Académique Documents
Professionnel Documents
Culture Documents
Y
· An Account shows the effect of transactions on a given asset, liability, equity, revenue, or expense account.
· Double-entry accounting system (two-sided effect).
· Recording done by debiting at least one account and crediting another.
· DEBITS must equal CREDITS.
x
Y
Transactions
4. Adjustments
3. Trial Balance
2. Posting
1. Journalizing
5. Adjusted Trial Balance
6. Financial Statements
7. Closing Entries
8. Post-closing Trial Balance
9. Reversing Entries
Y
Adjusting Entries: needed to ensure that the revenue recognition and matching principles are followed.
Never effects cash, will always affect one balance sheet account and one income statement account
m
Prepayments
Prepaid Expenses: expenses paid in cash and recorded as assets before they are used or consumed.
Unearned Revenues: Revenues received in cash and recorded as liabilities before they are earned
3. Accrued Revenues: Revenues earned but not yet received in cash or recorded
4. Accrued Expenses: Expenses incurred but not yet paid in cash or recorded.
x
It shows the balance of all accounts, after adjusting entries, at the end of the accounting period.
Y
· To reduce the balance of the income statement (revenue and expense) accounts to zero.
· To transfer net income or net loss to owner¶s equity.
· Balance sheet (asset, liability, and equity) accounts are not closed.
· Dividends are closed directly to the Retained Earnings Account.
YYYY
Y
Y YYYYY
YY Adjusting entries are prepared prior to the preparation of financial statements in order to bring the accounts up to date and
are necessary
1.Y to achieve a proper matching of revenues and expenses in measuring income and
2.Y to achieve an accurate presentation of assets, liabilities and stockholders¶ equity.
YYYY
Y
Y YYYYY
Closing entries are prepared to transfer the balances of nominal accounts to capital (retained earnings) after the adjusting
entries have been recorded and the financial statements prepared. Closing entries are necessary to reduce the balances in nominal
accounts to zero in order to prepare the accounts for the next period¶s transactions.
Contra asset accounts act like liability accounts ± increases are recorded as credits Their existence is tied to specific asset accounts
% Ythe recognition of an expense that has arisen but not yet recordedY
&Y
Y
Y' only contains balance sheet accounts, leaving permanent accounts to carry on to next accounting
periodY