© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 1 Chapter 3 Adjustments, Work Sheet and Financial Statements 调整分录, 工作底稿和财务报告

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 2 The Accounting Cycle Journalize transactions. Post entries to the ledger accounts. Prepare trial balance. Make end-of- year adjustments. Prepare adjusted trial balance. Prepare financial statements. Prepare after closing trial balance. Journalize and post closing entries.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 3 Work Sheet 工作底稿 A chart which provides necessary data for recording adjusting entries and for preparing such financial statement as the income statement and the balance sheet.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 4 At the end of the period, we need to make adjusting entries to get the accounts up to date for the financial statements.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 5 The Matching Principle: When To Record Expenses Matching Principle 配比原则 Expenses should be recorded in the period in which assets are used up.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 6 Adjusting Entries: The Next Step in the Accounting Cycle Jan 1 Dec 31 $3600 Insurance Policy purchased to cover 12 months. $300 Monthly Supplies Expense On Jan 1, Guangli service. purchased one- year ’ s Insurance Policy for $3600.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 7 Adjusting Entries: The Next Step in the Accounting Cycle Initially, costs that benefit more than one accounting period are recorded as assets.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 8 Adjusting Entries: The Next Step in the Accounting Cycle The costs are expensed as they are used to generate revenue.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 9 Adjusting Entries: The Next Step in the Accounting Cycle Income Statement Cost of assets used this period to generate revenue. Income Statement Cost of assets used this period to generate revenue. Balance Sheet Cost of assets that benefit future periods. Balance Sheet Cost of assets that benefit future periods.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 10 The Concept of Depreciation( 折旧） Depreciation is the systematic allocation of the cost of a depreciable asset to expense. Depreciable assets are physical objects that retain their size and shape but lose their economic usefulness over time.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 11 Acquisition of Plant Assets Asset price Reasonable and necessary costs for getting the asset to the desired location.... for getting the asset ready for use. Cost

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 12 Depreciation The allocation of the cost of a plant asset to expense in the periods in which services are received from the asset. Cost of plant assets Balance Sheet Assets: Plant and equipment Assets: Plant and equipment Income Statement Revenues: Expenses: Depreciation Revenues: Expenses: Depreciation as the services are received

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 13 Estimated Salvage value 残余价值 the estimated selling price when disposing of the asset. Residual value /scrap value /salvage value /trade in value

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 14 Cost - Residual Value Life in Years Depreciation Expense per Year = Straight-Line Depreciation 直线法 ( 折旧 ) allocating the cost of the asset (less any estimated residual value) equally over the estimated useful life of the asset.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 15 Converting Assets to Expenses – The Concept of Depreciation ä When acquiring the fixed asset Fixed asset Cash xx xx ä When recording depreciation Accumulated depreciation Depreciation expense xx xx

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 16 Review of Depreciation Depreciation is the systematic allocation of the cost of a depreciable asset to expense Cash (credit) Fixed Asset (debit) On date when initial payment is made... The asset ’ s usefulness is partially consumed during the period. At end of period... Accumulated Depreciation (credit) Depreciation Expense (debit)

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 17 Straight-Line Method Example On January 1, 2005, Bass Co. buys a new boat. Bass Co. pays $24,000 for the boat. The boat has an estimated residual value of $3,000 and an estimated useful life of 5 years. Compute depreciation for 2005 using the straight-line method. On January 1, 2005, Bass Co. buys a new boat. Bass Co. pays $24,000 for the boat. The boat has an estimated residual value of $3,000 and an estimated useful life of 5 years. Compute depreciation for 2005 using the straight-line method.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 18 Straight-Line Method Example On January 1, 2005, Bass Co. buys a new boat. Bass Co. pays $24,000 for the boat. The boat has an estimated residual value of $3,000 and an estimated useful life of 5 years. Compute depreciation for 2005 using the straight-line method. On January 1, 2005, Bass Co. buys a new boat. Bass Co. pays $24,000 for the boat. The boat has an estimated residual value of $3,000 and an estimated useful life of 5 years. Compute depreciation for 2005 using the straight-line method.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 19 Straight-Line Method Graph of Depreciation Expense

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 20 ( Cost - Residual Value) Depreciation Expense per Year = Straight-Line Depreciation Depreciation Rate refers to the periodic depreciation expense in the percentage of total depreciation ( Yearly Dep rate or monthly Dep rate) 1/life in years * Yearly depreciation rate

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 21 Completing the work sheet 1. Complete the Trial balance 2. Enter the adjustments in the Adjustments columns 3. Complete the Adjusted Trial Balance 4. Complete the Income Statement columns 5. Complete the Balance Sheet columns

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 22 Income statement 损益表 The statement of the results of operations of a business over a period of time Profit and Loss statement

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 23 Statement of Owner’s Equity 所有者权益变动表 The statement shows how and why the owner’s equity account of a business has changed over the financial period

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 24 Statement of Owner’s Equity Owner ’ s Investments Business Earnings Owner ’ s Withdrawals Business Losses This statement summarizes the increases and decreases in owner ’ s equity during the period.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 25 Statement of Owner’s Equity Beginning Capital + Additional Investment (s) (if any) + Net income (- net loss) - Withdrawals = Ending Capital

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 26 Balance Sheet 资产负债表 A statement of the total assets and liabilities of an organization at a particular date,usually the last day of the accounting period.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 27 Relationship among financial statements Income statement Revenue - Expenses = Net income (or net loss) Statement of Owner’s Equity Beginning Capital + Additional Investment (s) (if any) + Net income (- net loss) - Withdrawals = Ending Capital Balance sheet Assets = Liabilities + Owner’s equity( Ending Capital)

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 28 Recording and posting Record and post adjusting entries

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 29 End of Chapter 3