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KU ACCT 200 - Adjusting Entries

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ACCT 200 1st Edition Lecture 6 Outline of Last Lecture I. Cash AccountingII. Accrual AccountingIII. Matching Principle Outline of Current Lecture II. Adjusting EntriesIII. DeferralsIV. AccrualsCurrent LectureAdjusting Entries- Needed because accountants use accrual basis of accounting as opposed to cash basis accounting.- Adjusting entries are used because it adjusts expenses at the end of the period to reflectthe using up of a resource- There are two types of adjusting entries◦ Deferrals◦ AccrualsDeferrals- When the expense or revenue is recorded after the cash flow, it is called a deferral. (Cashis paid up front but the expense or revenue is being deferred to a later time)- Accounts needed: prepaid expenses, unearned revenue, and depreciation- Prepaid expenses is an asset account because it represents future benefit for the company not yet been used up. This is a balance sheet only transaction.- Remember that a transaction may affect the balance sheet OR the income statement.Deferrals-Depreciation- Depreciation: the systematic using up of equipment or other long lived assets.- At the end of the year, some portion of the asset is used up and incurring an expense.- In 2014, use of the word depreciation is not as great as a descriptor as it once was. Wasting away? It really means the allocation of cost to the useful life of the asset.***Accumulated Depreciation is a CONTRA-ASSETaccount tied to the equipment account and has a normal balance which is opposite of that account***- Prepaid Expenses = Assets (not an expense)- Unearned Revenue = Liability (not revenue)- Straight-line depreciation is the easiest and fastest way to calculate depreciationThese 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.Accruals- When an expense or revenue is recorded before the cash flow. (The expense or revenue is being accrued or accumulated until a later time when it will be paid)- Accrued revenue → earned now/cash later- Accrued expense → cash now/earn later- Deferred revenue → cash now/earn later- Deferred expense → pay now/incur laterConclusion- Adjusting entries are done at the end of the period while the books are being updated for that period- They help assure that appropriate revenue and expenses fall in the period just completed- Also help assure correct values for assets and liabilities- Adjusting entries are first entered to the General Journal and then posted to the General Ledger just like other transactions.- After adjusting entries are completed an adjusted trial balance is usually made. Financial statements can be prepared from this adjusted trial balance.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.


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