| A | B |
|---|
| Adjustments= Types | Unearned Revenues, Accrued Revenues, Prepaid Expenses, Accrued Expenses |
| Unearned Revenues | Represent previously recorded liabilities that were created when cash was received in advance, and that must be adjusted for the amount of revenue actually earned during the period |
| Accrued Revenues | Represent revenues that were earned but not recorded because cash was received after the services were performed or goods were delivered |
| Prepaid Expenses | Represent previously recorded assets (e.g. prepaid rent, supplies, equipment) that must be adjusted for the amount of expense actually incurred during the period through the use of the asset |
| Accrued Expenses | Represent expenses that were incurred but were not recorded because cash was paid after the goods or services were received (EX: Accrued rent, accrued interest, accrued wages) |
| Trial Balance | Is a listing of all of the account balances in our general ledger |
| The total of all debit balance accounts should... | Equal the total of all credit balance accounts= When this occurs we can say that the books are in balance |
| Unadjusted Trial Balance | A listing of individual accounts, usually in financial statement order= Ending debit or credit balances are listed in 2 separate columns= Total debit account balances should equal total credit account balances |
| Accumulated Depreciation | Is a contra asset account (decreases the specific accounts) |
| Contra Asset Account | (Slide 8) Is directly related to an asset account but has the opposite balance |
| Book-Value= ? | Cost - Accumulated depreciation |
| The contra account: EX: Accumulated depreciation on equipment | Reduces the equipment account balance on the financial statements |
| Unearned Rent Revenue | Will appear as a liability on the balance sheet |
| Interest Earned on a savings account balance | Is an example of revenue being earned in one accounting period, but the cash is not received until the following accounting period |
| Deferred Expense | Is one in which cash is paid before the expense is recognized (EX: Prepaid rent or prepaid advertising) |
| Prepaid Insurance Expense | Is an asset account and will appear on the balance sheet |
| Accounting Estimates | Examples of common accounting estimates would include: Depreciation Expense, Bad Debt Expense, Income Taxes Expense |
| Statement of Stockholders Equity | (Most companies use this Statement of Stockholders' Equity rather than the Statement of Retained Earnings) Explains the changes in Retained Earnings as well as changes in other Stockholders' Equity Accounts |
| We begin the process of preparing the financial statement with... | The Income Statement |
| Once the income statement has been prepared... | We can move on to the statement of retained earnings |
| **See slide 23!!!!!! | ****See slide 23!!!!!! |
| Net Income | Increases Retained Earnings |
| Net Loss | Decreases Retained Earnings |
| Dividends | Decrease retained earnings |
| **Slide 24 | ****Slide 24 |
| Retained earnings is combined with... | Contributed capital to form Stockholders' Equity |
| Stockholders' Equity | Is made up of Contributed Capital and Retained Earnigns |
| What Increases Stockholders' Equity | Net Income INCREASES retained earnings INCREASES S.E= Contributed Capital INCREASES S.E. |
| Earnings Per Share= ? | [Net Income] / [Average # of shares of common stock outstanding during the period] |
| Income Statement contains... | Revenues and Expenses |
| Earnings Per Share (EPS) | MUST be reported on the INCOME STATEMENT |
| Statement of Cash Flows | This statement is a categorized list of all transactions of the period that affection the Cash account= Divided into 3 major sections= 1) Operating Activities= 2) Investing Activities= 3) Financing Activities |
| Slide 31*** | Slide 31*** |
| Net Profit Margin= ? | [Net Income] / [Net Sales] |
| Net Profit Margin | Indicates how effective management is at generating profit on every dollar of sales |
| What accounts are/are not carried forward from one period to the next | All balance sheet accounts are carried forward from one period to the next, but income statement accounts are not |
| Income | Accrues over a period of time, so at the beginning of each new period we start accumulating revenues and expenses all over again |
| It is necessary to zero out... | Al revenues, expenses, gains, and losses at the end of each accounting period= We transfer all income accounts to retained earnings |
| Closing Entries: | 1) Transfer net income (or loss) to Retained Earnings= Establish a zero balance in each of the TEMPORARY accounts to start the next accounting period |
| Temporary Accounts | (aka Nominal Accounts) Income Statement Accounts that include revenues, expenses, gains, losses, and dividends declared= All of these accounts are zeroed out at the end of each accounting period= |
| Real or Permanent Accounts | Balance sheet accounts are referred to as real or permanent accounts because they carry forward from one accounting period to the next |
| Closing Process | 1) Close revenues and gains to Retained Earnings= 2) Close expenses and losses to Retained Earnings |
| Closing: Revenues and Gains | Revenues and gains both have a credit balance before closing |
| To close a revenue or gain account... | We must debit that account |
| Closing: Expenses and losses | Have debit balances before closing |
| To zero out an expense or loss account... | We must credit the account and debit retained earnings |
| Post-Closing Trial Balance | After all temporary accounts have been closed, we prepare a post-closing trial balance= Only assets, liabilities, and stockholders' equity accounts will appear= All revenue, expense, gain, and loss accounts will have a zero balance |
