1. Review of The Accounting Process
Chapter 2
Review of The Accounting Process
ACCT-3030

2. 1. Accounting Equation A = L + SE Expanded: A = L + SE + R + G - E - L
Definitions of elements
ACCT-3030

3. 2. Financial Statements Balance Sheet Income Statement
Statement of Stockholders’ Equity (or Retained Earnings Statement)
Cash Flow Statement
Articulation
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4. 3. Accounts Definition Number needed T account General ledger
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5. 4. Debits and Credits Definitions Increases and decreases
Normal balance
Balance of an account
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6. 5. Journal Entries Journalizing Format Posting Special journals
Analyzing transactions
Example: E 2-2
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7. 6. Trial Balance Definition Purpose When prepared? Order of accounts
Example: E2-3
Example: E2-5
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8. 7. Adjusting Entries Purpose Types
Deferrals – cash flow occurs before revenue/expense recognition
Expense, Revenue
Accruals – cash flow occurs after revenue/expense recognition
Other
Bad debts, Depreciation, Cost of goods sold
ACCT-3030

9. 8. Deferred Expense Adjustments
On January 1 you paid $1,800 for three months’ rent in advance.
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10. 9. Deferred Revenue Adjustments
On May 1 your tenant pays you $3,600 for four months’ rent in advance.
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11. 10. Accrued Expense Adjustments
On December 31 your employees have earned wages of $10,000 but they will not be paid until January 5.
Without reversing
With reversing
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12. 11. Accrued Revenue Adjustments
As of December 31 another of your apartment building tenants has not paid his December rent of $700.
Without reversing
With reversing
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13. 12. Reversing Entries Purpose
If you choose to use reversing entries, what adjustments should be reversed?
All accruals
Deferrals initially recorded as a revenue or expense
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14. 13. Other Adjusting Entries
Bad Debts Adjustment
Depreciation Expense
Inventory and cost of good sold adjustments
Perpetual inventory system
Periodic inventory system
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15. 14. Closing Entries Purpose Entries Using income summary account
Close temporary accounts with Cr balances to income summary
Close temporary accounts with Dr balances to income summary
Close income summary to retained earnings
Close dividends account to retained earnings
Making one entry
Example: E2-13
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16. 15. Cash Basis of Accounting
Definition
GAAP requirements
Conversion to accrual basis
Example: E2-19
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