Accrual Accounting and Financial Statements.ppt

ountingandFinancialStatementsCHAPTER4LearningObjectivesAfterstudyingthischapter,rualofunrecordedrevenues2LearningObjectivesAfterstudyingthischapter,youshouldbeabletoDescribethesequenceofthefinalstepsintherecordingprocessandrelatecashflowstoadjustingentriesPrepareaclassifiedbalancesheetanduseittoassessshort-termliquidityPreparesingle-andmultiple-ountsExplicittransactionsareObservableeventsthattriggernearlyallday-to-urredArerecordedinend-of-umulateareceivable(asset)orpayable(liability)ountsAdjustmentsarisefromfourbasictypesofimplicittransactions:rualofunrecordedrevenues6ExpirationofUnexpiredCostsAnexplicittransactioninthepastcreatesanasset,panypurchases$10,000ofOfficeSuppliesInventoryonMarch1,:OfficeSuppliesInventory$10,000Cash$10,panyuses$1,(debit)andreduceOfficeSuppliesInventory(credit):FailuretomakethisadjustingentrywilloverstateassetsandunderstateexpensesOfficeSuppliesExpense$1,500OfficeSuppliesInventory$1,5008ExpirationofUnexpiredCostsAssets(PrepaidExpense)eStatementBuyer9EarningofRevenuesReceivedinAdvanceUnearnedrevenue(revenuereceivedinadvanceordeferredrevenue)panypromisestodeliveratafuturedateRequiresrecordingboththereceiptofcashandtheliabilityforfutureservices10