会计英语unit5-Completion-of-the-Accounting-Cycle[精]课件.ppt

1、Unit 5 Completion of the Accounting Cyclel.Adjusting Entriesl.Closing Entriesl.Adjusted Trial Balance11.Analyzing transactionsAccounting Cycle2.Making journals3.Preparing ledgers4.Trial balance 5.Adjusting&closing6.Adjusted trial balance7.Financial statementAccounting Cycle2.Adjusting EntrieslAdjust

2、ing entries are journal entries which are classified as either prepayments or accruals.lAdjusting entries are needed because they assign revenues to the period when they are earned and expenses to the period when they are incurred.lWith adjusting entries,related asset and liability accounts balances

3、 are corrected under the concept of accrual-basis.3PrepaymentsPrepaid expensesUnearned revenuesAdjustment Accrued revenues Accrued expensesl Accruals41.Prepayments:Prepaid expenses:expenses paid in cash and recorded in assets before they are used or consumed.Unearned revenues:cash received as liabil

4、ities before revenue is earned.2.Accruals:Accrued revenues:revenues earned but not yet received in cash or recorded.Accrued expenses:expenses incurred but not yet paid in cash or recorded.5lAn asset account is increased to show the benefit that will be received in the futureWhen expenses are paidAt

5、the end of each accounting periodlApportion is needed to record the expenses that occurred in the current period.8Adjustment for prepaid expensesAssets ExpensesOverstated BalanceAdjusting Entry(-)Adjusting Entry(+)9Example(1)Prepaid InsurancelTarget paid a$1,200 for a 3-month insurance.sequityowners

6、liabilitieassetsDr.Prepaid Insurance 1,200 Cr.Cash 1,200When expenses are paidAt the end of the monthDr.Insurance Expense 400 Cr.Prepaid Insurance 40010Example(2)SupplieslTarget purchases supplies costing$5,000.When supplies are purchasedlBy the end of the month,a count of the inventory shows that$2

7、,500 of the supplies has been used up.Dr.Supplies 5,000 Cr.Cash 5,000Dr.Supplies Expense 2,500 Cr.Supplies 2,500At the end of the month11Example(3)DepreciationlDepreciation is a special kind of prepayment.It means the wear and tear on fixed assets that have long lives and will serve for years in a c

8、ompany,such as buildings,equipment,and motor vehicles.lThe period of service is called the useful life or service life of the asset.lDepreciation is the process of allocating the cost of an asset to expense over its useful life.lAn account called Accumulated Depreciation is set up,which is a deducti

9、on of the assets account it offsets.12lA company buys a piece of equipment for$1 million and expects it to have a useful life for 10 years.Example(3)DepreciationWhen equipment are purchasedDr.Equipment 1,000,000 Cr.Cash 1,000,000At the end of the yearDr.Depreciation Expense 100,000 Cr.Accumulated De

10、preciation 100,000132.Unearned RevenueslWhen payment is received for services to be provided in a future date,a liability account called Unearned Revenue is increased to recognize the obligation that is created.lFor example:Rent received in advance14Adjustment for unearned revenuesLiability Revenues

11、Overstated BalanceAdjusting Entry(-)Adjusting Entry(+)15Example unearned revenueslSears Corporation receives$4,000 for services in advance supposed to be completed in 4 month.When payment is received Dr.Cash 4,000 Cr.Unearned Revenue 4,000At the end of month Dr.Unearned Revenue 1,000 Cr.Service Reve

12、nue 1,000163.Accrued RevenueslRevenues earned but not yet recorded at the settlement date are called accrued revenues.lFor example:interest revenue17Adjustment for Accrued RevenuesAssets RevenuesUnderstated BalanceAdjusting Entry(+)Adjusting Entry(+)18Example lSears Corporation performed service for

13、 revenue fee for$300 which would not be received until later.When revenue is earned Dr.Account Receivable 300 Cr.Service Revenue 300When cash is received Dr.Cash 300 Cr.Account Receivable 300194.Accrued ExpenseslExpenses incurred but not yet paid or recorded are called accrued expenses.lFor example:

14、interest,taxes and salaries20Adjustment for accrued expensesExpenses LiabilitiesUnderstated BalanceAdjusting Entry(+)Adjusting Entry(+)21Example(1)Accrued InterestlSears Corporation signed a three-month notes payable in the amount of$10,000 in October 1.The note requires interest at an annual rate o

15、f 12%.lThe amount of interest accumulation is determined by three factors:Interest=Face Value of Note x Annual Interest Rate x Time in Terms of One Year22lInterest cost for a month:$10,000 x 12%x 1/12=$100Dr.Interest Expense 100 Cr.Interest Payable 100At the end of month 23Example(2)Accrued Salaries

16、lSears has accrued salaries to pay at the end of month$2,000.lAdjusting entry:Dr.Salaries Expense 2,000 Cr.Salaries Payable 2,00024.Closing EntrieslClosing involves closing temporary accounts and transferring the data to an account called Income Summary.lIncome Summary is a non-financial statement a

17、ccount used only to facilitate the closing process.25lReal accounts/Permanent accounts:Their balances are carried from period to period.For example:Asset,Liability and Owners equity.lNominal accounts/Temporary accounts:At the end of the accounting year,their balances will be transferred to Income Su

18、mmary,ie to be closed.For example:Revenue and Expense.2612327Example lCurrent accounts show National City has the following revenues and expenses information:Revenues:$35,000,Expenses for the period:salary$900,advertising$5,000,depreciation$5,000,interest$200,Dividend for the period$1,000.28l1.To cl

19、ose revenues and expenses into income summary.Dr.Revenue 35,000 Cr.Income Summary 35,000Dr.Income Summary 11,100 Cr.Salaries Expense 900 Advertising Expense 5,000 Depreciation Expense 5,000 Interest Expense 20029l2.Now the income summary has a credit balance which will be carried over to Retained Ea

20、rnings.Dr.Income Summary 23,900 Cr.Retained Earnings 23,900l3.To close the dividend.Dr.Retained Earnings 1,000 Cr.Dividend 1,00030.Adjusted Trial BalancelAdjusting trial balance should be in perfect balance based on which financial statements are prepared.31 Accounts Title Balance Cash 7,050Office s

21、uppliesPrepaid rent 8002,000Paid-in Capital 10,000Withdrawals 50Sales revenue1,500Telephone expense100Salary expense1,500 Total 11,50011,500Balance sheetIncome statementSonya PharmacyTrial BalanceDecember 31,200932Case lMissy Real Estate has the following transactions information in August,2007:1.On

22、 August 31 2007,the company owed$900 in salaries to its employees which will not be paid till September 2007.2.On August 1,the company borrowed$48,000 from the bank on a 10 year mortgage.The annual interest rate is 10%.3.Revenues earned but unrecorded for August totaled$1,300.lRequirements:Prepare t

23、he adjusting entries needed on August 31,2007.33Solution l1.Dr.Salaries Expense 900 Cr.Salaries Payable 900l2.Dr.Interest Expense 400 Cr.Interest Payable 400l3.Dr.Account receivable 1,300 Cr.Service Revenue 1,30034Summary l.Adjusting Entries1.Prepayments:Prepaid expenses&unearned revenues2.Accruals:

24、Accrued revenues&Accrued expensesl.Closing Entriesl.Adjusted Trial Balance35Type of adjustmentAccounts before adjustmentAdjusting entryPrepaid expensesAsset overstatedExpenses understatedDr.Expenses Cr.AssetsUnearned revenuesLiabilities overstatedRevenues understatedDr.Liabilities Cr.RevenuesAccrued revenuesAssets understatedRevenues understatedDr.Assets Cr.RevenuesAccrued expensesExpenses understatedLiabilities understated Dr.Expenses Cr.Liabilities36