intermediate accounting A Review of the Accounting Cycle.ppt

1、,A Review of the Accounting Cycle,Intermediate Accounting,17E,Stice | Stice | Skousen, 2010 Cengage Learning,PowerPoint presented by: Douglas Cloud Professor Emeritus of Accounting, Pepperdine University,Learning Objectives,Identify and explain the basic steps in the accounting process (accounting c

2、ycle). Analyze transactions and make and post journal entries. Make adjusting entries, produce financial statements, and close nominal accounts. Distinguish between accrual and cash-basis accounting. Discuss the importance and expanding role of computers to the accounting process.,Identify and expla

3、in the basic steps in the accounting process (accounting cycle).,OBJECTIVE 1,Recording Phase,1.Business documents are analyzed.,Transactions are recorded.,Transactions are posted.,Reporting Phase,4.A trial balance of the accounts in the general ledger is prepared.,Adjusting entries are recorded.,Fin

4、ancial statements are prepared.,Nominal accounts are closed.,8.A post-closing trial balance may be prepared.,Analyze transactions and make and post journal entries.,OBJECTIVE 2,Double-Entry Accounting,An old and universally accepted system for recording accounting data.,Each transaction/ business ev

5、ent is recorded to maintain the equality of the basic accounting equation.,A debit is an entry on the left side of an account.,Double-Entry Accounting,Assets, expenses, and dividends are increased by debits and decreased by credits.,A credit is an entry on the right side of an account.,Liabilities,

6、capital stock, retained earnings, and revenues are increased by credits and decreased by debits.,3-Step Journal Entry Process,Identify the accounts involved with an event or transaction.,Determine whether each account increased or decreased.,Determine the amount by which each account was affected.,(

7、continues),Summarizing,Assets are increased by debits and decreased by credits.,Liability and owners equity accounts are increased by credits and decreased by debits.,Owners equity for a corporation includes capital stock accounts and the retained earnings account.,Revenues, expenses, and dividends

8、relate to owners equity through the retained earnings account.,(continues),Summarizing,Expenses and dividends are increased by debits and decreased by credits.,Revenues are increased by credits and decreased by debits.,The difference between total revenues and total expenses for a period is net inco

9、me (loss), which increases (decreases) owners equity through the retained earnings account.,Journalizing Transactions,The general journal is used to record all transactions for which a special journal is not maintained.,A special journal is used to record a particular type of frequently recurring tr

10、ansaction. sales, purchases, cash disbursements, cash receipts,Date,Description,Debit,Credit,GENERAL JOURNAL,Page 24,2011,July 1Dividends33025,000 Dividends Payable26025,000 Declared semiannual cash dividend on common stock. 10Equipment1807,500 Notes Payable2207,500 Issued note for new equipment. .,

11、An account is used to summarize the effects of transactions on each element of the expanded accounting equation.,A ledger is a collection of accounts maintained by a business.,The transfer of information from the journal to the appropriate account in the ledger is referred to as posting.,Posting to

12、the Ledger Accounts,Posting to the Ledger Accounts,Account,EQUIPMENT,Account No. 180,Date Item Ref. Debit Credit Balance,GENERAL LEDGER,(continues),2011 July lBalance10,550 10 Purchase EquipmentJ247,50018,050,Post.,Posting to the Ledger Accounts,Account No. 220,2011 July lBalance5,750 10 Purchase Eq

13、uipmentJ247,50013,250,GENERAL LEDGER,Date Item Ref. Debit Credit Balance,Post.,Account,NOTES PAYABLE,Posting to the Ledger Accounts,The general ledger includes all accounts appearing on the financial statements, and separate subsidiary ledgers afford additional detail in support of certain general l

14、edger accounts.,The general ledger account that summarizes the detailed information in a subsidiary ledger is known as a control account.,Make adjusting entries, produce financial statements, and close nominal accounts.,OBJECTIVE 3,Preparing a Trial Balance,A trial balance is a list of all accounts

15、and their balances. It provides a means to assure that debits equal credits.,(continues),(concluded),Adjusting Entries,Adjusting entries are required at the end of each accounting period prior to preparing the financial statements.,To make balance sheet accounts current To reflect proper amounts of

16、revenues and expenses on the income statement,The purpose of adjusting entries:,1.Unrecorded assetsAssets and revenues that have been earned but not yet recorded. 2.Unrecorded liabilitiesExpenses and liabilities that have been incurred but not yet recorded. 3.Prepaid expensesExpenses that have been

17、recorded but not yet incurred. 4.Unearned revenuesRevenues that have been recorded but not yet earned. 5.Transactions involving estimates also require analysis.,Areas Most Commonly Requiring Analysis,Identify the original entries that were made, if any. Original entries are only made for unearned re

18、venues and prepaid expenses. 2.Determine what the correct balances should be at this point in time. 3.Make the adjustments needed to bring the balances to the desired amounts.,3-Step Process for Adjusting Entries,Rosi, Inc.,If revenue is earned but not yet collected in cash, a receivable exists. The

19、 illustrative entry recognizing a receivable for Rosi, Inc., is as follows:,Unrecorded Assets,Liabilities can be created by expenses being incurred prior to being paid or recorded. Rosi, Inc., had unrecorded liabilities at the end of the accounting period.,Unrecorded Liabilities,Accrued Salaries,Unr

20、ecorded Liabilities,Accrued Interest,Liabilities can be created by expenses being incurred prior to being paid or recorded. Rosi, Inc., had unrecorded liabilities at the end of the accounting period.,Unrecorded Liabilities,Accrued Taxes,Liabilities can be created by expenses being incurred prior to

21、being paid or recorded. Rosi, Inc., had unrecorded liabilities at the end of the accounting period.,Prepaid Expenses,Payments that a company makes in advance for items normally charged to expense are known as prepaid expenses. The method of adjusting for prepaid expenses depends on how the expenditu

22、re was originally entered in the accounts.,Original Debit to an Asset Account,The expired portion of Rosis prepaid insurance is $4,200. The following adjusting entry is required:,(continues),Original Debit to an Asset Account (concl.),The following T-accounts illustrate how this adjusting entry, whe

23、n posted, would affect the accounts.,Original Debit to an Expense Account,The expense account shows $8,000, but $3,800 is applicable to future periods. The following adjusting entry is required:,(continues),Original Debit to an Expense Account,The following T-accounts illustrate the effect that this

24、 adjusting entry would have on the relevant accounts:,Note that regardless of which method is used, the ending balance in each account is the same.,Original Credit to a Revenue Account,If the revenue account was credited when cash was received, the revenue account remains with a credit balance, repr

25、esenting the earnings applicable to the current period. For Rosi, Inc., the unearned revenue at the end of 2011 is $475 and is recorded as shown next.,(continues),Original Credit to a Revenue Account,The T-accounts below illustrate the effect that the adjusting entry would have on the related accoun

26、ts.,If a liability account was originally credited when cash was received, the adjusting entries require that the liability be debited and the revenue account be credited for the amount applicable to the current period. If Rosi, Inc., had originally credited Unearned Rent Revenue for $2,550, the adj

27、usting entry shown next would be made.,Original Credit to a Liability Account,(continues),The T-accounts below illustrate the effect that the adjusting entry would have on the related accounts.,Original Credit to a Liability Account,Transactions Involving Estimates,In recording asset depreciation, o

28、perations are charged with a portion of the assets cost, and the carrying value of the asset is reduced using accumulated depreciation (a contra account).,Asset Depreciation,Transactions Involving Estimates,Depreciation for 2011 on Rosis plant assets is $7,800 for building and $1,500 for furniture a

29、nd fixtures. The adjustments at the end of the year are as follows:,Transactions Involving Estimates,Under the accrual concept, an adjustment should be made for estimated bad debts in the current period rather than when specific accounts become uncollectible.,Bad Debts,Transactions Involving Estimat

30、es,Using this concept, Rosi, Inc., needs to increase the allowance account by $1,100. The entry would be as follows:,Adjusting entries always incorporate a balance sheet account and an income statement account.,Adjusting Entries Summary,Adjusting entries do not involve cash.,Preparing Financial Stat

31、ements,1.Identify all revenues and expensesthese account balances are used to prepare the income statement.,2.Compute the net income.,3.Compute the ending retained earnings balance.,4.Prepare a balance sheet using the balance sheet accounts from the trial balance and the modified retained earnings b

32、alance (from step 3).,Using a Spreadsheet,An optional step in the accounting process is to use a spreadsheet (also called a work sheet) to facilitate the preparation of adjusting entries and financial statements. The availability of spreadsheet software makes the preparation of a spreadsheet quite e

33、asy. A spreadsheet for Rosi, Inc, is shown next.,(continues),Real accounts Not closed to a zero balance at the end of the accounting period. Carried forward to the next period. Nominal (or temporary) accounts Closed to a zero balance at the end of each accounting period. All income statement account

34、s and the dividend account. Closing entries reduce all nominal accounts to a zero balance.,Closing the Nominal Accounts,Revenues,Bal. xxx,Retained Earnings,Beg. Bal. xxx,xx,Since the revenue account is a nominal account, it is closed at the end of the period to Retained Earnings.,The Closing Process

35、,Revenues,Expenses,Bal. xxx,The Closing Process,Each expense account is credited in order to close the account at the end of the period.,Expenses,Retained Earnings,Beg. Bal. xxx,xx,Revenues,Dividends,Bal. xxx,The dividends account, which is also nominal, is credited to close out the balance.,The Clo

36、sing Process,Expenses,Retained Earnings,Beg. Bal. xxx,Revenues,Dividends,xx,Revenues,Retained Earnings is a real account and always carries a balance.,Dividends reduce Retained Earnings.,The Closing Process,Retained Earnings,Beg. Bal. xxx,Expenses,Dividends,Net Income for the period is determined by

37、 these two items.,(continues),The Closing Process for Rosi, Inc.,The Closing Process for Rosi, Inc. (concl.),Provides a listing of all real account balances at the end of the closing process. The post-closing trial balance is prepared to verify the equality of debits and credits for all real accounts.,Post-Closing Trial Balance,Distinguish between accrual and cash-basis accounting.,OBJECTIVE 4,Accrual Accounting,Accrua