ww

ob w.u

-b
ww
om

ob w.u

-b
ww
om

ob w.u

-b
w
m

.uob ww

-b

ob w.u w w
om
ww w

-b

w ww

.uo

h.c b-b

o w.u w w

h.c b-b

w ACCOUNTING, 4E www.u ww
Chapter 3 Notes

h.co b .uob

h.c b-b

.c -bh b o .u

om

.com .com h h b b .uob Accounting Methods: .uob w w ww ww

h.c b-b om

Accrual Basis Accounting - revenues and expenses are recorded when revenue is earned or when expenses are incurred whether or not cash is received or paid.

o w.u w w

.com h b b-

w.u ww

.com h b ob-

o w.u w w

h.c b-b

om

o w.u w w

.com .com .com .com h h h h b b b b ob-is either received or .uobCash Basis Accounting cash .uob - revenues and expenses .uobare not recorded until .u w w w w paid. ww ww ww ww
h.c b-b om

om .com .cConcepts: .com .com Accounting Principles and h h h h b b b b .uob .uob .uob .uob w w w w wrecord revenues and for ww - the basis for whenw ww ww Revenue Principle to how much
.c -bh b o .u

w ww

.uo

w ww

Matching of all expenses during an accounting period that were incurred in om Principle - recording om .cfor .com .com h h h earning the revenues the same period. b b b bbbTime Period Concept - ensures that accounting information is reported at regular intervals.

w ww

.uo

w.u ww

w.u ww

w ww

.uo

h.c b-b

om

.com .com h h b b - Adjusting Entries: ob.uob w w.u ww ww

Adjusting entries can be divided into five categories: (1) Deferred (Prepaid) Expenses m (2) Depreciation of assets o om .c .c .com h h h b b b b(3) Accrued .uob .uoExpenses .uob w w w w (4) w Accrued Revenues ww ww (5) Deferred (Unearned) Revenues Questions when doing adjusting entries: .com to ask yourself .com .com h h h b b b b- current balance? .uob(1) What .is the uo .uob w w w w should the balance be? (2) w What ww ww (3) How much is the adjustment?

w ww

.uo

h.c b-b

om
w ww .uo

.com h b b-

w ww

.uo

h.c b-b

om

w.u ww

h.c b-b

om
w ww

.c -bh b o .u

om

o w.u w w

h.c b-b

om
ww w

.c -bh b o .u

om

w ww

.uo

h.co b b

m
w ww .uo

h.c b-b

om
w ww
om
w ww .uo

.uo

h.c b-b

om
w.u ww

bh.c ob-

om
w ww
m
w ww .uo

.uo

h.c b-b

om

w ww

.uo

.com h b b-

w ww

.uo

h.c b-b

.com h b b-

Page 1

o w.u w w

h.co b b

h.c b-b

om

w ww

.uo

h.co b b

m
w.u ww o

.com h b b-

w.u ww

h.c b-b

om
w.u ww o

h.c b-b

om
w ww .uo

.com h b b-

ww

ob w.u

-b
ww
om

ob w.u

-b
ww
om

ob w.u

-b
w
m

.uob ww

-b

ob w.u w w
om
ww w

-b

w ww

.uo

h.c b-b

o w.u w w

h.c b-b

w ACCOUNTING, 4E www.u ww
Chapter 3 Notes

h.co b .uob

h.c b-b

.c -bh b o .u

om

.com .com .com .com .com h h h h h b b b b b - assets that are paid b- in advance and then - includes miscellaneous ob.uob Deferred (Prepaid) .uExpenses .uob .uofor .uob w w w w w w expire or get used up in the near future. Debit an expense and credit the prepaid ww ww ww waccount ww
asset account. (Examples include Rent, Insurance, and Supplies)

o w.u w w

h.c b-b

om Adjusting Journal h entry: .com b .uob w ? ww Expense

Prepaid Asset

w $xxx ww

.uo

h.c b-b

om

.uo w w the value w of the asset

that was used up

h.c b-b

om
w ww .uo

h.co b b

$xxx

w ww

.uo

.com h b b-

oa plant asset's cost to an o o Depreciation ofw Plant of is .uo Assets - the allocation w.u w.uexpense account as it w.u w w w w w a contra-asset account. w usedw over its useful life. Debitw an expense account and credit

.com h b b-

h.co b b

h.c b-b

om

h.c b-b

om

w ww

.c -bh b o .u

ww

b obu . w

h.

Why use Accumulated Depreciation instead of just crediting account? om om the original asset h .com .cthe .com .com h h h (1) If the original asset account was used then original cost of the asset would not be b b b b b.uoin .uob .uob .uob reflected any of the asset accounts. w w w w w w wwhen ww ww (2) w The original cost is needed assets are sold or disposed (3) The original cost of the asset must be reported on the income tax return of the m company co com com com com

. -bh b o w.u Adjusting ww Journal entry:

Depreciation Expense,

ww

bh obu . w

ww
$xxx

obw.u

bh.

ww

.uob

bh.

om $xxx Accumulated .com .cDepreciation, .com .com h h h h b b b b .uob .uob .uob .uob w w w w w them Accrued Expenses pay ww ww - Expenses that a business ww incurs before they w
h.c b-b om
w ww
? Debit an expense account and credit a liability account (Examples include Wages and Interest)

w ww

.c -bh b o .u

om

w ww

.uo

Adjusting . Journal uo Entry:

.com h b b-

w ww

.uo

h.c b-b

om

o w.u w w

h.c b-b

om
ww w

.c -bh b o .u

om

w ww

.uo

h.co b b

m
w ww

Expense ? Payable m

$xxx

.uo

h.c b-b

w ww
om
w ww

.uo

h.c b-b

for the amount $xxx owed m

w.u ww

bh.c ob-

om
w ww
m
w ww .uo

.uo

h.c b-b

om

w ww

.uo

.com h b b-

w ww

.uo

h.c b-b

.uo

.com h b b-

Page 2

o w.u w w

h.co b b

h.c b-b

om

w ww

.uo

h.co b b

m
w.u ww o

.com h b b-

w.u ww

h.c b-b

om
w.u ww o

h.c b-b

om
w ww .uo

.com h b b-

ww

ob w.u

-b
ww
om

ob w.u

-b
ww
om

ob w.u

-b
w
m

.uob ww

-b

ob w.u w w
om
ww w

-b

w ww

.uo

h.c b-b

o w.u w w

h.c b-b

w ACCOUNTING, 4E www.u ww
Chapter 3 Notes

h.co b .uob

h.c b-b

.c -bh b o .u

om

.com .com .com .com .com h h h h h b b b b b b-o revenues that a businessu earned but has not yet payment for. uobobob.uob Accrued Revenues .u . has .ureceived w w w w w. w Debit an asset account account. ww ww ww and credit a revenuew ww
(Examples include Interest)

o w.u w w

h.c b-b

om Adjusting Journal h Entry: .com b .uob w Receivable ww

Revenue

o w.u w $xxx w

h.c b-b

om
w.u ww o

h.c b-b

om
w ww .uo

h.co b b

$xxx

com .com (Unearned) Revenues .com .customers .comby the .com Deferred cash collected from before work is done h h h h h b b b b b boprovide uob business. business has a liability to a product orw service .uob .The .u .uob to the customer. w.uob w w w ww ww ww a revenue account. ww ww Debit a liability account and credit
.c -bh b o .u
Entry: om Adjusting Journal h .com b uob .Revenue Unearned w wwRevenue

w ww

$xxx w.u ww $xxx

h.c b-b

om
o

for thew value w.u of services w or products provided

h.c b-b

om
w ww .uo

h.c b-b

om

.com .com .com .com .com h h h h h b b b b b - Adjusted Trial Balance - with their adjusted balances. These amounts obob-- a list of all ledger accounts .uob .u .uob .uob w w w w w.u are used in creating the financial statements. ww ww ww ww ww
h.co b .uob ww
h.c b-b

m
w ww

.c -bh b o .u

om
w ww .uo

h.c b-b

om
w.u ww o

h.c b-b

om
w ww

.c -bh b o .u

om

om
w ww
m
w ww

w ww

.uo

.uo

.com h b b-

w ww

.uo

h.c b-b

om
o w.u w w

h.c b-b

om
ww w

.c -bh b o .u

om

w ww

.uo

h.co b b

.uo

h.c b-b

om
w ww
om
w ww .uo

.uo

h.c b-b

om
w.u ww

bh.c ob-

om
w ww
m
w ww .uo

.uo

h.c b-b

om

w ww

.uo

.com h b b-

w ww

.uo

h.c b-b

.com h b b-

Page 3

o w.u w w

h.co b b

h.c b-b

om

w ww

.uo

h.co b b

m
w.u ww o

.com h b b-

w.u ww

h.c b-b

om
w.u ww o

h.c b-b

om
w ww .uo

.com h b b-