中山大学：《基础会计学》（英文版）Lesson 4 Adjusting Accounts for Financial Statement

m中山大學管捏學院 经m00 BUSINESS SUN YAT-SEN UNIVERSIT Lesson 4 Adjusting Accounts for Financial statement Task team off NJA/EANAIL ALO JANAVA School of business, Sun Yat-sen University

Lesson 4 Adjusting Accounts for Financial Statement Task Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Yat-sen University

Outline Q Describe the purpose of adjusting accounts at the end of the period Q Prepare and explain adjusting entries for prepaid expenses, amortization, unearned revenues, accrued expenses, and accrued revenues。 Q Explain how accounting adjustments link to financial statements Explain and prepare an adjusted trial balance Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity

2 Outline ⧫Describe the purpose of adjusting accounts at the end of the period. ⧫Prepare and explain adjusting entries for prepaid expenses, amortization, unearned revenues, accrued expenses, and accrued revenues. ⧫Explain how accounting adjustments link to financial statements. ⧫Explain and prepare an adjusted trial balance

Review: Time period concept Definition the continued life of a business is divided into time periods of equal length. Dec 31. bls date Dec 31, B/S date Last year income This year income Next year income statement statement statement Past Current Future period period period going concern (business will not stop) Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity 3

3 ⧫ Definition: the continued life of a business is divided into time periods of equal length. Review: Time period concept This year income statement Next year income statement Last year income statement Past period Current period Future period Dec. 31, B/S date Dec. 31, B/S date going concern (business will not stop)

Review: Revenue Recognition Principle C Revenue is recorded at the time it is earned regardless of whether cash or another asset has been exchanged )$ L ￥ Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity

4 Review: Revenue Recognition Principle ⧫Revenue is recorded at the time it is earned regardless of whether cash or another asset has been exchanged

Review: Matching Principle Q Expenses are to be matched in the same accounting period as the revenues they helped to earn Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity 5

5 Review: Matching Principle ⧫Expenses are to be matched in the same accounting period as the revenues they helped to earn

Accrual and cash basis Q The accrual basis of accounting matches revenues earned with expenses incurred. C The cash basis matches revenues received with expenses paid. It is not satisfactory for most businesses because it results in financial statements that are not comparable from period to period, except when the amounts of prepaid, unearned and accrued items are not material Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity

6 Accrual and cash basis ⧫The accrual basis of accounting matches revenues earned with expenses incurred. ⧫The cash basis matches revenues received with expenses paid. It is not satisfactory for most businesses because it results in financial statements that are not comparable from period to period, except when the amounts of prepaid, unearned, and accrued items are not material

Adjust: A Step in Accounting cycle 1. Analyze Transactions Now that we have covered the trial 2. Journalize balance, lets discuss adjusting 3. Post entries 4. Unadjusted trial balance 5, Adjust Adjust 6. Adjusted trial balance entries 7. Prepare finance statements 8. Close Task Team of FUNDAMEntALaCCOUNtING Business Sehool. Sun )af sen University 7

7 Adjust: A Step in Accounting cycle 1. Analyze Transactions 2. Journalize 3. Post 4. Unadjusted trial balance 5. Adjust 6. Adjusted trial balance 7. Prepare finance statements 8.Close Now that we have covered the trial balance, let’s discuss adjusting entries

Why Need to Adjust Q Some events are not evidenced by the obvious documents the effects of these events are recorded at the end of the accounting period by means of adjusting entries. The purpose of adjusting the accounts at the end of period is to make the accounting information comparable from period to period. Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity

8 Why Need to Adjust ⧫ Some events are not evidenced by the obvious documents. the effects of these events are recorded at the end of the accounting period by means of adjusting entries. ⧫ The purpose of adjusting the accounts at the end of period is to make the accounting information comparable from period to period

Why Need to Adjust Adjustments are based on three generally accepted accounting principles a Time period principle. a Revenue recognition principle. a Matching principle, Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity

9 Why Need to Adjust ⧫ Adjustments are based on three generally accepted accounting principles:  Time period principle.  Revenue recognition principle.  Matching principle

Type of Adjusting Entries Accruing unrecorded Converting liabilities to revenues revenues Adjusting entries Accruing unrecorded Converting assets to expenses expenses Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity 0

10 Type of Adjusting Entries Adjusting entries Accruing unrecorded revenues Converting liabilities to revenues Accruing unrecorded expenses Converting assets to expenses