財(cái)務(wù)會(huì)計(jì)（英文版原書(shū)第5版）課件

財(cái)務(wù)會(huì)計(jì)（英文版原書(shū)第5版）課件CHAPTER3ADJUSTINGTHEACCOUNTSFinancialAccounting,SixthEditionCHAPTER3ADJUSTINGTHEACCOUNTExplainthetimeperiodassumption.Explaintheaccrualbasisofaccounting.Explainthereasonsforadjustingentries.Identifythemajortypesofadjustingentries.Prepareadjustingentriesfordeferrals.Prepareadjustingentriesforaccruals.Describethenatureandpurposeofanadjustedtrialbalance.StudyObjectivesExplainthetimeperiodassumpAdjustingtheAccountsTimingIssuesTheBasicsofAdjustingEntriesTheAdjustedTrialBalanceandFinancialStatementsTimeperiodassumptionFiscalandcalendaryearsAccrual-vs.cash-basisaccountingRecognizingrevenuesandexpensesTypesofadjustingentriesAdjustingentriesfordeferralsAdjustingentriesforaccrualsSummaryofjournalizingandpostingPreparingtheadjustedtrialbalancePreparingfinancialstatementsAdjustingtheAccountsTheBasiGenerallyamonth,aquarter,orayear.Fiscalyearvs.calendaryearAlsoknownasthe“PeriodicityAssumption”TimingIssuesAccountantsdividetheeconomiclifeofabusinessintoartificialtimeperiods(TimePeriodAssumption).LO1Explainthetimeperiodassumption.Jan.Feb.Mar.Apr.Dec......Generallyamonth,aquarter,Thetimeperiodassumptionstatesthat:a. revenueshouldberecognizedintheaccountingperiodinwhichitisearned.b. expensesshouldbematchedwithrevenues.c. theeconomiclifeofabusinesscanbedividedintoartificialtimeperiods.d. thefiscalyearshouldcorrespondwiththecalendaryear.ReviewTimingIssuesLO1Explainthetimeperiodassumption.ThetimeperiodassumptionstaAccrual-BasisAccountingTransactionsrecordedintheperiodsinwhichtheeventsoccur.Revenuesarerecognizedwhenearned,ratherthanwhencashisreceived.Expensesarerecognizedwhenincurred,ratherthanwhenpaid.TimingIssuesAccrual-vs.Cash-BasisAccountingLO2Explaintheaccrualbasisofaccounting.Accrual-BasisAccountingTimingCash-BasisAccountingRevenuesarerecognizedwhencashisreceived.Expensesarerecognizedwhencashispaid.Cash-basisaccountingisnotinaccordancewithgenerallyacceptedaccountingprinciples(GAAP).TimingIssuesAccrual-vs.Cash-BasisAccountingLO2Explaintheaccrualbasisofaccounting.Cash-BasisAccountingTimingIsRevenueRecognitionPrincipleTimingIssuesRecognizingRevenuesandExpensesLO2Explaintheaccrualbasisofaccounting.Companiesrecognizerevenueintheaccountingperiodinwhichitisearned.Inaserviceenterprise,revenueisconsideredtobeearnedatthetimetheserviceisperformed.RevenueRecognitionPrincipleTMatchingPrincipleTimingIssuesRecognizingRevenuesandExpensesLO2Explaintheaccrualbasisofaccounting.Matchexpenseswithrevenuesintheperiodwhenthecompanymakeseffortstogeneratethoserevenues.“Lettheexpensesfollowtherevenues.”MatchingPrincipleTimingIssueTimingIssuesLO2Explaintheaccrualbasisofaccounting.GAAPrelationshipsinrevenueandexpenserecognitionIllustration3-1TimingIssuesLO2ExplaintheOneofthefollowingstatementsabouttheaccrualbasisofaccountingisfalse.Thatstatementis: Eventsthatchangeacompany’sfinancialstatementsarerecordedintheperiodsinwhichtheeventsoccur.Revenueisrecognizedintheperiodinwhichitisearned.Theaccrualbasisisinaccordancewithgenerallyacceptedaccountingprinciples.Revenueisrecordedonlywhencashisreceived,andexpenseisrecordedonlywhencashispaid.ReviewTimingIssuesLO2Explaintheaccrualbasisofaccounting.OneofthefollowingstatementAdjustingentriesmakeitpossibletoreportcorrectamountsonthebalancesheetandontheincomestatement.Acompanymustmakeadjustingentrieseverytimeitpreparesfinancialstatements.TheBasicsofAdjustingEntriesLO3Explainthereasonsforadjustingentries.AdjustingentriesmakeitpossRevenues

-recordedintheperiodinwhichtheyareearned.Expenses-recognizedintheperiodinwhichtheyareincurred.Adjustingentries

-neededtoensurethattherevenuerecognitionandmatchingprinciplesarefollowed.TheBasicsofAdjustingEntriesLO3Explainthereasonsforadjustingentries.Revenues-recordedintheperAdjustingentriesaremadetoensurethat:a. expensesarerecognizedintheperiodinwhichtheyareincurred.b. revenuesarerecordedintheperiodinwhichtheyareearned.c. balancesheetandincomestatementaccountshavecorrectbalancesattheendofanaccountingperiod.d. alloftheabove.ReviewTimingIssuesLO3Explainthereasonsforadjustingentries.AdjustingentriesaremadetoTypesofAdjustingEntriesDeferralsPrepaidExpenses.

Expensespaidincashandrecordedasassetsbeforetheyareusedorconsumed.UnearnedRevenues.Cashreceivedandrecordedasliabilitiesbeforerevenueisearned.AccrualsAccruedRevenues.Revenuesearnedbutnotyetreceivedincashorrecorded.AccruedExpenses.Expensesincurredbutnotyetpaidincashorrecorded.LO4Identifythemajortypesofadjustingentries.TypesofAdjustingEntriesDefeTrialBalance–Eachaccountisanalyzedtodeterminewhetheritiscompleteandup-to-date.TrialBalanceLO4Identifythemajortypesofadjustingentries.PIONEERADVERTISINGAGENCYINC.TrialBalanceOctober31,2008Account Debit CreditCash $15,200AdvertisingSupplies 2,500PrepaidInsurance 600OfficeEquipment 5,000NotesPayable $5,000AccountsPayable 2,500UnearnedRevenue 1,200CommonStock 10,000RetainedEarnings 0Dividends 500ServiceRevenue 10,000SalariesExpense 4,000RentExpense 900 $28,700 $28,700TrialBalance–EachaccountiDeferrals

areeither:PrepaidexpensesorUnearnedrevenues.AdjustingEntriesforDeferralsLO5 Prepareadjustingentriesfordeferrals.Deferralsareeither:AdjustinPaymentofcash,thatisrecordedasanassetbecauseserviceorbenefitwillbereceivedinthefuture.AdjustingEntriesfor“PrepaidExpenses”insurancesuppliesAdvertisingrentCashPaymentExpenseRecordedBEFORELO5 Prepareadjustingentriesfordeferrals.Prepaymentsoftenoccurinregardto:buildingpurchasesequipmentpurchasesPaymentofcash,thatisrecorPrepaidExpensesCoststhatexpireeitherwiththepassageoftimeorthroughuse.Adjustingentries(1)torecordtheexpensesthatapplytothecurrentaccountingperiod,and(2)toshowtheunexpiredcostsintheassetaccounts.AdjustingEntriesfor“PrepaidExpenses”LO5 Prepareadjustingentriesfordeferrals.PrepaidExpensesAdjustingEntrAdjustingEntriesfor“PrepaidExpenses”LO5 Prepareadjustingentriesfordeferrals.Illustration3-4AdjustingentriesforprepaidexpensesIncreases(debits)anexpenseaccountandDecreases(credits)anassetaccount.AdjustingEntriesfor“PrepaidExample(Insurance):

OnOct.4th,PioneerAdvertisingpaid$600foraone-yearfireinsurancepolicy.ShowthejournalentrytorecordthepaymentonOct4th.Cash600Prepaidinsurance600Oct.4DebitCreditPrepaidInsurance600600DebitCreditCashAdjustingEntriesfor“PrepaidExpenses”LO5 Prepareadjustingentriesfordeferrals.Example(Insurance):OnOct.4Example(Insurance):

OnOct.4th,PioneerAdvertisingpaid$600foraone-yearfireinsurancepolicy.ShowtheadjustingjournalentryrequiredatOct.31st.Prepaidinsurance50Insuranceexpense50Oct.31DebitCreditPrepaidInsurance60050DebitCreditInsuranceExpense50 550AdjustingEntriesfor“PrepaidExpenses”LO5 Prepareadjustingentriesfordeferrals.Example(Insurance):OnOct.4DepreciationBuildings,equipment,andvehicles(long-livedassets)arerecordedasassets,ratherthananexpense,intheyearacquired.Companiesreportaportionofthecostofalong-livedassetasanexpense(depreciation)duringeachperiodoftheasset’susefullife(MatchingPrinciple).AdjustingEntriesfor“PrepaidExpenses”LO5 Prepareadjustingentriesfordeferrals.DepreciationAdjustingEntriesExample(Depreciation):

OnOct.2nd,PioneerAdvertisingpaid$5,000forofficeequipmentthathasanexpectedusefullifeof10years.ShowthejournalentrytorecordthepurchaseoftheequipmentonOct.2nd.Cash5,000Equipment5,000Oct.2DebitCreditEquipment5,0005,000DebitCreditCashAdjustingEntriesfor“PrepaidExpenses”LO5 Prepareadjustingentriesfordeferrals.Example(Depreciation):OnOctExample(Depreciation):

OnOct.2nd,PioneerAdvertisingpaid$5,000forofficeequipmentthathasanexpectedusefullifeof10years.ShowtheadjustingjournalentryrequiredatOct.31st.Theequipmenthasa$200salvagevalue.([$5,000-$200salvagevalue]/5yrs/12months=$40)

Accumulateddepreciation-office

equipment40Depreciationexpense40Jan.31DebitCreditDepreciationExpense4040DebitCreditAccumulatedDepreciation 40AdjustingEntriesfor“PrepaidExpenses”LO5 Prepareadjustingentriesfordeferrals.Example(Depreciation):OnOctDepreciation(StatementPresentation)AccumulatedDepreciation—isacontraassetaccount.Appearsjustaftertheaccountitoffsets(Equipment)onthebalancesheet.AdjustingEntriesfor“PrepaidExpenses”LO5 Prepareadjustingentriesfordeferrals.Officeequipment $5,000Less:Accumulateddepreciation-OfficeEquipment 40

$4,960Depreciation(StatementPresenReceiptofcashthatisrecordedasaliabilitybecausetherevenuehasnotbeenearned.AdjustingEntriesfor“UnearnedRevenues”rentmagazinesubscriptionscustomerdepositsforfutureserviceCashReceiptRevenueRecordedBEFOREsaleofairlineticketsschooltuitionUnearnedrevenuesoftenoccurinregardto:LO5 Prepareadjustingentriesfordeferrals.ReceiptofcashthatisrecordUnearnedRevenuesCompanymakesanadjustingentrytorecordtherevenuethathasbeenearnedandtoshowtheliabilitythatremains.Theadjustingentryforunearnedrevenuesresultsinadecrease(adebit)toaliabilityaccountandanincrease(acredit)toarevenueaccount.LO5 Prepareadjustingentriesfordeferrals.AdjustingEntriesfor“UnearnedRevenues”UnearnedRevenuesLO5 PrepareLO5 Prepareadjustingentriesfordeferrals.Illustration3-10AdjustingentriesforunearnedrevenuesDecrease(adebit)toaliabilityaccountandIncrease(acredit)toarevenueaccount.AdjustingEntriesfor“UnearnedRevenues”LO5 PrepareadjustingentrieExample:

OnOct.2nd,PioneerAdvertisingreceived$1,200fromR.KnoxforservicestobecompletedbyDecember31.ShowthejournalentrytorecordthereceiptonOct2nd.UnearnedRevenue1,200Cash1,200Oct.2DebitCreditCash1,2001,200DebitCreditUnearnedRevenueAdjustingEntriesfor“UnearnedRevenues”LO5 Prepareadjustingentriesfordeferrals.Example:OnOct.2nd,PioneerExample:

OnOct.2nd,PioneerAdvertisingreceived$1,200fromR.KnoxforservicestobecompletedbyDecember31.

ShowtheadjustingjournalentryrequiredonOct.31st.ServiceRevenue400UnearnedRevenue400Oct.31DebitCreditServiceRevenue4001,200DebitCreditUnearnedRevenue400 800AdjustingEntriesfor“UnearnedRevenues”LO5 Prepareadjustingentriesfordeferrals.Example:OnOct.2nd,PioneerMadetorecord:

RevenuesearnedandExpensesincurredinthecurrentaccountingperiodthathavenotbeenrecognizedthroughdailyentries.AdjustingEntriesforAccrualsLO6 Prepareadjustingentriesforaccruals.Madetorecord:AdjustingEntrRevenuesearnedbutnotyetreceivedincashorrecorded

at

the

statement

date.AdjustingEntriesfor“AccruedRevenues”interestrentservicesperformedBEFOREAccruedrevenuesoftenoccurinregardto:CashReceiptRevenueRecordedAdjustingentryresultsin:LO6 Prepareadjustingentriesforaccruals.RevenuesearnedbutnotyetreAccruedRevenuesAnadjustingentryservestwopurposes: (1)Itshowsthereceivablethatexistsatthebalancesheetdate,and (2)Itrecordstherevenuesearned

during

the

period.AdjustingEntriesfor“AccruedRevenues”LO6 Prepareadjustingentriesforaccruals.AccruedRevenuesAdjustingEntrIllustration3-13AdjustingentriesforaccruedrevenuesIncreases(debits)anassetaccountandIncreases(credits)arevenueaccount.LO6 Prepareadjustingentriesforaccruals.AdjustingEntriesfor“AccruedRevenues”Illustration3-13Increases(deExample:InOctoberPioneerAdvertisingearned$200foradvertisingservicesthathavenotbeenrecorded.ShowthejournalentrytorecordtheaccruedrevenuesinOctober.ServiceRevenue200AccountsReceivable200Oct.31LO6 Prepareadjustingentriesforaccruals.DebitCreditAccountsReceivable200200DebitCreditServiceRevenueAdjustingEntriesfor“AccruedRevenues”Example:InOctoberPioneerAdExpensesincurredbutnotyetpaidincashorrecorded

at

the

statement

date.AdjustingEntriesfor“AccruedExpenses”interestrentBEFOREAccruedexpensesoftenoccurinregardto:CashPaymentExpenseRecordedtaxessalariesAdjustingentryresultsin:LO6 Prepareadjustingentriesforaccruals.ExpensesincurredbutnotyetAccruedExpensesAnadjustingentryservestwopurposes: (1)Itrecordstheobligationsthatexistatthebalancesheetdate,and (2)Itrecognizestheexpenses

ofthecurrentaccountingperiod.AdjustingEntriesfor“AccruedExpenses”LO6 Prepareadjustingentriesforaccruals.AccruedExpensesAdjustingEntrIllustration3-16AdjustingentriesforaccruedexpensesIncreases(debits)anexpenseaccountandIncreases(credits)aliabilityaccount.LO6 Prepareadjustingentriesforaccruals.AdjustingEntriesfor“AccruedExpenses”Illustration3-16Increases(deNotespayable5,000Cash5,000Oct.1DebitCreditCash5,0005,000DebitCreditNotesPayableExample:

OnOct1st,PioneerAdvertisingsigneda$5000,3-monthnotepayableatarateof12%peryear.Thetotalinterestdueonthenoteatitsduedateis$150($5,000X12%X3/12).ShowthejournalentrytorecordtheborrowingonOct.1st.AdjustingEntriesfor“AccruedExpenses”LO6 Prepareadjustingentriesforaccruals.Notespayable5,000Cash5,000OctExample:

OnOct1st,PioneerAdvertisingsigneda$5000,3-monthnotepayableatarateof12%peryear.Thetotalinterestdueonthenoteatitsduedateis$150([$5,000x12%]/12months).ShowtheadjustingjournalentryrequiredonOct.31st.Interestpayable50Interestexpense50Oct.31DebitCreditInterestExpense5050DebitCreditInterestPayableAdjustingEntriesfor“AccruedExpenses”LO6 Prepareadjustingentriesforaccruals.Example:OnOct1st,PioneerAAccruedExpensesAnadjustingentryservestwopurposes: (1)Itrecordstheobligations,and (2)itrecognizestheexpenses.AdjustingEntriesfor“AccruedExpenses”LO6 Prepareadjustingentriesforaccruals.AccruedExpensesAdjustingEntrAfteralladjustingentriesarejournalizedandpostedthecompanypreparesanothertrialbalancefromtheledgeraccounts(AdjustedTrialBalance).Itspurposeistoprovetheequalityofdebitbalancesandcreditbalancesintheledger.TheAdjustedTrialBalanceLO7 Describethenatureandpurposeofanadjustedtrialbalance.AfteralladjustingentriesarWhichofthefollowingstatementsisincorrectconcerningtheadjustedtrialbalance?Anadjustedtrialbalanceprovestheequalityofthetotaldebitbalancesandthetotalcreditbalancesintheledgerafteralladjustmentsaremade.Theadjustedtrialbalanceprovidestheprimarybasisforthepreparationoffinancialstatements.Theadjustedtrialbalanceliststheaccountbalancessegregatedbyassetsandliabilities.Theadjustedtrialbalanceispreparedaftertheadjustingentrieshavebeenjournalizedandposted.ReviewTimingIssuesLO7 Describethenatureandpurposeofanadjustedtrialbalance.WhichofthefollowingstatemeFinancialStatementsareprepareddirectlyfromtheAdjustedTrialBalance.BalanceSheetIncomeStatementStatementofCashFlowsRetainedEarningsStatementPreparingFinancialStatementsLO7 Describethenatureandpurposeofanadjustedtrialbalance.FinancialStatementsareprepaIncomeStatementPreparingFinancialStatementsLO7 Describethenatureandpurposeofanadjustedtrialbalance.Account Debit CreditCash $15,200AccountsReceivable 200AdvertisingSupplies 1,000PrepaidInsurance 550OfficeEquipment 5,000AccumulatedDepreciation-OffEquip $40NotesPayable 5,000AccountsPayable 2,500UnearnedRevenue 800SalariesPayable 1,200InterestPayable 50CommonStock 10,000RetainedEarnings 0Dividends 500ServiceRevenue 10,600SalariesExpense 5,200AdvertisingSuppliesExpense 1,500RentExpense 900InsuranceExpense 50InterestExpense 50DepreciationExpense 40

$30,190

$30,190PIONEERADVERTISINGAGENCYINC.IncomeStatementFortheMonthEndedOctober31,2008RevenuesServiceRevenue 10,600ExpensesSalariesExpense 5,200AdvertisingSuppliesExpense 1,500RentExpense 900InsuranceExpense 50InterestExpense 50DepreciationExpense 40Totalexpenses 7,740Netincome

$2,860IncomeStatementPreparingFinaRetainedEarningsStatementPreparingFinancialStatementsLO7 Describethenatureandpurposeofanadjustedtrialbalance.Account Debit CreditCash $15,200AccountsReceivable 200AdvertisingSupplies 1,000PrepaidInsurance 550OfficeEquipment 5,000AccumulatedDepreciation-OffEquip $40NotesPayable 5,000AccountsPayable 2,500UnearnedRevenue 800SalariesPayable 1,200InterestPayable 50CommonStock 10,000RetainedEarnings 0Dividends 500ServiceRevenue 10,600SalariesExpense 5,200AdvertisingSuppliesExpense 1,500RentExpense 900InsuranceExpense 50InterestExpense 50DepreciationExpense 40

$30,190

$30,190PIONEERADVERTISINGAGENCYINC.RetainedEarningsStatementFortheMonthEndedOctober31,2008Retainedearnings,October1

$0Add:Netincome 2,860 2,860Less:Dividends 500RetainedEarnings,October31

$2,360RetainedEarningsStatementPreBalanceSheetPreparingFinancialStatementsLO7 Describethenatureandpurposeofanadjustedtrialbalance.Account Debit CreditCash $15,200AccountsReceivable 200AdvertisingSupplies 1,000PrepaidInsurance 550OfficeEquipment 5,000AccumulatedDepreciation-OffEquip $40NotesPayable 5,000AccountsPayable 2,500UnearnedRevenue 800SalariesPayable 1,200InterestPayable 50CommonStock 10,000RetainedEarnings 0Dividends 500ServiceRevenue 10,600SalariesExpense 5,200AdvertisingSuppliesExpense 1,500RentExpense 900InsuranceExpense 50InterestExpense 50DepreciationExpense 40

$30,190

$30,190PIONEERADVERTISINGAGENCYINC.BalanceSheetOctober31,2008AssetsCash$15,200AccountsReceivable 200AdvertisingSupplies 1,000PrepaidInsurance 550OfficeEquipment $5,000AccumulatedDepreciation-OffEquip 40 4,960

TotalAssets

$21,910Liabilities NotesPayable$5,000 AccountsPayable 2,500 UnearnedRevenue 800 SalariesPayable 1,200 InterestPayable 50 Totalliabilities 9,550Stockholders’EquityCommonStock 10,000RetainedEarnings 2,360Totalliabilitiesandstockholders’equity

$21,910BalanceSheetPreparingFinanci“Copyright?2008JohnWiley&Sons,Inc.Allrightsreserved.ReproductionortranslationofthisworkbeyondthatpermittedinSection117ofthe1976UnitedStatesCopyrightActwithouttheexpresswrittenpermissionofthecopyrightownerisunlawful.RequestforfurtherinformationshouldbeaddressedtothePermissionsDepartment,JohnWiley&Sons,Inc.Thepurchasermaymakeback-upcopiesforhis/herownuseonlyandnotfordistributionorresale.ThePublisherassumesnoresponsibilityforerrors,omissions,ordamages,causedbytheuseoftheseprogramsorfromtheuseoftheinformationcontainedherein.”Copyright“Copyright?2008JohnWiley&財(cái)務(wù)會(huì)計(jì)（英文版原書(shū)第5版）課件CHAPTER3ADJUSTINGTHEACCOUNTSFinancialAccounting,SixthEditionCHAPTER3ADJUSTINGTHEACCOUNTExplainthetimeperiodassumption.Explaintheaccrualbasisofaccounting.Explainthereasonsforadjustingentries.Identifythemajortypesofadjustingentries.Prepareadjustingentriesfordeferrals.Prepareadjustingentriesforaccruals.Describethenatureandpurposeofanadjustedtrialbalance.StudyObjectivesExplainthetimeperiodassumpAdjustingtheAccountsTimingIssuesTheBasicsofAdjustingEntriesTheAdjustedTrialBalanceandFinancialStatementsTimeperiodassumptionFiscalandcalendaryearsAccrual-vs.cash-basisaccountingRecognizingrevenuesandexpensesTypesofadjustingentriesAdjustingentriesfordeferralsAdjustingentriesforaccrualsSummaryofjournalizingandpostingPreparingtheadjustedtrialbalancePreparingfinancialstatementsAdjustingtheAccountsTheBasiGenerallyamonth,aquarter,orayear.Fiscalyearvs.calendaryearAlsoknownasthe“PeriodicityAssumption”TimingIssuesAccountantsdividetheeconomiclifeofabusinessintoartificialtimeperiods(TimePeriodAssumption).LO1Explainthetimeperiodassumption.Jan.Feb.Mar.Apr.Dec......Generallyamonth,aquarter,Thetimeperiodassumptionstatesthat:a. revenueshouldberecognizedintheaccountingperiodinwhichitisearned.b. expensesshouldbematchedwithrevenues.c. theeconomiclifeofabusinesscanbedividedintoartificialtimeperiods.d. thefiscalyearshouldcorrespondwiththecalendaryear.ReviewTimingIssuesLO1Explainthetimeperiodassumption.ThetimeperiodassumptionstaAccrual-BasisAccountingTransactionsrecordedintheperiodsinwhichtheeventsoccur.Revenuesarerecognizedwhenearned,ratherthanwhencashisreceived.Expensesarerecognizedwhenincurred,ratherthanwhenpaid.TimingIssuesAccrual-vs.Cash-BasisAccountingLO2Explaintheaccrualbasisofaccounting.Accrual-BasisAccountingTimingCash-BasisAccountingRevenuesarerecognizedwhencashisreceived.Expensesarerecognizedwhencashispaid.Cash-basisaccountingisnotinaccordancewithgenerallyacceptedaccountingprinciples(GAAP).TimingIssuesAccrual-vs.Cash-BasisAccountingLO2Explaintheaccrualbasisofaccounting.Cash-BasisAccountingTimingIsRevenueRecognitionPrincipleTimingIssuesRecognizingRevenuesandExpensesLO2Explaintheaccrualbasisofaccounting.Companiesrecognizerevenueintheaccountingperiodinwhichitisearned.Inaserviceenterprise,revenueisconsideredtobeearnedatthetimetheserviceisperformed.RevenueRecognitionPrincipleTMatchingPrincipleTimingIssuesRecognizingRevenuesandExpensesLO2Explaintheaccrualbasisofaccounting.Matchexpenseswithrevenuesintheperiodwhenthecompanymakeseffortstogeneratethoserevenues.“Lettheexpensesfollowtherevenues.”MatchingPrincipleTimingIssueTimingIssuesLO2Explaintheaccrualbasisofaccounting.GAAPrelationshipsinrevenueandexpenserecognitionIllustration3-1TimingIssuesLO2ExplaintheOneofthefollowingstatementsabouttheaccrualbasisofaccountingisfalse.Thatstatementis: Eventsthatchangeacompany’sfinancialstatementsarerecordedintheperiodsinwhichtheeventsoccur.Revenueisrecognizedintheperiodinwhichitisearned.Theaccrualbasisisinaccordancewithgenerallyacceptedaccountingprinciples.Revenueisrecordedonlywhencashisreceived,andexpenseisrecordedonlywhencashispaid.ReviewTimingIssuesLO2Explaintheaccrualbasisofaccounting.OneofthefollowingstatementAdjustingentriesmakeitpossibletoreportcorrectamountsonthebalancesheetandontheincomestatement.Acompanymustmakeadjustingentrieseverytimeitpreparesfinancialstatements.TheBasicsofAdjustingEntriesLO3Explainthereasonsforadjustingentries.AdjustingentriesmakeitpossRevenues

-recordedintheperiodinwhichtheyareearned.Expenses-recognizedintheperiodinwhichtheyareincurred.Adjustingentries

-neededtoensurethattherevenuerecognitionandmatchingprinciplesarefollowed.TheBasicsofAdjustingEntriesLO3Explainthereasonsforadjustingentries.Revenues-recordedintheperAdjustingentriesaremadetoensurethat:a. expensesarerecognizedintheperiodinwhichtheyareincurred.b. revenuesarerecordedintheperiodinwhichtheyareearned.c. balancesheetandincomestatementaccountshavecorrectbalancesattheendofanaccountingperiod.d. alloftheabove.ReviewTimingIssuesLO3Explainthereasonsforadjustingentries.AdjustingentriesaremadetoTypesofAdjustingEntriesDeferralsPrepaidExpenses.

Expensespaidincashandrecordedasassetsbeforetheyareusedorconsumed.UnearnedRevenues.Cashreceivedandrecordedasliabilitiesbeforerevenueisearned.AccrualsAccruedRevenues.Revenuesearnedbutnotyetreceivedincashorrecorded.AccruedExpenses.Expensesincurredbutnotyetpaidincashorrecorded.LO4Identifythemajortypesofadjustingentries.TypesofAdjustingEntriesDefeTrialBalance–Eachaccountisanalyzedtodeterminewhetheritiscompleteandup-to-date.TrialBalanceLO4Identifythemajortypesofadjustingentries.PIONEERADVERTISINGAGENCYINC.TrialBalanceOctober31,2008Account Debit CreditCash $15,200AdvertisingSupplies 2,500PrepaidInsurance 600OfficeEquipment 5,000NotesPayable $5,000AccountsPayable 2,500UnearnedRevenue 1,200CommonStock 10,000RetainedEarnings 0Dividends 500ServiceRevenue 10,000SalariesExpense 4,000RentExpense 900 $28,700 $28,700TrialBalance–EachaccountiDeferrals

areeither:PrepaidexpensesorUnearnedrevenues.AdjustingEntriesforDeferralsLO5 Prepareadjustingentriesfordeferrals.Deferralsareeither:AdjustinPaymentofcash,thatisrecordedasanassetbecauseserviceorbenefitwillbereceivedinthefuture.AdjustingEntriesfor“PrepaidExpenses”insurancesuppliesAdvertisingrentCashPaymentExpenseRecordedBEFORELO5 Prepareadjustingentriesfordeferrals.Prepaymentsoftenoccurinregardto:buildingpurchasesequipmentpurchasesPaymentofcash,