ACCTNG 2400 1st Edition Lecture 12 Outline of Last Lecture I. Multi-step Income Statement II. Expense initial journal entryOutline of Current Lecture I. Chapter 4!a. Accounting Cycleb. Closing processi. Temporary accountsc. Why adjustments are neededd. Depreciatione. Types of adjustmentsi. Deferralii. AccrualCurrent LectureII. Accounting Cycle (FROM BEGINNING TO END – THEN IT STARTS OVER)a. During the periodi. Transaction source documentsii. Transaction analysisiii. Record in journaliv. Post to ledgerb. At period endi. Unadjusted trial balanceii. Record and post adjustment entriesiii. Adjusted trial balanceiv. Financial statementsThese 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.c. At Year endi. Close temporary accountsii. Post-closing trial balanceIII. Closing processa. Temporary Accounts – revenues, expenses and dividends that start counting at the beginning of each periodb. At the end of the period (the closing process)i. Transfer revenues, expenses, and dividends declared into retained earnings (a permanent balance sheet account)ii. Zero-out all of the temporary accountsIV. Why adjustments are neededa. Problem: some revenues earned and expenses incurred are not recorded during normal day-to-day business operationsb. Solution: adjust accounting records at the end of the period to appropriately state revenues, expenses, assets, and liabilitiesV. Depreciation – a decrease in value of assets over timea. Don’t record the expense of equipment or buildings all at one, you alter the value of the expense account used on that item each monthVI. Types of adjustmentsa. Deferral – record revenues and expenses that had earlier been deferred:i. Cash was collected but revenue hadn’t been earned so an unearned revenue liability was recordedii. Cash was paid but expenses hadn’t been incurred so a prepaid expense asset was recordedb. Accrual – record revenues earned and expenses incurred for which cash has not been exchangedi. Revenues are recorded with a receivable assetii. Expenses are recorded with a payable
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