revenue!.

Example includes rent received inExample includes rent received inadvance an unearned revenue!.advance an unearned revenue!.

*nearned +eenues



McGraw!ill"#rwin !lide $


Cash receivedRevenues earned

Example includes interest earned

during the period accrued revenue!.

Example includes interest earned

during the period accrued revenue!.

Accrued +eenue



McGraw!ill"#rwin !lide %


Cash paid.

Examples include prepaid rent"Examples include prepaid rent"advertising" and insurance.advertising" and insurance.

Examples include prepaid rent"Examples include prepaid rent"advertising" and insurance.advertising" and insurance.

-repaid E.penses

Expense incurred.


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Accrued E.penses

As of /%"%0"&', 1enton, #nc) had already paidAs of /%"%0"&', 1enton, #nc) had already paid2/,'&&,&&& in wages for the year) 1enton pays its2/,'&&,&&& in wages for the year) 1enton pays its

employees eery Friday) 3earend, /%"/"&', falls on aemployees eery Friday) 3earend, /%"/"&', falls on a

5ednesday) (he employees hae earned total wages of5ednesday) (he employees hae earned total wages of

26&,&&& for Monday through 5ednesday of the wee726&,&&& for Monday through 5ednesday of the wee7

ending /"&%"/&)ending /"&%"/&)



Certain circumstances re8uireadjusting entries to record

accounting estimates)E.amples include ) ) )1epreciation

9ad de:ts #ncome ta.es

Certain circumstances re8uireadjusting entries to recordaccounting estimates)

E.amples include ) ) )1epreciation

9ad de:ts #ncome ta.es

Accrued E.penses #noling Estimates



#he income

statementcontains

revenues and

expenses.

#he income

statement

contains

revenues and

expenses.

Earnings PerEarnings Per

$hare EP$! must$hare EP$! must

%e reported on%e reported on

the incomethe incomestatement.statement.

Earnings PerEarnings Per

$hare EP$! must$hare EP$! must

%e reported on%e reported on

the incomethe incomestatement.statement.


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Statement of Stoc7holders; E8uity<et income appears on the statement of stoc7holders;

e8uity as an increase in +etained Earnings)

)rom the

*ncome

!tatement


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9alance Sheet = >ia:ilities ?Stoc7holders; E8uity

&rom the&rom the

$tatement of$tatement of

$toc'holders($toc'holders(

E)uit*.E)uit*.

&rom the&rom the

$tatement of$tatement of

$toc'holders($toc'holders(

E)uit*.E)uit*.


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Closing the 9oo7s

Een though the:alance sheet

account :alances

carry forward fromperiod to period,

the incomestatement accounts

do not )

Closing entries@Closing entries@

/)/) (ransfer net income or (ransfer net income or

lossB to +etainedlossB to +etained

Earnings)Earnings)

%)%) Esta:lish a ero :alanceEsta:lish a ero :alance

in each of thein each of the

temporary temporary accounts toaccounts to

start the ne.t accountingstart the ne.t accountingperiod)period)

Closing entries@Closing entries@

/)/) (ransfer net income or (ransfer net income or

lossB to +etainedlossB to +etained

Earnings)Earnings)

%)%) Esta:lish a ero :alanceEsta:lish a ero :alance

in each of thein each of the

temporary temporary accounts toaccounts to

start the ne.t accountingstart the ne.t accounting

period)period)


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Closing the 9oo7s

(wo steps are used in the (wo steps are used in the

closing process ) ) )closing process ) ) )

/)/)Close reenues and gainsClose reenues and gainsto +etained Earnings)to +etained Earnings)

%)%)Close e.penses and lossesClose e.penses and losses

to +etained Earnings)to +etained Earnings)


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-ostClosing (rial 9alance

After all temporary accounts have een closed, -e After all temporary accounts have een closed, -eprepare a postclosing trial alance. /nly assets,prepare a postclosing trial alance. /nly assets,

liailities, and stoc0holders1 e2uity accounts -ill appear. Allliailities, and stoc0holders1 e2uity accounts -ill appear. All

revenue, expense, gain and loss accounts -ill have a zerorevenue, expense, gain and loss accounts -ill have a zero

alance.alance.


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End of Chapter 4

ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 4

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