SlideShare une entreprise Scribd logo
1  sur  69
Télécharger pour lire hors ligne
3-1
CHAPTER3
           Adjusting the
           Accounts




3-2
3-3
Timing Issues

      Accountants divide the economic life of a business into
      artificial time periods (Time Period Assumption).

                                            .....
       Jan.     Feb.    Mar.     Apr.                      Dec.




          Generally a month, a quarter, or a year.
          Also known as the “Periodicity Assumption”



3-4                                 SO 1 Explain the time period assumption.
Timing Issues

      Fiscal and Calendar Years
          Monthly and quarterly time periods are called interim
           periods.
          Public companies must prepare both quarterly and
           annual financial statements.
          Fiscal Year = Accounting time period that is one year
           in length.
          Calendar Year = January 1 to December 31.



3-5                                  SO 1 Explain the time period assumption.
Timing Issues

      Review
      The time period assumption states that:
        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.

3-6                                  SO 1 Explain the time period assumption.
Timing Issues

      Accrual- vs. Cash-Basis Accounting
       Accrual-Basis Accounting
          Transactions 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.



3-7                              SO 2 Explain the accrual basis of accounting.
Timing Issues

      Accrual- vs. Cash-Basis Accounting
       Cash-Basis Accounting
          Revenues recognized when cash is received.

          Expenses recognized when cash is paid.

          Cash-basis accounting is not in accordance with
           generally accepted accounting principles (GAAP).




3-8                             SO 2 Explain the accrual basis of accounting.
Timing Issues

      Recognizing Revenues and Expenses
       Revenue Recognition Principle
       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.


3-9                               SO 2 Explain the accrual basis of accounting.
Timing Issues

       Recognizing Revenues and Expenses
        Expense Recognition Principle
        Match expenses with
        revenues in the period
        when the company makes
        efforts to generate those
        revenues.

        “Let the expenses follow
        the revenues.”


3-10                                SO 2 Explain the accrual basis of accounting.
Timing Issues
                                            Illustration 3-1
                                            GAAP relationships in revenue
                                            and expense recognition




3-11                   SO 2 Explain the accrual basis of accounting.
3-12   SO 2 Explain the accrual basis of accounting.
Timing Issues

       Review
        One of the following statements about the accrual basis of
        accounting is false. That statement is:
          a. Events that change a company’s 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 of accounting is in accord with
             generally accepted accounting principles.
          d. Revenue is recorded only when cash is received, and
             expenses are recorded only when cash is paid.


3-13                                SO 2 Explain the accrual basis of accounting.
The Basics of Adjusting Entries

           Adjusting entries are necessary because the trial
            balance may not contain up-to-date and complete
            data.
           Ensure that the revenue recognition and expense
            recognition principles are followed.
           Required every time a company prepares financial
            statements.
           Will include one income statement account and
            one balance sheet account.


3-14                             SO 3 Explain the reasons for adjusting entries.
The Basics of Adjusting Entries

       Review
        Adjusting 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.

3-15                             SO 3 Explain the reasons for adjusting entries.
The Basics of Adjusting Entries

       Types of Adjusting Entries
                                                              Illustration 3-2
                                                              Categories of adjusting entries


       Deferrals                             Accruals
       1. Prepaid Expenses.                  3. Accrued Revenues.
          Expenses paid in cash and             Revenues earned but not yet
          recorded as assets before             received in cash or
          they are used or consumed.            recorded.

       2. Unearned Revenues.                 4. Accrued Expenses.
          Cash received and recorded            Expenses incurred but not
          as liabilities before revenue         yet paid in cash or recorded.
          is earned.


3-16                                 SO 4 Identify the major types of adjusting entries.
The Basics of Adjusting Entries

       Types of Adjusting Entries

  Trial Balance –
  Each account is
  analyzed to
  determine
  whether it is
  complete and up-
  to-date.


             Illustration 3-3



3-17                            SO 4 Identify the major types of adjusting entries.
The Basics of Adjusting Entries

       Adjusting Entries for Deferrals

        Deferrals are either:
              Prepaid expenses

                     OR
              Unearned revenues.




3-18                                SO 5 Prepare adjusting entries for deferrals.
The Basics of Adjusting Entries

       Prepaid Expenses
       Payment of cash, that is recorded as an asset because
       service or benefit will be received in the future.

           Cash Payment      BEFORE          Expense Recorded


       Prepayments often occur in regard to:
              insurance                rent
              supplies                 equipment
              advertising              buildings


3-19                                SO 5 Prepare adjusting entries for deferrals.
The Basics of Adjusting Entries

       Prepaid Expenses
           Expire either with the passage of time or through use.
           Adjusting entry:
            ►   Increase (debit) to an expense account and
            ►   Decrease (credit) to an asset account.
                                                                    Illustration 3-4




3-20                                 SO 5 Prepare adjusting entries for deferrals.
The Basics of Adjusting Entries

       Illustration: Pioneer Advertising Agency
       purchased supplies costing $2,500 on
       October 5. Pioneer recorded the payment
       by increasing (debiting) the asset
       Supplies. This account shows a balance
       of $2,500 in the October 31 trial balance.
       An inventory count at the close of
       business on October 31 reveals that
       $1,000 of supplies are still on hand.

       Oct. 31    Supplies expense                         1,500
                      Supplies                                        1,500

3-21                                    SO 5 Prepare adjusting entries for deferrals.
The Basics of Adjusting Entries
                                         Illustration 3-5




3-22                                                        SO 5
The Basics of Adjusting Entries

       Illustration: On October 4, Pioneer
       Advertising Agency paid $600 for a one-
       year fire insurance policy. Coverage
       began on October 1. Pioneer recorded
       the payment by increasing (debiting)
       Prepaid Insurance. This account shows a
       balance of $600 in the October 31 trial
       balance. Insurance of $50 ($600 / 12)
       expires each month.

       Oct. 31   Insurance expense                           50
                     Prepaid insurance                                  50

3-23                                  SO 5 Prepare adjusting entries for deferrals.
The Basics of Adjusting Entries
                                         Illustration 3-6




3-24                                                        SO 5
The Basics of Adjusting Entries

       Depreciation
          Buildings, equipment, and vehicles (assets with long
           lives) are recorded as assets, rather than an expense,
           in the year acquired.

          Companies report a portion of the cost of the asset as
           an expense (depreciation expense) during each period
           of the asset’s useful life.

          Depreciation does not attempt to report the actual
           change in the value of the asset.


3-25                                  SO 5 Prepare adjusting entries for deferrals.
The Basics of Adjusting Entries

       Illustration: For Pioneer Advertising,
       assume that depreciation on the
       equipment is $480 a year, or $40 per
       month.


       Oct. 31

       Depreciation expense              40
          Accumulated depreciation                 40


       Accumulated Depreciation is called a contra asset account.


3-26                                    SO 5 Prepare adjusting entries for deferrals.
The Basics of Adjusting Entries
                                         Illustration 3-7




3-27                                                        SO 5
The Basics of Adjusting Entries

       Statement Presentation
          Accumulated Depreciation is a contra asset account.

          Appears just after the account it offsets (Equipment)
           on the balance sheet.

          Normal balance of a contra asset account is a credit.
                                                                   Illustration 3-8




3-28                                  SO 5 Prepare adjusting entries for deferrals.
The Basics of Adjusting Entries


                                                             Illustration 3-9




3-29                        SO 5 Prepare adjusting entries for deferrals.
The Basics of Adjusting Entries

       Unearned Revenues
       Receipt of cash that is recorded as a liability because the
       revenue has not been earned.

            Cash Receipt         BEFORE        Revenue Recorded


       Unearned revenues often occur in regard to:
              Rent                       Magazine subscriptions
              Airline tickets            Customer deposits



3-30                                  SO 5 Prepare adjusting entries for deferrals.
The Basics of Adjusting Entries

       Unearned Revenues
           Adjusting entry is made to record the revenue that
            has been earned and to show the liability that remains.
           Results in a decrease (debit) to a liability account
            and an increase (credit) to a revenue account.
                                                                   Illustration 3-10




3-31                                 SO 5 Prepare adjusting entries for deferrals.
The Basics of Adjusting Entries

       Illustration: Pioneer Advertising Agency received $1,200 on
       October 2 from R. Knox for advertising services expected to be
       completed by December 31. Unearned Service Revenue shows a
       balance of $1,200 in the October 31 trial balance. Analysis reveals
       that the company earned $400 of those fees in October.


       Oct. 31    Unearned service revenue                    400
                      Service revenue                                   400




3-32                                    SO 5 Prepare adjusting entries for deferrals.
The Basics of Adjusting Entries
                                         Illustration 3-11




3-33                                                         SO 5
The Basics of Adjusting Entries


                                                            Illustration 3-12




3-34                        SO 5 Prepare adjusting entries for deferrals.
3-35
The Basics of Adjusting Entries

       Adjusting Entries for Accruals

        Accruals are made to record
              Revenues earned

                     OR
              Expenses incurred

        in the current accounting period that have not been
        recognized through daily entries.


3-36                               SO 6 Prepare adjusting entries for accruals.
The Basics of Adjusting Entries

       Accrued Revenues
       Revenues earned but not yet received in cash or recorded.


          Revenue Recorded        BEFORE          Cash Receipt


       Accrued revenues often occur in regard to:
              Rent                 Services performed
              Interest



3-37                                 SO 6 Prepare adjusting entries for accruals.
The Basics of Adjusting Entries

       Accrued Revenues
           Adjusting entry shows the receivable that exists and
            records the revenues earned.
           Adjusting entry:
            ►   Increases (debits) an asset account and
            ►   Increases (credits) a revenue account.
                                                           Illustration 3-13




3-38                                                                    SO 6
The Basics of Adjusting Entries

       Illustration: In October Pioneer Advertising
       Agency earned $200 for advertising services
       that had not been recorded.

       Oct. 31

       Accounts receivable             200
          Service revenue                       200

       On November 10, Pioneer receives cash of
       $200 for the services performed.

       Nov. 10    Cash                             200
                      Accounts receivable                     200
3-39                                   SO 6 Prepare adjusting entries for accruals.
The Basics of Adjusting Entries
                                         Illustration 3-14




3-40                                                         SO 6
The Basics of Adjusting Entries
                                                           Illustration 3-15




3-41                        SO 6 Prepare adjusting entries for accruals.
The Basics of Adjusting Entries

       Accrued Expenses
       Expenses incurred but not yet paid in cash or recorded.


          Expense Recorded       BEFORE            Cash Payment


       Accrued expenses often occur in regard to:
              Rent                      Taxes
              Interest                  Salaries



3-42                                 SO 6 Prepare adjusting entries for accruals.
The Basics of Adjusting Entries

       Accrued Expenses
           Adjusting entry records the obligation and recognizes
            the expense.
           Adjusting entry:
            ►   Increase (debit) an expense account and
            ►   Increase (credit) a liability account.
                                                            Illustration 3-16




3-43                                                                     SO 6
The Basics of Adjusting Entries

       Illustration: Pioneer Advertising Agency signed a three-month
       note payable in the amount of $5,000 on October 1. The note
       requires Pioneer to pay interest at an annual rate of 12%.




       Oct. 31    Interest expense                            50
                     Interest payable                                    50



3-44                                    SO 6 Prepare adjusting entries for accruals.
The Basics of Adjusting Entries
                                         Illustration 3-18




3-45                                                         SO 6
3-46
The Basics of Adjusting Entries

       Illustration: Pioneer Advertising Agency last paid salaries on
       October 26; the next payment of salaries will not occur until
       November 9. The employees receive total salaries of $2,000 for a
       five-day work week, or $400 per day. Thus, accrued salaries at
       October 31 are $1,200 ($400 x 3 days).
                                                         Illustration 3-19




3-47                                   SO 6 Prepare adjusting entries for accruals.
The Basics of Adjusting Entries
                                         Illustration 3-20




3-48                                                         SO 6
The Basics of Adjusting Entries


                                                           Illustration 3-21




3-49                        SO 6 Prepare adjusting entries for accruals.
The Basics of Adjusting Entries

       Summary of Basic Relationships
                                                           Illustration 3-22




3-50                        SO 6 Prepare adjusting entries for accruals.
The Adjusted Trial Balance

       Adjusted Trial Balance

           Prepared after all adjusting entries are journalized
            and posted.

           Purpose is to prove the equality of debit balances
            and credit balances in the ledger.

           Is the primary basis for the preparation of financial
            statements.




3-51               SO 7 Describe the nature and purpose of the adjusted trial balance.
Illustration 3-25




3-52
The Adjusted Trial Balance

       Review
        Which of the following statements is incorrect concerning the
        adjusted trial balance?
          a. An adjusted trial balance proves the equality of the total
             debit balances and the total credit balances in the ledger
             after all adjustments are made.
          b. The adjusted trial balance provides the primary basis for
             the preparation of financial statements.
          c. The adjusted trial balance lists the account balances
             segregated by assets and liabilities.
          d. The adjusted trial balance is prepared after the adjusting
             entries have been journalized and posted.

3-53               SO 7 Describe the nature and purpose of the adjusted trial balance.
The Financial Statements

          Financial Statements are prepared directly from the
          Financial Statements are prepared directly from the
                       Adjusted Trial Balance.
                       Adjusted Trial Balance.




                                                                Owner’s
          Balance                    Income
                                                                 Equity
           Sheet                    Statement
                                                               Statement




3-54                SO 7 Describe the nature and purpose of the adjusted trial balance.
Illustration 3-26




3-55                       SO 7
Illustration 3-27




3-56                       SO 7
APPENDIX3A
       Alternative Treatment of Prepaid Expenses
       and Unearned Revenues
           When a company prepays an expense, it debits that
            amount to an expense account.

           When a company receives payment for future
            services, it credits the amount to a revenue account.




3-57            SO 8 Prepare adjusting entries for the alternative treatment of deferrals.
APPENDIX3A
       Prepaid Expenses
       Company may choose to debit (increase) an expense
       account rather than an asset account. This alternative
       treatment is simply more convenient.
                                                                            Illustration 3A-2




3-58            SO 8 Prepare adjusting entries for the alternative treatment of deferrals.
APPENDIX3A
       Unearned Revenues
       Company may credit (increase) a revenue account when
       they receive cash for future services.
                                                                           Illustration 3A-5




3-59           SO 8 Prepare adjusting entries for the alternative treatment of deferrals.
APPENDIX3A
       Summary of Additional Adjustment
       Relationships                                                       Illustration 3A-7




3-60          SO 8 Prepare adjusting entries for the alternative treatment of deferrals.
IFRS             A Look at IFRS


       Key Points
           Companies applying IFRS also use accrual-basis accounting to
            ensure that they record transactions that change a company’s
            financial statements in the period in which events occur.
           Similar to GAAP, cash-basis accounting is not in accordance with
            IFRS.
           IFRS also divides the economic life of companies into artificial
            time periods. Under both GAAP and IFRS, this is referred to as the
            time period assumption.
           IFRS requires that companies present a complete set of financial
            statements, including comparative information annually.



3-61
IFRS             A Look at IFRS


       Key Points
           GAAP has more than 100 rules dealing with revenue recognition.
            Many of these rules are industry specific. In contrast, revenue
            recognition under IFRS is determined primarily by a single
            standard. Despite this large disparity in the amount of detailed
            guidance devoted to revenue recognition, the general revenue
            recognition principles required by GAAP that are used in this
            textbook are similar to those under IFRS.
           As the Feature Story illustrates, revenue recognition fraud is a
            major issue in U.S. financial reporting. The same situation occurs
            in other countries, as evidenced by revenue recognition
            breakdowns at Dutch software company Baan NV, Japanese
            electronics giant NEC, and Dutch grocer AHold NV.


3-62
IFRS             A Look at IFRS


       Key Points
           A specific standard exists for revenue recognition under IFRS (IAS
            18). In general, the standard is based on the probability that the
            economic benefits associated with the transaction will flow to the
            company selling the goods, providing the service, or receiving
            investment income. In addition, the revenues and costs must be
            capable of being measured reliably. GAAP uses concepts such as
            realized, realizable (that is, it is received, or expected to be
            received), and earned as a basis for revenue recognition.
           Under IFRS, revaluation of items such as land and buildings is
            permitted. IFRS allows depreciation based on revaluation of
            assets, which is not permitted under GAAP.



3-63
IFRS             A Look at IFRS


       Key Points
           The terminology used for revenues and gains, and expenses and
            losses, differs somewhat between IFRS and GAAP. For example,
            income is defined as:
              Increases in economic benefits during the accounting period in
              the form of inflows or enhancements of assets or decreases of
              liabilities that result in increases in equity, other than those
              relating to contributions from shareholders.
            Expenses are defined as:
              Decreases in economic benefits during the accounting period in
              the form of outflows or depletions of assets or incurrences of
              liabilities that result in decreases in equity other than those r
              elating to distributions to shareholders.
3-64
IFRS            A Look at IFRS


       Looking into the Future
        The IASB and FASB are now involved in a joint project on revenue
        recognition. The purpose of this project is to develop
        comprehensive guidance on when to recognize revenue.
        Presently, the Boards are considering an approach that focuses
        on changes in assets and liabilities (rather than on earned and
        realized) as the basis for revenue recognition.




3-65
IFRS          A Look at IFRS

       GAAP:
        a. provides very detailed, industry-specific guidance on
           revenue recognition, compared to the general
           guidance provided by IFRS.
        b. provides only general guidance on revenue
           recognition, compared to the detailed guidance
           provided by IFRS.
        c. allows revenue to be recognized when a customer
           makes an order.
        d. requires that revenue not be recognized until cash is
           received.
3-66
IFRS           A Look at IFRS

       Which of the following statements is false?

        a. IFRS employs the periodicity assumption.

        b. IFRS employs accrual accounting.

        c. IFRS requires that revenues and costs must be
           capable of being measured reliably.

        d. IFRS uses the cash basis of accounting.




3-67
IFRS           A Look at IFRS

       As a result of the revenue recognition project being
       undertaken by the FASB and IASB:

        a. revenue recognition will place more emphasis on
           when revenue is earned.

        b. revenue recognition will place more emphasis on
           when revenue is realized.

        c. revenue recognition will place more emphasis on
           when changes occur in assets and liabilities.

        d. revenue will no longer be recorded unless cash has
           been received

3-68
Copyright

       “Copyright © 2011 John Wiley & Sons, Inc. All rights reserved.
       Reproduction or translation of this work beyond that permitted in
       Section 117 of the 1976 United States Copyright Act without the
       express written permission of the copyright owner is unlawful.
       Request for further information should be addressed to the
       Permissions Department, John Wiley & Sons, Inc. The purchaser
       may make back-up copies for his/her own use only and not for
       distribution or resale. The Publisher assumes no responsibility for
       errors, omissions, or damages, caused by the use of these
       programs or from the use of the information contained herein.”




3-69

Contenu connexe

Tendances

Bab 6 - Accounting and the Time Value of Money
Bab 6 - Accounting and the Time Value of MoneyBab 6 - Accounting and the Time Value of Money
Bab 6 - Accounting and the Time Value of Moneymsahuleka
 
Kieso inter ch12_ ifrs
Kieso inter ch12_ ifrsKieso inter ch12_ ifrs
Kieso inter ch12_ ifrswaltreade
 
Accounting Principles, 12th ch4
Accounting Principles, 12th ch4Accounting Principles, 12th ch4
Accounting Principles, 12th ch4AbdelmonsifFadl
 
Kieso Ch02 Conceptual Framework for Financing Reporting
Kieso Ch02 Conceptual Framework for Financing ReportingKieso Ch02 Conceptual Framework for Financing Reporting
Kieso Ch02 Conceptual Framework for Financing ReportingAhmad Rudi
 
Ch3 siklus akuntansi kieso ifrs
Ch3  siklus akuntansi kieso ifrsCh3  siklus akuntansi kieso ifrs
Ch3 siklus akuntansi kieso ifrsalif radix
 
Accounting Principles, 12th Edition Ch08
Accounting Principles, 12th Edition Ch08Accounting Principles, 12th Edition Ch08
Accounting Principles, 12th Edition Ch08AbdelmonsifFadl
 
Accounting Principles, 12th Edition Ch11
Accounting Principles, 12th Edition  Ch11 Accounting Principles, 12th Edition  Ch11
Accounting Principles, 12th Edition Ch11 AbdelmonsifFadl
 
Accounting Principles, 12th Edition ch7
Accounting Principles, 12th Edition ch7Accounting Principles, 12th Edition ch7
Accounting Principles, 12th Edition ch7AbdelmonsifFadl
 
Depresiasi, Implementasi, and Deplesi
Depresiasi, Implementasi, and  DeplesiDepresiasi, Implementasi, and  Deplesi
Depresiasi, Implementasi, and DeplesiFair Nurfachrizi
 
Ch03-financial reporting and accounting standards
Ch03-financial reporting and accounting standardsCh03-financial reporting and accounting standards
Ch03-financial reporting and accounting standardsVivi Tazkia
 
Ch12 - accounting intermediate - IND
Ch12 - accounting intermediate - INDCh12 - accounting intermediate - IND
Ch12 - accounting intermediate - INDMaiya Maiya
 
Ch2 kerangka (framework) kieso ifrs
Ch2  kerangka (framework) kieso ifrsCh2  kerangka (framework) kieso ifrs
Ch2 kerangka (framework) kieso ifrsalif radix
 
Ch02-conceptual framework or financial reporting
Ch02-conceptual framework or financial reportingCh02-conceptual framework or financial reporting
Ch02-conceptual framework or financial reportingVivi Tazkia
 

Tendances (20)

Bab 6 - Accounting and the Time Value of Money
Bab 6 - Accounting and the Time Value of MoneyBab 6 - Accounting and the Time Value of Money
Bab 6 - Accounting and the Time Value of Money
 
Kieso inter ch12_ ifrs
Kieso inter ch12_ ifrsKieso inter ch12_ ifrs
Kieso inter ch12_ ifrs
 
Accounting in Action
Accounting in ActionAccounting in Action
Accounting in Action
 
Accounting Principles, 12th ch4
Accounting Principles, 12th ch4Accounting Principles, 12th ch4
Accounting Principles, 12th ch4
 
Ch15
Ch15Ch15
Ch15
 
Kieso Ch02 Conceptual Framework for Financing Reporting
Kieso Ch02 Conceptual Framework for Financing ReportingKieso Ch02 Conceptual Framework for Financing Reporting
Kieso Ch02 Conceptual Framework for Financing Reporting
 
Ch3 siklus akuntansi kieso ifrs
Ch3  siklus akuntansi kieso ifrsCh3  siklus akuntansi kieso ifrs
Ch3 siklus akuntansi kieso ifrs
 
Accounting Principles, 12th Edition Ch08
Accounting Principles, 12th Edition Ch08Accounting Principles, 12th Edition Ch08
Accounting Principles, 12th Edition Ch08
 
Accounting Principles, 12th Edition Ch11
Accounting Principles, 12th Edition  Ch11 Accounting Principles, 12th Edition  Ch11
Accounting Principles, 12th Edition Ch11
 
Materi akm2-investasi-bagian 1
Materi akm2-investasi-bagian 1Materi akm2-investasi-bagian 1
Materi akm2-investasi-bagian 1
 
Accounting Principles, 12th Edition ch7
Accounting Principles, 12th Edition ch7Accounting Principles, 12th Edition ch7
Accounting Principles, 12th Edition ch7
 
Ch11
Ch11Ch11
Ch11
 
Depresiasi, Implementasi, and Deplesi
Depresiasi, Implementasi, and  DeplesiDepresiasi, Implementasi, and  Deplesi
Depresiasi, Implementasi, and Deplesi
 
Ch03-financial reporting and accounting standards
Ch03-financial reporting and accounting standardsCh03-financial reporting and accounting standards
Ch03-financial reporting and accounting standards
 
ch7
ch7ch7
ch7
 
Ch12 - accounting intermediate - IND
Ch12 - accounting intermediate - INDCh12 - accounting intermediate - IND
Ch12 - accounting intermediate - IND
 
Ch2 kerangka (framework) kieso ifrs
Ch2  kerangka (framework) kieso ifrsCh2  kerangka (framework) kieso ifrs
Ch2 kerangka (framework) kieso ifrs
 
Ch10
Ch10Ch10
Ch10
 
Ch04
Ch04Ch04
Ch04
 
Ch02-conceptual framework or financial reporting
Ch02-conceptual framework or financial reportingCh02-conceptual framework or financial reporting
Ch02-conceptual framework or financial reporting
 

Similaire à Ch03

Financial_Accounting_chapter_03.ppt
Financial_Accounting_chapter_03.pptFinancial_Accounting_chapter_03.ppt
Financial_Accounting_chapter_03.pptistisastro
 
Ch03 new ifrs[39420]
Ch03 new ifrs[39420]Ch03 new ifrs[39420]
Ch03 new ifrs[39420]Faisal14H
 
Chap 7 Adjusting entries .ppt
Chap 7 Adjusting entries .pptChap 7 Adjusting entries .ppt
Chap 7 Adjusting entries .pptMohamoud9
 
Bab 3 - The Accounting Information System
Bab 3 - The Accounting Information SystemBab 3 - The Accounting Information System
Bab 3 - The Accounting Information Systemmsahuleka
 
Lecture slides_Chapter 3 _ 4.pptx
Lecture slides_Chapter 3 _ 4.pptxLecture slides_Chapter 3 _ 4.pptx
Lecture slides_Chapter 3 _ 4.pptxKhangMinh59
 
Chapter 3 recording of transaction i
Chapter 3 recording of transaction iChapter 3 recording of transaction i
Chapter 3 recording of transaction iHuma Tarannum
 
Accounting information system
Accounting information systemAccounting information system
Accounting information systemBaadai Badral
 
| Accounting Cycle | Double Entry Accounting | Basic Accounting Equation | 8 ...
| Accounting Cycle | Double Entry Accounting | Basic Accounting Equation | 8 ...| Accounting Cycle | Double Entry Accounting | Basic Accounting Equation | 8 ...
| Accounting Cycle | Double Entry Accounting | Basic Accounting Equation | 8 ...Ahmad Hassan
 
Financial accounting AC-23-Adjusting Journal Entries
Financial accounting AC-23-Adjusting Journal EntriesFinancial accounting AC-23-Adjusting Journal Entries
Financial accounting AC-23-Adjusting Journal Entriesblancomaryrosary
 

Similaire à Ch03 (20)

Ch03
Ch03Ch03
Ch03
 
Financial_Accounting_chapter_03.ppt
Financial_Accounting_chapter_03.pptFinancial_Accounting_chapter_03.ppt
Financial_Accounting_chapter_03.ppt
 
ch03.pdf
ch03.pdfch03.pdf
ch03.pdf
 
Ch03
Ch03Ch03
Ch03
 
NSU EMB 501 Accounting Ch03
NSU EMB 501 Accounting Ch03NSU EMB 501 Accounting Ch03
NSU EMB 501 Accounting Ch03
 
Ch03 new ifrs[39420]
Ch03 new ifrs[39420]Ch03 new ifrs[39420]
Ch03 new ifrs[39420]
 
Chap 7 Adjusting entries .ppt
Chap 7 Adjusting entries .pptChap 7 Adjusting entries .ppt
Chap 7 Adjusting entries .ppt
 
Chapter 3.pdf
Chapter 3.pdfChapter 3.pdf
Chapter 3.pdf
 
Penyesuaian Akun
Penyesuaian AkunPenyesuaian Akun
Penyesuaian Akun
 
ch03-191207003624.pdf
ch03-191207003624.pdfch03-191207003624.pdf
ch03-191207003624.pdf
 
Ch04
Ch04Ch04
Ch04
 
Bab 3 - The Accounting Information System
Bab 3 - The Accounting Information SystemBab 3 - The Accounting Information System
Bab 3 - The Accounting Information System
 
Lecture slides_Chapter 3 _ 4.pptx
Lecture slides_Chapter 3 _ 4.pptxLecture slides_Chapter 3 _ 4.pptx
Lecture slides_Chapter 3 _ 4.pptx
 
Accounting GAAP
Accounting GAAP Accounting GAAP
Accounting GAAP
 
Chapter 3 recording of transaction i
Chapter 3 recording of transaction iChapter 3 recording of transaction i
Chapter 3 recording of transaction i
 
Ch03
Ch03Ch03
Ch03
 
Accounting information system
Accounting information systemAccounting information system
Accounting information system
 
Chapter04
Chapter04Chapter04
Chapter04
 
| Accounting Cycle | Double Entry Accounting | Basic Accounting Equation | 8 ...
| Accounting Cycle | Double Entry Accounting | Basic Accounting Equation | 8 ...| Accounting Cycle | Double Entry Accounting | Basic Accounting Equation | 8 ...
| Accounting Cycle | Double Entry Accounting | Basic Accounting Equation | 8 ...
 
Financial accounting AC-23-Adjusting Journal Entries
Financial accounting AC-23-Adjusting Journal EntriesFinancial accounting AC-23-Adjusting Journal Entries
Financial accounting AC-23-Adjusting Journal Entries
 

Plus de Sara Ibrahim

Plus de Sara Ibrahim (7)

10erobbins ppt01 r
10erobbins ppt01   r10erobbins ppt01   r
10erobbins ppt01 r
 
Mkt eq (1)
Mkt eq (1)Mkt eq (1)
Mkt eq (1)
 
Ch01
Ch01Ch01
Ch01
 
Cms file 465393
Cms file 465393Cms file 465393
Cms file 465393
 
Cms file 432053
Cms file 432053Cms file 432053
Cms file 432053
 
Cms file 432053
Cms file 432053Cms file 432053
Cms file 432053
 
Cms file 432049
Cms file 432049Cms file 432049
Cms file 432049
 

Ch03

  • 1. 3-1
  • 2. CHAPTER3 Adjusting the Accounts 3-2
  • 3. 3-3
  • 4. Timing Issues Accountants divide the economic life of a business into artificial time periods (Time Period Assumption). ..... Jan. Feb. Mar. Apr. Dec.  Generally a month, a quarter, or a year.  Also known as the “Periodicity Assumption” 3-4 SO 1 Explain the time period assumption.
  • 5. Timing Issues Fiscal and Calendar Years  Monthly and quarterly time periods are called interim periods.  Public companies must prepare both quarterly and annual financial statements.  Fiscal Year = Accounting time period that is one year in length.  Calendar Year = January 1 to December 31. 3-5 SO 1 Explain the time period assumption.
  • 6. Timing Issues Review The time period assumption states that: 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. 3-6 SO 1 Explain the time period assumption.
  • 7. Timing Issues Accrual- vs. Cash-Basis Accounting Accrual-Basis Accounting  Transactions 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. 3-7 SO 2 Explain the accrual basis of accounting.
  • 8. Timing Issues Accrual- vs. Cash-Basis Accounting Cash-Basis Accounting  Revenues recognized when cash is received.  Expenses recognized when cash is paid.  Cash-basis accounting is not in accordance with generally accepted accounting principles (GAAP). 3-8 SO 2 Explain the accrual basis of accounting.
  • 9. Timing Issues Recognizing Revenues and Expenses Revenue Recognition Principle 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. 3-9 SO 2 Explain the accrual basis of accounting.
  • 10. Timing Issues Recognizing Revenues and Expenses Expense Recognition Principle Match expenses with revenues in the period when the company makes efforts to generate those revenues. “Let the expenses follow the revenues.” 3-10 SO 2 Explain the accrual basis of accounting.
  • 11. Timing Issues Illustration 3-1 GAAP relationships in revenue and expense recognition 3-11 SO 2 Explain the accrual basis of accounting.
  • 12. 3-12 SO 2 Explain the accrual basis of accounting.
  • 13. Timing Issues Review One of the following statements about the accrual basis of accounting is false. That statement is: a. Events that change a company’s 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 of accounting is in accord with generally accepted accounting principles. d. Revenue is recorded only when cash is received, and expenses are recorded only when cash is paid. 3-13 SO 2 Explain the accrual basis of accounting.
  • 14. The Basics of Adjusting Entries  Adjusting entries are necessary because the trial balance may not contain up-to-date and complete data.  Ensure that the revenue recognition and expense recognition principles are followed.  Required every time a company prepares financial statements.  Will include one income statement account and one balance sheet account. 3-14 SO 3 Explain the reasons for adjusting entries.
  • 15. The Basics of Adjusting Entries Review Adjusting 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. 3-15 SO 3 Explain the reasons for adjusting entries.
  • 16. The Basics of Adjusting Entries Types of Adjusting Entries Illustration 3-2 Categories of adjusting entries Deferrals Accruals 1. Prepaid Expenses. 3. Accrued Revenues. Expenses paid in cash and Revenues earned but not yet recorded as assets before received in cash or they are used or consumed. recorded. 2. Unearned Revenues. 4. Accrued Expenses. Cash received and recorded Expenses incurred but not as liabilities before revenue yet paid in cash or recorded. is earned. 3-16 SO 4 Identify the major types of adjusting entries.
  • 17. The Basics of Adjusting Entries Types of Adjusting Entries Trial Balance – Each account is analyzed to determine whether it is complete and up- to-date. Illustration 3-3 3-17 SO 4 Identify the major types of adjusting entries.
  • 18. The Basics of Adjusting Entries Adjusting Entries for Deferrals Deferrals are either:  Prepaid expenses OR  Unearned revenues. 3-18 SO 5 Prepare adjusting entries for deferrals.
  • 19. The Basics of Adjusting Entries Prepaid Expenses Payment of cash, that is recorded as an asset because service or benefit will be received in the future. Cash Payment BEFORE Expense Recorded Prepayments often occur in regard to:  insurance  rent  supplies  equipment  advertising  buildings 3-19 SO 5 Prepare adjusting entries for deferrals.
  • 20. The Basics of Adjusting Entries Prepaid Expenses  Expire either with the passage of time or through use.  Adjusting entry: ► Increase (debit) to an expense account and ► Decrease (credit) to an asset account. Illustration 3-4 3-20 SO 5 Prepare adjusting entries for deferrals.
  • 21. The Basics of Adjusting Entries Illustration: Pioneer Advertising Agency purchased supplies costing $2,500 on October 5. Pioneer recorded the payment by increasing (debiting) the asset Supplies. This account shows a balance of $2,500 in the October 31 trial balance. An inventory count at the close of business on October 31 reveals that $1,000 of supplies are still on hand. Oct. 31 Supplies expense 1,500 Supplies 1,500 3-21 SO 5 Prepare adjusting entries for deferrals.
  • 22. The Basics of Adjusting Entries Illustration 3-5 3-22 SO 5
  • 23. The Basics of Adjusting Entries Illustration: On October 4, Pioneer Advertising Agency paid $600 for a one- year fire insurance policy. Coverage began on October 1. Pioneer recorded the payment by increasing (debiting) Prepaid Insurance. This account shows a balance of $600 in the October 31 trial balance. Insurance of $50 ($600 / 12) expires each month. Oct. 31 Insurance expense 50 Prepaid insurance 50 3-23 SO 5 Prepare adjusting entries for deferrals.
  • 24. The Basics of Adjusting Entries Illustration 3-6 3-24 SO 5
  • 25. The Basics of Adjusting Entries Depreciation  Buildings, equipment, and vehicles (assets with long lives) are recorded as assets, rather than an expense, in the year acquired.  Companies report a portion of the cost of the asset as an expense (depreciation expense) during each period of the asset’s useful life.  Depreciation does not attempt to report the actual change in the value of the asset. 3-25 SO 5 Prepare adjusting entries for deferrals.
  • 26. The Basics of Adjusting Entries Illustration: For Pioneer Advertising, assume that depreciation on the equipment is $480 a year, or $40 per month. Oct. 31 Depreciation expense 40 Accumulated depreciation 40 Accumulated Depreciation is called a contra asset account. 3-26 SO 5 Prepare adjusting entries for deferrals.
  • 27. The Basics of Adjusting Entries Illustration 3-7 3-27 SO 5
  • 28. The Basics of Adjusting Entries Statement Presentation  Accumulated Depreciation is a contra asset account.  Appears just after the account it offsets (Equipment) on the balance sheet.  Normal balance of a contra asset account is a credit. Illustration 3-8 3-28 SO 5 Prepare adjusting entries for deferrals.
  • 29. The Basics of Adjusting Entries Illustration 3-9 3-29 SO 5 Prepare adjusting entries for deferrals.
  • 30. The Basics of Adjusting Entries Unearned Revenues Receipt of cash that is recorded as a liability because the revenue has not been earned. Cash Receipt BEFORE Revenue Recorded Unearned revenues often occur in regard to:  Rent  Magazine subscriptions  Airline tickets  Customer deposits 3-30 SO 5 Prepare adjusting entries for deferrals.
  • 31. The Basics of Adjusting Entries Unearned Revenues  Adjusting entry is made to record the revenue that has been earned and to show the liability that remains.  Results in a decrease (debit) to a liability account and an increase (credit) to a revenue account. Illustration 3-10 3-31 SO 5 Prepare adjusting entries for deferrals.
  • 32. The Basics of Adjusting Entries Illustration: Pioneer Advertising Agency received $1,200 on October 2 from R. Knox for advertising services expected to be completed by December 31. Unearned Service Revenue shows a balance of $1,200 in the October 31 trial balance. Analysis reveals that the company earned $400 of those fees in October. Oct. 31 Unearned service revenue 400 Service revenue 400 3-32 SO 5 Prepare adjusting entries for deferrals.
  • 33. The Basics of Adjusting Entries Illustration 3-11 3-33 SO 5
  • 34. The Basics of Adjusting Entries Illustration 3-12 3-34 SO 5 Prepare adjusting entries for deferrals.
  • 35. 3-35
  • 36. The Basics of Adjusting Entries Adjusting Entries for Accruals Accruals are made to record  Revenues earned OR  Expenses incurred in the current accounting period that have not been recognized through daily entries. 3-36 SO 6 Prepare adjusting entries for accruals.
  • 37. The Basics of Adjusting Entries Accrued Revenues Revenues earned but not yet received in cash or recorded. Revenue Recorded BEFORE Cash Receipt Accrued revenues often occur in regard to:  Rent  Services performed  Interest 3-37 SO 6 Prepare adjusting entries for accruals.
  • 38. The Basics of Adjusting Entries Accrued Revenues  Adjusting entry shows the receivable that exists and records the revenues earned.  Adjusting entry: ► Increases (debits) an asset account and ► Increases (credits) a revenue account. Illustration 3-13 3-38 SO 6
  • 39. The Basics of Adjusting Entries Illustration: In October Pioneer Advertising Agency earned $200 for advertising services that had not been recorded. Oct. 31 Accounts receivable 200 Service revenue 200 On November 10, Pioneer receives cash of $200 for the services performed. Nov. 10 Cash 200 Accounts receivable 200 3-39 SO 6 Prepare adjusting entries for accruals.
  • 40. The Basics of Adjusting Entries Illustration 3-14 3-40 SO 6
  • 41. The Basics of Adjusting Entries Illustration 3-15 3-41 SO 6 Prepare adjusting entries for accruals.
  • 42. The Basics of Adjusting Entries Accrued Expenses Expenses incurred but not yet paid in cash or recorded. Expense Recorded BEFORE Cash Payment Accrued expenses often occur in regard to:  Rent  Taxes  Interest  Salaries 3-42 SO 6 Prepare adjusting entries for accruals.
  • 43. The Basics of Adjusting Entries Accrued Expenses  Adjusting entry records the obligation and recognizes the expense.  Adjusting entry: ► Increase (debit) an expense account and ► Increase (credit) a liability account. Illustration 3-16 3-43 SO 6
  • 44. The Basics of Adjusting Entries Illustration: Pioneer Advertising Agency signed a three-month note payable in the amount of $5,000 on October 1. The note requires Pioneer to pay interest at an annual rate of 12%. Oct. 31 Interest expense 50 Interest payable 50 3-44 SO 6 Prepare adjusting entries for accruals.
  • 45. The Basics of Adjusting Entries Illustration 3-18 3-45 SO 6
  • 46. 3-46
  • 47. The Basics of Adjusting Entries Illustration: Pioneer Advertising Agency last paid salaries on October 26; the next payment of salaries will not occur until November 9. The employees receive total salaries of $2,000 for a five-day work week, or $400 per day. Thus, accrued salaries at October 31 are $1,200 ($400 x 3 days). Illustration 3-19 3-47 SO 6 Prepare adjusting entries for accruals.
  • 48. The Basics of Adjusting Entries Illustration 3-20 3-48 SO 6
  • 49. The Basics of Adjusting Entries Illustration 3-21 3-49 SO 6 Prepare adjusting entries for accruals.
  • 50. The Basics of Adjusting Entries Summary of Basic Relationships Illustration 3-22 3-50 SO 6 Prepare adjusting entries for accruals.
  • 51. The Adjusted Trial Balance Adjusted Trial Balance  Prepared after all adjusting entries are journalized and posted.  Purpose is to prove the equality of debit balances and credit balances in the ledger.  Is the primary basis for the preparation of financial statements. 3-51 SO 7 Describe the nature and purpose of the adjusted trial balance.
  • 53. The Adjusted Trial Balance Review Which of the following statements is incorrect concerning the adjusted trial balance? a. An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made. b. The adjusted trial balance provides the primary basis for the preparation of financial statements. c. The adjusted trial balance lists the account balances segregated by assets and liabilities. d. The adjusted trial balance is prepared after the adjusting entries have been journalized and posted. 3-53 SO 7 Describe the nature and purpose of the adjusted trial balance.
  • 54. The Financial Statements Financial Statements are prepared directly from the Financial Statements are prepared directly from the Adjusted Trial Balance. Adjusted Trial Balance. Owner’s Balance Income Equity Sheet Statement Statement 3-54 SO 7 Describe the nature and purpose of the adjusted trial balance.
  • 57. APPENDIX3A Alternative Treatment of Prepaid Expenses and Unearned Revenues  When a company prepays an expense, it debits that amount to an expense account.  When a company receives payment for future services, it credits the amount to a revenue account. 3-57 SO 8 Prepare adjusting entries for the alternative treatment of deferrals.
  • 58. APPENDIX3A Prepaid Expenses Company may choose to debit (increase) an expense account rather than an asset account. This alternative treatment is simply more convenient. Illustration 3A-2 3-58 SO 8 Prepare adjusting entries for the alternative treatment of deferrals.
  • 59. APPENDIX3A Unearned Revenues Company may credit (increase) a revenue account when they receive cash for future services. Illustration 3A-5 3-59 SO 8 Prepare adjusting entries for the alternative treatment of deferrals.
  • 60. APPENDIX3A Summary of Additional Adjustment Relationships Illustration 3A-7 3-60 SO 8 Prepare adjusting entries for the alternative treatment of deferrals.
  • 61. IFRS A Look at IFRS Key Points  Companies applying IFRS also use accrual-basis accounting to ensure that they record transactions that change a company’s financial statements in the period in which events occur.  Similar to GAAP, cash-basis accounting is not in accordance with IFRS.  IFRS also divides the economic life of companies into artificial time periods. Under both GAAP and IFRS, this is referred to as the time period assumption.  IFRS requires that companies present a complete set of financial statements, including comparative information annually. 3-61
  • 62. IFRS A Look at IFRS Key Points  GAAP has more than 100 rules dealing with revenue recognition. Many of these rules are industry specific. In contrast, revenue recognition under IFRS is determined primarily by a single standard. Despite this large disparity in the amount of detailed guidance devoted to revenue recognition, the general revenue recognition principles required by GAAP that are used in this textbook are similar to those under IFRS.  As the Feature Story illustrates, revenue recognition fraud is a major issue in U.S. financial reporting. The same situation occurs in other countries, as evidenced by revenue recognition breakdowns at Dutch software company Baan NV, Japanese electronics giant NEC, and Dutch grocer AHold NV. 3-62
  • 63. IFRS A Look at IFRS Key Points  A specific standard exists for revenue recognition under IFRS (IAS 18). In general, the standard is based on the probability that the economic benefits associated with the transaction will flow to the company selling the goods, providing the service, or receiving investment income. In addition, the revenues and costs must be capable of being measured reliably. GAAP uses concepts such as realized, realizable (that is, it is received, or expected to be received), and earned as a basis for revenue recognition.  Under IFRS, revaluation of items such as land and buildings is permitted. IFRS allows depreciation based on revaluation of assets, which is not permitted under GAAP. 3-63
  • 64. IFRS A Look at IFRS Key Points  The terminology used for revenues and gains, and expenses and losses, differs somewhat between IFRS and GAAP. For example, income is defined as: Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from shareholders. Expenses are defined as: Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity other than those r elating to distributions to shareholders. 3-64
  • 65. IFRS A Look at IFRS Looking into the Future The IASB and FASB are now involved in a joint project on revenue recognition. The purpose of this project is to develop comprehensive guidance on when to recognize revenue. Presently, the Boards are considering an approach that focuses on changes in assets and liabilities (rather than on earned and realized) as the basis for revenue recognition. 3-65
  • 66. IFRS A Look at IFRS GAAP: a. provides very detailed, industry-specific guidance on revenue recognition, compared to the general guidance provided by IFRS. b. provides only general guidance on revenue recognition, compared to the detailed guidance provided by IFRS. c. allows revenue to be recognized when a customer makes an order. d. requires that revenue not be recognized until cash is received. 3-66
  • 67. IFRS A Look at IFRS Which of the following statements is false? a. IFRS employs the periodicity assumption. b. IFRS employs accrual accounting. c. IFRS requires that revenues and costs must be capable of being measured reliably. d. IFRS uses the cash basis of accounting. 3-67
  • 68. IFRS A Look at IFRS As a result of the revenue recognition project being undertaken by the FASB and IASB: a. revenue recognition will place more emphasis on when revenue is earned. b. revenue recognition will place more emphasis on when revenue is realized. c. revenue recognition will place more emphasis on when changes occur in assets and liabilities. d. revenue will no longer be recorded unless cash has been received 3-68
  • 69. Copyright “Copyright © 2011 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.” 3-69