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The Accounting Cycle Accruals and Deferrals
Chapter 4
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA
McGraw-Hill/Irwin Copyright©2012TheMcGraw-Hill Companies,Inc. 1
Adjusting Entries
Adjusting entries are
needed whenever revenue or expenses affect more than one
accounting
period.
Every adjusting
entry involves a change in either a revenue or expense
and an asset
or liability.
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Types ofAdjusting Entries
Converting assets to
expenses
Accruing
unpaid expenses
Converting
liabilities to revenue
Accruing
uncollected revenue
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Converting Assets to Expenses
End of Current Period
Prior Periods Current Period Future Periods
Transaction Paid cash in advance of incurring
((creates an asset).
Adjusting Entry
Recognizes portion of asset consumed
Reduces balance off asset account.
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The Concept of Depreciation
Depreciation is the systematic allocation of the cost of a depreciable asset to expense.
On date when initial payment is made . . .
Fixed
(debit))
Cash (credit))
The asset’s usefulness is partially consumed during the period.
Depreciation ((debit)e
At end of period . . .
Accumulated Depreciation
((credit)
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