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Week 3 Accounting

OSU

QuestionAnswer
Full Accounting Cycle 1) Journal 2) Ledger 3) Un-adjusted trail balance 4) Record and Post Year-End adjusting Entries 5) Adjusted Trail Balance 6) Prepare Financial Statements
Adjusting Entries Are used why? To ensure: Accrual Accounting principles are upheld, End of Period or year >Realization Principle ---Revenues are recorded in the Period, EARNED >Matching Concept ---Expenses are Recognized in the Period, Helps earn Revenue
Types of Adjustments 1) Deferrals 2) Accruals
Deferral Expenses Exchange of cash before Action (Prepaid Insurance)(Consider it a line of Credit) Asset Represents the Unused Portion of the Prepayment Think about the T-Account
Accruals Action has occurred before the exchange of cash
Supplies Equation +Beginning(D)(A) I Supplies +Supplies Used Up (C) (Ex) purchased(D)(A) -------------------------- End
Deferral Revenue Given cash before job done (Like a loan, but Revenue intend of repayment) **Unearned Revenue is not REVENUE) it is A Liability!!! Adjusting Entries ------------------------ [Debt to Liability] and [Credit to Revenue]
Deferral Exchange of cash before Action
Interest Equation Principal x Rate x Time Time is always a (X/12) with X being the number of periods in the given year
Adjusted Trail balance It's to prove the equity of Debts and Credits balances in the Ledger after all Adjustment have been made. "same as Unadjusted trail balance but Except includes Adjusting Entries.
Financial Statements can be prepared.... .....directly from Adjusted trail balance(AJB)
Nominal Accounts Are closed to zero balance at the end of the year (Revenues, Expenses, Dividends) To Retained Earnings
When Closing Nominal Account (Debt or Credit)? Normalizing balance [{column}] is where the retained earnings
Dividends is what kind of account? Contra Equity so "Equity" Note: Is Negative
Balance In retained earnings represents (after closing) Net Income Not payed out to Stockholders as Dividends
Created by: Elzbane