The Adjusting Process Objective 1 Accrual Basis Vs. Cash Basis S3-1 Accounting Period

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The Adjusting Process Objective 1 Accrual Basis Vs. Cash Basis S3-1 Accounting Period

Hansen, Ben, Executive Editor has reference to this Academic Journal, PHwiki organized this Journal The Adjusting Process Chapter 3 Objective 1 Distinguish accrual accounting from cash-basis accounting Accrual Basis Vs. Cash Basis Accrual Basis Revenues are recognized when earned in addition to expenses are recognized when incurred. Cash Basis Revenues are recognized when cash is received in addition to expenses recorded when cash is paid.

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S3-1 Service revenue: Cash basis $600 Accrual basis (600+500) $1,100 Accounting Period Managers adopt an artificial period of time to evaluate per as long as mance Monthly Quarterly Semiannually Annually Recognizing Revenues in addition to Expenses Three new basic accounting principles Revenue Recognition Matching Time Period

Objective 2 Apply the revenue in addition to matching principles Revenue Principle When is revenue recognized When it is earned Not necessarily when cash is received How much revenue should be recognized Cash value of item transferred to customer S3-3 When should revenue be recorded When the magazines are mailed to customers How much revenue should be recorded As of March, three month’s revenue should be recognized

The Matching Principle Measure all expenses incurred during the accounting period When are expenses recognized Match the expenses against the revenues earned during the period Adjusting Entries At the end of an accounting period, ask yourself these questions: Have I recorded all revenues earned during this accounting period Have I recognized all expenses incurred during this accounting period If the answer is “No”, you need to prepare an adjusting entry S3-4 Jan 1 – Paid rent as long as the entire year Jan 1 Prepaid Rent 3,600 Cash 3,600 Prepaid rent as long as 1 year Prepaid rent is an asset – this will benefit the company in the future. Since you have not occupied the apartment yet, it is not an expense yet

S3-4 Prepaid Rent Jan 1 3,600 300 Jan 31 300 Feb 28 300 Mar 31 300 Apr 30 300 May 31 300 Jun 30 300 Jul 31 300 Aug 31 300 Sep 30 Bal 900 Rent Expense 300 300 300 300 300 300 300 300 300 Bal 2,700 Each month, we’ll recognize rent expense; in addition to each month, we’ll reduce the prepaid account until the year is over The Time Period Concept Requires that accounting in as long as mation be reported at regular intervals Adjusting Entries Prepared at end of an accounting period Recorded to bring an asset or liability account balance to its proper amount Recognize all revenues when earned Recognize all expenses incurred

Objective 3 Make adjusting entries Adjusting Entries At the end of an accounting period, ask yourself these questions: Have I recognized all revenues earned this period Have I recorded all expenses incurred this period If the answer is “No”, you need to prepare an adjusting entry Adjusting Entries Five categories Prepaid expenses Depreciation Accrued revenues Accrued expenses Unearned revenues

Adjusting Prepaid Expenses Resources paid as long as prior to receiving the actual benefits S3-5 Apr 1 Prepaid Rent 3,000 Cash 3,000 Prepaid rent as long as 6 months 4/1 3,000 S3-5 Apr 30 Rent Expense 500 Prepaid Rent 500 To record rent as long as April 4/1 3,000 4/30 500 Rent Expense 4/30 500 Bal 2,500 Rent is $500 per month ($3,000/6)

Adjusting as long as Depreciation Depreciation – process of allocating the cost of a plant asset to expense over its expected useful life Long term plant assets except as long as l in addition to are depreciated S3-6 May 1 Computer Equipment 36,000 Cash 36,000 Purchased computer 5/1 36,000 Computer Equipment Depreciation Depreciation, as long as accounting purposes, is not an attempt to assign a market value to assets It is merely a systematic way of allocating some of the cost of the asset to each period that asset helps the company earn revenue Accumulated Depreciation A contra asset account Represents the amount of depreciation that has been taken over the life of the asset to date

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S3-6 May 31 Depreciation Expense, Computer Equipment 1,000 Accumulated Depreciation, Computer Equipment 1,000 To record depreciation as long as May Accumulated depreciation is a contra asset account Income Statement Account Balance Sheet Account S3-6 5/31 1,000 Accumulated Depreciation, Computer Equipment 5/31 1,000 Depreciation Expense, Computer Equipment Bal 1,000 5/1 36,000 Computer Equipment Bal 1,000 Book Value Reported on balance sheet Cost minus accumulated depreciation

S3-6 Your Company Balance Sheet May 31, 20XX Assets Cash $XXXX Computer Equipment $ 36,000 Less: Accumulated Depreciation (1,000) 35,000 Total Assets $XXXX Book Value S3-6 Your Company Balance Sheet June 30, 20XX Assets Cash $XXXX Computer Equipment $ 36,000 Less: Accumulated Depreciation (2,000) 34,000 Total Assets $XXXX Book Value Notice: accumulated depreciation increases each accounting period. The book value gradually gets smaller Accrued Expenses Costs incurred in a period that are both unpaid in addition to unrecorded

Balance Sheet Accounts End of Chapter 3

Hansen, Ben Executive Editor

Hansen, Ben is from United States and they belong to Chino Valley Review and they are from  Prescott, United States got related to this Particular Journal. and Hansen, Ben deal with the subjects like Local News

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