BMGT220 Chapter 3 Notes Adjusting Process 9 22 13 subscription revenue recorded when earned earned when service delivered to customer many times cash received before service is provided making it unearned revenue accounting period concept divide economic life of the business into time periods and requires that revenues and expenses be reported in the proper period GAAP Generally Accepted Accounting Principles GAAP requires accrual basis of accounting accrual basis of accounting revenues and expenses are reported in the income statement in the period in which they re earned or incurred revenue recognition concept supports providing revenues when the services are provided to customers matching concept principle expenses and revenues occurring at same time matched against each other so net income loss for that period is properly reported on INCOME STATEMENT cash basis of accounting revenues and expenses are reported on income statement in period where cash is received or paid net income difference between cash receipts revenues and cash payments expenses small business more likely to use cash basis adjusting process analysis and updating of accounts at the end of the period before the financial statements are prepared adjusting entries journal entries that bring the accounts up to date at the end of accounting period ALL adjustment entries affect AT LEAST 1 income statement and 1 balance sheet account adjustment entries will always involved revenue expense accounts AND assets liability accounts 4 Basic Types of Accounts Requiring Adjusting Entries 1 prepaid expenses 2 unearned revenue 3 accrued revenue 4 accrued expenses prepaid expenses unearned revenue accrued revenue which cash has yet to be received accrued expenses cash has yet to be paid assets when cash is paid liabilities when cash is received unrecorded revenues that have been earned and for unrecorded expenses that have been incurred and which fixed assets aka plant assets long term or relatively permanent tangible assets such as equipment machinery buildings and land that are used in normal business operations and that depreciate over time WITH THE EXCEPTION OF LAND fixed assets are a type of long term pre paid expense depreciation systematic periodic transfer of the cost of a fixed asset to an expense account during it s expected useful life depreciate to lose usefulness all fixed assets but land do depreciation expense depreciation expense account increased debited for amount of depreciation fixed asset account not decreased credited accumulated depreciation the contra asset account that s credited when recording the depreciation of a fixed asset contra asset accounts an account offset against another account book value of the asset net book value difference between cost of a fixed asset and it s accumulated depreciation depreciation ALLOCATION method not VALUATION method why market value of fixed asset is different from book value adjusted trial balance trial balance prepared after all the adjusting entries have been posted if total credits and total debits are not equal an error has occurred Vertical analysis an analysis that compared each item in a financial statement with a total amount within the same statement in vertical analysis each asset item state as of the total assets each liability stockholder equity expressed as a of total liabilities and stockholder equity on income statement each revenue and expense expresses as of total revenues or fees earned Key Chapter 3 Summaries updating of accounts at end of accounting period adjusting process summary of adjustments including type of adjustment reason for adjustment adjusting entry effect of omitting an adjustment on financial statement
View Full Document
Unlocking...