Intermediate Accounting Chapter3.pptVIP

Understanding the Accounting Information System Chapter 3 Accounting Information System Accounting Information System Accounting Information System Basic Terminology Debits and Credits Basic Accounting Equation Relationship among the assets, liabilities and stockholders’ equity of a business: The Accounting Cycle Transactions and Events Review “Transactions and Events” 1. Journalizing 2. Posting 3. Trial Balance 4. Adjusting Entries Classes of Adjusting Entries Adjusting Entries – “Prepaid Expenses” Payment of cash that is recorded as an asset because service or benefit will be received in the future. Adjusting Entries – “Prepaid Expenses” Adjusting Entries – “Prepaid Expenses” Adjusting Entries – “Unearned Revenues” Receipt of cash that is recorded as a liability because the revenue has not been earned. Adjusting Entries – “Unearned Revenues” Adjusting Entries – “Unearned Revenues” Adjusting Entries – “Accrued Revenues” Revenues earned but not yet received in cash or recorded. Adjusting Entries – “Accrued Revenues” Adjusting Entries – “Accrued Revenues” Adjusting Entries – “Accrued Expenses” Expenses incurred but not yet paid in cash or recorded. Adjusting Entries – “Accrued Expenses” Adjusting Entries – “Accrued Expenses” 5. Adjusted Trial Balance 6. Preparing Financial Statements 6. Preparing Financial Statements 6. Preparing Financial Statements 6. Preparing Financial Statements 7. Closing Entries 7. Closing Entries 7. Closing Entries 8. Post-Closing Trial Balance 9. Reversing Entries Perpetual Inventory System Periodic Inventory System LO 6 Prepare financial statement from the adjusted trial balance. Statement of Retained Earnings Assume the following Adjusted Trial Balance LO 7 Prepare closing entries. 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 th