财务会计(英文版·原书第5版)ch03bwzh.pptx

Chapter 3-1Chapter 3-2CHAPTER 3ADJUSTING THE ACCOUNTSFinancial Accounting,Sixth EditionChapter 3-31.1.Explain the time period assumption.Explain the time period assumption.2.2.Explain the accrual basis of accounting.Explain the accrual basis of accounting.3.3.Explain the reasons for adjusting entries.Explain the reasons for adjusting entries.4.4.Identify the major types of adjusting entries.Identify the major types of adjusting entries.5.5.Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.6.6.Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.7.7.Describe the nature and purpose of an adjusted Describe the nature and purpose of an adjusted trial balance.trial balance.Study ObjectivesChapter 3-4Adjusting the AccountsTiming IssuesTiming IssuesThe Basics of The Basics of Adjusting Adjusting EntriesEntriesThe Adjusted The Adjusted Trial Balance and Trial Balance and Financial Financial StatementsStatementsTime period Time period assumptionassumptionFiscal and Fiscal and calendar yearscalendar yearsAccrual-vs.cash-Accrual-vs.cash-basis accountingbasis accountingRecognizing Recognizing revenues and revenues and expensesexpensesTypes of adjusting Types of adjusting entriesentriesAdjusting entries Adjusting entries for deferralsfor deferralsAdjusting entries Adjusting entries for accrualsfor accrualsSummary of Summary of journalizing and journalizing and postingpostingPreparing the Preparing the adjusted trial adjusted trial balancebalancePreparing Preparing financial financial statementsstatementsChapter 3-5Generally a month,a quarter,or a year.Fiscal year vs.calendar yearAlso known as the“Periodicity Assumption”Timing IssuesAccountants divide the economic life of a business into artificial time periods (Time Period Assumption).LO 1 Explain the time period assumption.LO 1 Explain the time period assumption.Jan.Feb.Mar.Apr.Dec.Chapter 3-6The time period assumption states that:The time period assumption states that:a.a.revenue should be recognized in the accounting period in which it is earned.b.expenses should be matched with revenues.c.the economic life of a business can be divided into artificial time periods.d.the fiscal year should correspond with the calendar year.ReviewTiming IssuesLO 1 Explain the time period assumption.LO 1 Explain the time period assumption.Chapter 3-7Accrual-Basis AccountingTransactions recorded in the periods in which the events occur.Revenues are recognized when earned,rather than when cash is received.Expenses are recognized when incurred,rather than when paid.Timing IssuesAccrual-vs.Cash-Basis AccountingLO 2 Explain the accrual basis of accounting.LO 2 Explain the accrual basis of accounting.Chapter 3-8Cash-Basis AccountingRevenues are recognized when cash is received.Expenses are recognized when cash is paid.Cash-basis accounting is not in accordance with generally accepted accounting principles(GAAP).Timing IssuesAccrual-vs.Cash-Basis AccountingLO 2 Explain the accrual basis of accounting.LO 2 Explain the accrual basis of accounting.Chapter 3-9Revenue Recognition PrincipleTiming IssuesRecognizing Revenues and ExpensesLO 2 Explain the accrual basis of accounting.LO 2 Explain the accrual basis of accounting.Companies recognize revenue in the accounting period in which it is earned.In a service enterprise,revenue is considered to be earned at the time the service is performed.Chapter 3-10Matching PrincipleTiming IssuesRecognizing Revenues and ExpensesLO 2 Explain the accrual basis of accounting.LO 2 Explain the accrual basis of accounting.Match expenses with revenues in the period when the company makes efforts to generate those revenues.“Let the expenses follow the revenues.”Chapter 3-11Timing IssuesLO 2 Explain the accrual basis of accounting.LO 2 Explain the accrual basis of accounting.GAAP relationships in revenue and expense recognitionIllustration 3-1Illustration 3-1Chapter 3-12One of the following statements about the accrual basis of accounting is false.That statement is:a.Events that change a companys financial statements are recorded in the periods in which the events occur.b.Revenue is recognized in the period in which it is earned.c.The accrual basis is in accordance with generally accepted accounting principles.d.Revenue is recorded only when cash is received,and expense is recorded only when cash is paid.ReviewTiming IssuesLO 2 Explain the accrual basis of accounting.LO 2 Explain the accrual basis of accounting.Chapter 3-13Adjusting entries make it possible to report correct amounts on the balance sheet and on the income statement.A company must make adjusting entries every time it prepares financial statements.The Basics of Adjusting EntriesLO 3 Explain the reasons for adjusting entries.LO 3 Explain the reasons for adjusting entries.Chapter 3-14RevenuesRevenues -recorded in the period in which-recorded in the period in which they are earnedthey are earned.Expenses Expenses-recognized in the period in which-recognized in the period in which they are incurredthey are incurred.Adjusting entriesAdjusting entries-needed to ensure that the-needed to ensure that the revenue recognitionrevenue recognition and and matching principlesmatching principles are followed.are followed.The Basics of Adjusting EntriesLO 3 Explain the reasons for adjusting entries.LO 3 Explain the reasons for adjusting entries.Chapter 3-15Adjusting entries are made to ensure that:a.expenses are recognized in the period in which they are incurred.b.revenues are recorded in the period in which they are earned.c.balance sheet and income statement accounts have correct balances at the end of an accounting period.d.all of the above.ReviewTiming IssuesLO 3 Explain the reasons for adjusting entries.LO 3 Explain the reasons for adjusting entries.Chapter 3-16Types of Adjusting EntriesDeferrals1.Prepaid Expenses.Expenses paid in cash and recorded as assets before they are used or consumed.2.Unearned Revenues.Cash received and recorded as liabilities before revenue is earned.Accruals1.Accrued Revenues.Revenues earned but not yet received in cash or recorded.2.Accrued Expenses.Expenses incurred but not yet paid in cash or recorded.LO 4 Identify the major types of adjusting entries.LO 4 Identify the major types of adjusting entries.Chapter 3-17Trial BalanceTrial Balance Each account is analyzed to determine whether it is complete and up-to-date.Trial BalanceLO 4 Identify the major types of adjusting entries.LO 4 Identify the major types of adjusting entries.PIONEER ADVERTISING AGENCY INC.Trial BalanceOctober 31,2008AccountDebitCreditCash$15,200Advertising Supplies2,500Prepaid Insurance600Office Equipment5,000Notes Payable$5,000Accounts Payable2,500Unearned Revenue1,200Common Stock10,000Retained Earnings0Dividends500Service Revenue10,000Salaries Expense4,000Rent Expense900$28,700$28,700Chapter 3-18Deferrals are either:Prepaid expenses or Unearned revenues.Adjusting Entries for DeferralsLO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.Chapter 3-19Payment of cash,that is recorded as an asset because Payment of cash,that is recorded as an asset because service or benefit will be received in the future.service or benefit will be received in the future.Adjusting Entries for“Prepaid Expenses”insuranceinsurancesuppliessuppliesAdvertisingAdvertisingrentrentCash PaymentExpense RecordedBEFORELO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.Prepayments often occur in regard to:Prepayments often occur in regard to:building building purchasespurchasesequipment equipment purchasespurchasesChapter 3-20Prepaid ExpensesCosts that expire either with the passage of time or through use.Adjusting entries(1)to record the expenses that apply to the current accounting period,and(2)to show the unexpired costs in the asset accounts.Adjusting Entries for“Prepaid Expenses”LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.Chapter 3-21Adjusting Entries for“Prepaid Expenses”LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.Illustration 3-4Adjusting entries for prepaid expensesIncreases(debits)an expense account and Decreases(credits)an asset account.Chapter 3-22Example Example(Insurance)(Insurance):On Oct.4On Oct.4thth,Pioneer Advertising,Pioneer Advertising paid$600 for a one-year fire insurance policy.Show the paid$600 for a one-year fire insurance policy.Show the journal entry to record the payment on Oct 4journal entry to record the payment on Oct 4thth.Cash600Prepaid insurance600Oct.4DebitCreditPrepaid Insurance600600600600DebitCreditCashAdjusting Entries for“Prepaid Expenses”LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.Chapter 3-23Example Example(Insurance)(Insurance):On Oct.4th,Pioneer Advertising paid On Oct.4th,Pioneer Advertising paid$600 for a one-year fire insurance policy.$600 for a one-year fire insurance policy.Show the Show the adjusting adjusting journal entryjournal entry required at Oct.31 required at Oct.31stst.Prepaid insurance50Insurance expense50Oct.31DebitCreditPrepaid Insurance6006005050DebitCreditInsurance Expense5050550550Adjusting Entries for“Prepaid Expenses”LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.Chapter 3-24DepreciationBuildings,equipment,and vehicles(long-lived assets)are recorded as assets,rather than an expense,in the year acquired.Companies report a portion of the cost of a long-lived asset as an expense(depreciation)during each period of the assets useful life(Matching Principle).Adjusting Entries for“Prepaid Expenses”LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.Chapter 3-25Example Example(Depreciation)(Depreciation):On Oct.2On Oct.2ndnd,Pioneer Advertising,Pioneer Advertising paid$5,000 for office equipment that has an expected paid$5,000 for office equipment that has an expected useful life of 10 years.Show the journal entry to record useful life of 10 years.Show the journal entry to record the purchase of the equipment on Oct.2the purchase of the equipment on Oct.2ndnd.Cash5,000Equipment5,000Oct.2DebitCreditEquipment5,0005,0005,0005,000DebitCreditCashAdjusting Entries for“Prepaid Expenses”LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.Chapter 3-26Example Example(Depreciation)(Depreciation):On Oct.2On Oct.2ndnd,Pioneer Advertising,Pioneer Advertising paid$5,000 for office equipment that has an expected useful paid$5,000 for office equipment that has an expected useful life of 10 years.Show the life of 10 years.Show the adjusting journal entryadjusting journal entry required at required at Oct.31Oct.31stst.The equipment has a$200 salvage value.The equipment has a$200 salvage value.($5,000-$200 salvage value/5 yrs/12 months=$40)($5,000-$200 salvage value/5 yrs/12 months=$40)Accumulated depreciation-office equipment40Depreciation expense40Jan.31DebitCreditDepreciation Expense40404040DebitCreditAccumulated Depreciation4040Adjusting Entries for“Prepaid Expenses”LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.Chapter 3-27Depreciation(Statement Presentation)Accumulated Depreciationis a contra asset account.Appears just after the account it offsets(Equipment)on the balance sheet.Adjusting Entries for“Prepaid Expenses”LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.Office equipment$5,000Less:Accumulated depreciation-Office Equipment 40$4,960Chapter 3-28Receipt of cash that is recorded as a liability because Receipt of cash that is recorded as a liability because the revenue has not been earned.the revenue has not been earned.Adjusting Entries for“Unearned Revenues”rentrentmagazine subscriptionsmagazine subscriptionscustomer deposits for customer deposits for future servicefuture serviceCash ReceiptRevenue RecordedBEFOREsale of airline ticketssale of airline ticketsschool tuitionschool tuitionUnearned revenues often occur in regard to:Unearned revenues often occur in regard to:LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.Chapter 3-29Unearned RevenuesCompany makes an adjusting entry to record the revenue that has been earned and to show the liability that remains.The adjusting entry for unearned revenues results in a decrease(a debit)to a liability account and an increase(a credit)to a revenue account.LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.Adjusting Entries for“Unearned Revenues”Chapter 3-30LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.Illustration 3-10Adjusting entries for unearned revenuesDecrease(a debit)to a liability account and Increase(a credit)to a revenue account.Adjusting Entries for“Unearned Revenues”Chapter 3-31Example:Example:On Oct.2On Oct.2ndnd,Pioneer Advertising received$1,200,Pioneer Advertising received$1,200 from R.Knox for services to be completed by December 31.from R.Knox for services to be completed by December 31.Show the journal entry to record the receipt on Oct 2Show the journal entry to record the receipt on Oct 2ndnd.Unearned Revenue1,200Cash1,200Oct.2DebitCreditCash1,2001,2001,2001,200DebitCreditUnearned RevenueAdjusting Entries for“Unearned Revenues”LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.Chapter 3-32Example:Example:On Oct.2nd,Pioneer Advertising received$1,200 On Oct.2nd,Pioneer Advertising received$1,200 from R.Knox for services to be completed by December 31.from R.Knox for services to be completed by December 31.Show the Show the adjusting journal entryadjusting journal entry required on Oct.31 required on Oct.31stst.Service Revenue400Unearned Revenue400Oct.31DebitCreditService Revenue4004001,2001,200DebitCreditUnearned Revenue400400800800Adjusting Entries for“Unearned Revenues”LO 5 LO 5 Prepare adjusting entries for deferrals.Prepare adjusting entries for deferrals.Chapter 3-33Made to record:Revenues earned and Expenses incurred in the current accounting period that have not been recognized through daily entries.Adjusting Entries for AccrualsLO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.Chapter 3-34Revenues earned but not yet received in cash or Revenues earned but not yet received in cash or recordedrecorded atat thethe statementstatement date.date.Adjusting Entries for“Accrued Revenues”interestinterestrentrentservices performedservices performedBEFOREAccrued revenues often occur in regard to:Accrued revenues often occur in regard to:Cash ReceiptRevenue RecordedAdjusting entry results in:Adjusting entry results in:LO 6 LO 6 Prepare adjusting entries for accruals.Prepare adjusting entries for accruals.Chapter 3-35Accrued RevenuesAn adjusting entry serves two purposes:(1)It shows the recei