ACCT 200 1st Edition Lecture 5 Outline of Last Lecture II Timing Issues III The Basics of Adjusting Entries Outline of Current Lecture II The Basics of Adjusting Entries Continued III The Adjusted Trial Balance and Financial Statements IV Closing the Books Current Lecture Adjusting Entries for Accruals Action 1st Cash 2nd Made to record Revenue earned OR Expense incurred In the current accounting period that have not been recognized through daily entries Adjusting Entries for Accrued Revenues Revenues for services performed but not yet received in cash or recorded Adjusting entry results in Revenue recorded before cash receipt Accrued revenues often occur in regards to Rent Interest Services performed An adjusting entry serves two purposes Establishes accounts receivable expecting money These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Record revenue work is done earned performed and or completed Adjusting entries for accrued revenues A R asset increase in debit Rev Rev increase in equity credit Expenses incurred but not yet paid in cash or recorded Adjusting entries may result in Expense recorded action 1st before cash payment later Accrued expenses often occur in regard to Bills not yet paid Interest Taxes Salaries An Adjusting entry serves two purposes Record liability we owe obligation Recognize increases expense what was incurred Expenses increase equity decrease debit expense Liability increase credit payable The Adjusted Trial Balance After all adjusting entries are journalized and posted the company prepares another trial balance from the ledger accounts adjusted trial balance ATB The Adjusted trial balance s purpose is to prove that debits credits after adjustments The adjusted trial balance is the primary basis for the preparation of the financial statements Preparing Financial Statements Financial statements are prepared directly from the ATB Income statement Retained earning statement Balance sheet Closing the Books At the end of the accounting period after financial statements are issued companies transfer the temporary account balances to the permanent stockholder s equity account retained earnings Temporary accounts o Revenue expenses dividends start when 0 at a new period Permanent Accounts o Assets o Liability o Stockholders equity The purpose of the post closing trial balance is to prove the equality of the permanent account balances that the company carries forward into the next accounting period