Financial accounting 12th warren duchac chapter 03

The Adjusting Process Chapter Student Version These Theseslides slidesshould shouldbe beviewed viewedusing usingthe thepresentation presentation mode mode(click (clickthe the icon icontotostart startpresentation) presentation) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Prepared by: C Douglas Cloud Professor Emeritus of Accounting Pepperdine University Learning Objective 1 Describe the nature of the adjusting process © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Nature of the Adjusting Process The accounting period concept requires that revenues and expenses be reported in the proper period Under the accrual basis of accounting, revenues are reported on the income statement in the period in which they are earned © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Nature of the Adjusting Process  The accounting concept supporting the reporting of revenues when they are earned regardless of when cash is received is called the revenue recognition concept  The accounting concept supporting reporting revenues and related expenses in the same period is called the matching concept, or matching principle © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Nature of the Adjusting Process  Under the cash basis of accounting, revenues and expenses are reported on the income statement in the period in which cash is received or paid  Under the accrual basis of accounting, some of the accounts need updating at the end of the accounting period © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO The Adjusting Process  The analysis and updating of accounts at the end of the period before the financial statements are prepared is called the adjusting process  The journal entries that bring the accounts up to date at the end of the accounting period are called adjusting entries © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Types of Accounts Requiring Adjustment Prepaid expenses are the advance payment of future expenses and are recorded as assets when cash is paid  Unearned revenues are the advance receipt of future revenues and are recorded as liabilities when cash is received © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Types of Accounts Requiring Adjustment  Accrued revenues are unrecorded revenues that have been earned and for which cash has yet to be received  Accrued expenses are unrecorded expenses that have been incurred and for which cash has not yet been paid © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Learning Objective Describe the nature of the adjusting process Journalize entries for accounts requiring adjustment © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Prepaid Expenses NetSolutions’ supplies account has a balance of $2,000 on the unadjusted trial balance Some of these supplies have been used On December 31, a count reveals that the amount of supplies on hand is $760 Supplies (balance on trial balance) $2,000 Supplies on hand, December 31 – 760 Supplies used $1,240 © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Learning Objective 1.Describe the nature of the adjusting process 2.Journalize entries for accounts requiring adjustment 3.Summarize the adjustment process © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Adjusting Entries Adjusting Entries—NetSolutions (continued) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Adjusting Entries Adjusting Entries—NetSolutions (concluded) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Ledger with Adjusting Entries (continued) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Ledger with Adjusting Entries Ledger with Adjusting Entries─ NetSolutions (continued) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Ledger with Adjusting Entries Ledger with Adjusting Entries─ NetSolutions (continued) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Ledger with Adjusting Entries Ledger with Adjusting Entries─ NetSolutions (concluded) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Learning Objective Describe the nature of the adjusting process Journalize entries for accounts requiring adjustment Summarize the adjustment process Prepare an adjusted trial balance © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Adjusted Trial Balance The purpose of the adjusted trial balance is to verify the equality of the total debit and credit balances before the financial statements are prepared © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Adjusted Trial Balance Adjusted Trial Balance © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Learning Objective Describe the nature of the adjusting process Journalize entries for accounts requiring adjustment Summarize the adjustment process Prepare an adjusted trial balance Describe and illustrate the use of vertical analysis in evaluating a company’s performance and financial condition © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Vertical Analysis Comparing each item in a financial statement with a total amount from the same statement is referred to as vertical analysis © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Vertical Analysis $12,500 $187,500 = 067 or 6.7% © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Vertical Analysis $3,000 $150,000 = 02 or 2% © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use The Adjusting Process The End Student Version Prepared by: C Douglas Cloud Professor Emeritus of Accounting Pepperdine University © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use ... Nature of the Adjusting Process The accounting period concept requires that revenues and expenses be reported in the proper period Under the accrual basis of accounting, revenues are reported... Adjusting Process  The accounting concept supporting the reporting of revenues when they are earned regardless of when cash is received is called the revenue recognition concept  The accounting concept... Under the cash basis of accounting, revenues and expenses are reported on the income statement in the period in which cash is received or paid  Under the accrual basis of accounting, some of the