Understanding the business Management is responsible for preparing Financial Statements High Quality Relevance Reliability useful to investors and creditors ACCT 240 004 9 13 Accounting Cycle During the period Analyzing transactions Recording journal entries Post amounts to general ledger At end of period Adjust Revenues and expenses Prepare financial statements Disseminate statements to users Close revenues gains expenses and losses to retained earnings Unadjusted trial balance A list of individual accounts formatted as T Accounts before now listed simply as balances Ending debit or credit balances listed in columns Debits should equal credits Revenues are recorded when earned expenses when incurred Adjustments are needed to correct inaccuracies resulting from passage of time such as interest Adjusting Revenue Deferred revenue Previously recorded liabilities that were created when cash was received in advance must be reduced for amount of revenue actually earned since payment Accrued Revenues Revenues earned but not yet paid Adjusting Expenses Deferred expenses Previously recorded assets that were created when cash was paid in advance must be reduced for amount of expense actually used since payment Accrued expenses Expenses that are incurred but were not recorded because cash will be paid after goods or services used In class book Activity E4 3 a Wage Expense Debit 7k Wages Parable 7k b Interest Receivable 2k Interest Revenues 2k Revenue When revenue earned Deferred revenue If cash was received and previously recorded Unearned revenue L Revenue R SE or Accrued Revenue if cash will be received Receivable A Revenue R SE Expenses When expense incurred Deferred Expense If cash paid and previously recorded Expense E SE Prepaid Expense A or Accrued Expense If cash will be paid Expense E SE Prepaid Expense A Example IF Papa John s had already been paid FFee then earned it you d have this Unearned Franchise Fee L 1100 Franchise Fee Revenue R 1100 See powerpoint for other examples written out Exercise 4 4 pg 201 a Insurance Expense 3600 8 450 Prepaid Insurance Expense 450 b Supplies Expense 60k 11k 20k 51k Supplies 51k Exercise 4 6 a Wages Expense 2700 Wages Payable 2700 b Supplies Expense 450 500 275 675 Supplies 675 c Rent Receivable 560 2 1120 Rent Revenue 1120 d Depreciation Expense 12 100 Accrued depreciation 12 100 e Insurance expense 600 Prepaid insurance expense 600 f Unearned revenue 3200 Rent Revenue 3200 g Accounts receivable 800 Revenue 800