As we progress in our study about accounting every new chapter introduces relevant information while consequently building on the data introduced in the previous chapters. This lesson expands further on the accounting cycle by explaining how to adjust and update accounts at the end of the period. Therefore, we learn a new concept which is also referred to as adjusting the books. I am quite convinced that there are numerous people who are familiar with that term, nevertheless, in accounting when we talk about adjusting the books, we mean special journal entries, called “adjusting entries”. Before explaining further about adjusting entries I would like to mention that in accounting we distinguish two ways of recording transactions and …show more content…
And here it is when accrual basis accounting becomes quite useful, as this type of accounting requires the business to review its records and make sure that if there were additional revenues or expenses during the period, those are accurately recorded. A great example our textbook brings up is the recording of the office supplies used and currently on hand. Although we recorded office supplies when those were purchased, but said supplies surely will be used and maybe even depleted by the end of the period. For that reason, these changes need to be reflected in our accounting and adjusted to reflect the correct balance. We distinguish between two types of adjusting entries and those are prepaid and accruals. I would like to utilize Horngren’s accounting in explaining in detail about each adjusting entry because the book explains that “In a prepaid adjustment, the cash payment occurs before an expense is incurred or the cash receipt occurs before the revenue is earned.” (Nobles, Mattison, & Matsumura, 2014, p.139)” While the textbook also elaborates that “An accrual records an expense before the cash is paid or it records the revenue before cash is received.” (Nobles, Mattison, & Matsumura, 2014, p.139) The first adjusting entry mentioned above, prepaid can be further broken down to prepaid expenses and unearned revenues, while accruals can be broken down to accrued expenses and accrued revenues. When we talk about
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Accounting is the methodical and full recording of financial transactions relating to a business, and it also denotes to the procedure of briefing, examining and evaluating these transactions to cross checking agencies and tax collection agencies. Accounting is one of the key purposes for nearly any company. It may be done by an auditor and accountant at small businesses or by substantial finance subdivisions with lots of employee’s at
Moreover, ASC 250-10-45-17 presents that “A change in accounting estimate shall be accounted for in the period of change if the change affects that period only or in the period of change and future periods if the change affects both. A change in accounting estimate shall not be accounted for by restating or retrospectively adjusting amounts
In this paper I have defined accrual and cash basis accounting. Also, I have answered the following questions: Explain the difference between the accrual basis of accounting and the cash basis of accounting. What are the major reasons for using accrual accounting? What are the purpose of a journal and a ledger? Give an example of a contra-asset, and explain how it is recorded on the ledger as a transaction. Explain what a “prepaid expense” is and how it is recorded on the ledger as a transaction. What are the major differences in recording transactions for a for-profit organization versus a not-for-profit, or are there any? List and record each transaction
Adjusting entries have four types in which provide a method of breaking down transactions. When a business purchases supplies in order to stock, this would be considered a prepaid expense. After an adjusting entry is made for a prepaid expense, the ledger would reflect the correct portion of that expense, in this case supplies, in which was incurred during a specific time. (Editorial Board, 2012, p. 42) A depreciation expense is a sub category of a prepaid expense. This occurs when an asset is allocated over a certain amount of time. An
| (TCO B) Adjusting Entries: Prepaid rent at 1/1/10 was $30,000. During 2010 rent payments of $100,000 were made and charged to "rent expense." The 2010 income statement shows as a general expense the item "rent expense" in the amount of $130,000. You are to prepare the missing adjusting entry that must have been made, assuming reversing entries are not made. For each journal entry write Dr. for debit and Cr. for credit.
If, at year end, 2 months have elapsed, what adjusting entry do you record? 2,000 A. Prepaid Legal Expense Legal Expense 2,000 2,000 B. Legal Expense Prepaid Legal Expense 2,000 Legal Expense 3,000 C. Prepaid Legal Expense 3,000 12,000 D. Prepaid Legal Expense Cash 12,000 BASIC BANK10 - COAE 010 On September 1, your firm incurs a routine $82 expense, mistakenly recording it as follows: Office Expense Accounts Payable 28 28
Assess the degree to which the firm’s accounting reflects the underlying business reality. Identify accounting distortions and evaluate their impact on profits and the sustainability of profits.
To over view the knowledge we learnt from accounting theory and practice, the main thing I can conclude that is the tendency of accounting will shift away from technical way to people’s behaviour way. By understanding what should do, we should ask why and how we could improve and change it into a better way. This essay aims to explain how the theoretical material that we learn in lectures can be developed under a real practical manner.
There are two kinds of accounting basis which can be adopted by the company to prepare its financial position. One is accrual basis of accounting where revenue and expenses are recognized when they are received and incurred and other is cash basis where all the revenue and expenses are recognized when cash is received or paid (Cleverley, Cleverley, & Song, 2012). Generally, small businesses, not-for-profit organizations, some Government agencies and community associations use the cash-basis while larger for-profit businesses use the accrual-basis (Baskerville, 2014). This is because the cash-basis is quite simple to understand and maintain while the more complicated accrual-basis produces the more accurate assessment of the financial position and performance of the business. Tax laws and accounting standards generally give small organizations a choice as to which approach they will adopt. At the same time larger organizations and public companies are required to record their financial transactions using ONLY the accrual method.
Accrual accounting enables management to exercise its unique understanding of their business to convey important information about its economic welfare (relevance) and allows management some discretion to manipulate important information about the company’s economic welfare (reliability). Accounting analysis evaluates management's judgment on how it chooses to use accruals.
Accounting transactions are professional occasion that has either a positive or negative budgetary impact on the financial statements. One impact of transactions in a financial statement will increase or decrease the accounts contingent on the transaction that has taken place. The history of revenue that has come or gone from the business will be shown on both financial statements and accounting transactions. Many businesses make several transactions daily. Errors can have a negative impact on financial statements, because the facts come from the accounting transactions
Accrual accounting shows outcome of transactions and other events such as assets and liabilities of entity 's in such a periods in which effects occur even if cash is paid or received in a different time.
Under full accrual, the cost of these non-financial assets will now be recorded. Under modified accrual accounting, the full purchase price of a capital asset was shown as an expenditure item in the year of purchase and therefore had an immediate impact on the annual budgetary balance. Under full accrual, the annual cost of owning a capital asset will be the estimated depreciation (or amortization) in the value of the asset according to Generally Accepted Accounting Principles. Full accrual accounting therefore spreads the cost over the useful life of the asset. Similarly, under modified accrual, the cost of an item held in inventory is recognized in the year in which the item is purchased while, under full accrual, it is recognized as an expense in the year in which the item is used. For example The Government decided to buy new