Accounting: Completing the Cycle
Chapter Nine – Completing the Accounting Cycle
9.1 The Adjusting Process
The adjusting process is important for financial statements to be accurate, up to date, and consistent from year to year.
When preparing financial statements, the accountants must ensure that: * All accounts are brought up to date * All late transactions are taken into account * All calculations have been made correctly * All GAAPS have been compiled with
Adjusting Entry – an entry made before finalizing the books for the period to apportion amounts of revenue or expense to the proper accounting periods or operating divisions. For example, the apportioning of wages between accounting periods when the current period ends between two paydays. The entries are made to bring accounts up to date.
Why is it necessary? * Because the ledger is allowed to become inaccurate between statement dates * However, at the end of the accounting cycle, the omissions must be accounted for * If the accounts are not adjusted at this time, a correct net income or net loss cannot be determined
What Accounts need Adjusting? * Adjusting for Supplies Used: * Adjustment at the end of each accounting period * One of the accounts that can be inexact between statement dates * Accounts are supplies (balance sheet- asset) and supplies expense (income statement – expense) * Adjusting for Prepaid Expenses: * It’s an item paid for in advance * Requires special accounts treatment * Most common example is insurance * Asset account (balance sheet) and expense account (income statement) is used * Adjusting for Late- Arriving Purchase Invoice * Bills for purchased goods and services may not arrive in the correct fiscal period * However, it must follow the Matching Principle * To follow GAAP, accounts payable is used to cover for expenses * Adjusting for Depreciation: * Learned later on
Journalizing * Beware of
9.1 The Adjusting Process
The adjusting process is important for financial statements to be accurate, up to date, and consistent from year to year.
When preparing financial statements, the accountants must ensure that: * All accounts are brought up to date * All late transactions are taken into account * All calculations have been made correctly * All GAAPS have been compiled with
Adjusting Entry – an entry made before finalizing the books for the period to apportion amounts of revenue or expense to the proper accounting periods or operating divisions. For example, the apportioning of wages between accounting periods when the current period ends between two paydays. The entries are made to bring accounts up to date.
Why is it necessary? * Because the ledger is allowed to become inaccurate between statement dates * However, at the end of the accounting cycle, the omissions must be accounted for * If the accounts are not adjusted at this time, a correct net income or net loss cannot be determined
What Accounts need Adjusting? * Adjusting for Supplies Used: * Adjustment at the end of each accounting period * One of the accounts that can be inexact between statement dates * Accounts are supplies (balance sheet- asset) and supplies expense (income statement – expense) * Adjusting for Prepaid Expenses: * It’s an item paid for in advance * Requires special accounts treatment * Most common example is insurance * Asset account (balance sheet) and expense account (income statement) is used * Adjusting for Late- Arriving Purchase Invoice * Bills for purchased goods and services may not arrive in the correct fiscal period * However, it must follow the Matching Principle * To follow GAAP, accounts payable is used to cover for expenses * Adjusting for Depreciation: * Learned later on
Journalizing * Beware of