Akaun Chapter 4
Transcript of Akaun Chapter 4
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CHAPTER 4
COMPLETING THE
ACCOUNTING CYCLE
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OUTLINE
Adjusting EntriesPreparing the Adjusted Trial BalanceClosing EntriesPreparing the Financial Statements
Income StatementStatement of Owner’s EquityBalance Sheet
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The Accounting Cycle
SourceDocuments
Journal
LedgerTrial BalanceAdjustments
AdjustedTrial Balance
Financial Statements
Closing Entries
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Fiscal year Vs Calendar year
Fiscal year
Calendar year
1st day of a month and ends
twelve months later on the
last day of a month.
1st January to 31st December
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Accrual Vs Cash-basis accounting
Accrual
Cash-basisrevenue is recorded when cashis received, and expenses are recorded when cash is paid.
revenue and expenses arerecognized at the time theytake place, and not at thetime they are actually paid.
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Recognition of Revenue & Expenses
REVENUE RECOGNITION
PRINCIPLE
THE MATCHING PRINCIPLE
revenue be recognized in the accounting period in which itis earned.
efforts (expenses) be matched
with accomplishments (revenues).
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The Need for Adjusting Entries
1 Revenues to be recorded in the period in which they are earned, and for......
2 Expenses to be recognized in the period in which they are incurred.
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The Basics of Adjusting Entries
Prepayments
Prepaid Expenses
Expenses paid in cash and
recorded as assets before
they are used or consumed
Unearned Revenues Cash received and recorded as
liabilities before revenue is earned
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The Basics of Adjusting Entries
Accruals
Accrued Revenues
Revenues earned but not yet
received in cash or recorded
Accrued Expenses
Expenses incurred but not yet
paid in cash or recorded
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Prepaid Expenses
Prior to adjustment, assets are overstated and
expenses are understated.
The adjusting entry results in a debit to an expense
account and a credit to an asset account.
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Prepaid Expenses
Asset Expense
Unadjusted balance
Credit Adjustment
Debit Adjustment
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Prepaid Expenses
Supplies
Insurance
Depreciation
Examples
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SuppliesAn inventory count reveals that RM1,000 of RM2,500 of supplies are still on hand.Adjustment:
Dr. Supplies Expense 1,500
Cr. Office Supplies 1,500
Dr. Office Supplies 2,500
Cr. Cash 2,500
Entries before adjustment:
Adjustingentries:
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Supplies
Office Supplies
Supplies ExpenseCash 2,500 Supp. Exp 1,500
Off. Supp. 1,500
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InsuranceInsurance premium paid for one year amounting to RM1,200; Expires every month RM100.
Adjustment:
Dr. Insurance Expense 100
Cr. Prepaid Insurance 100
Entries before adjustment:
Adjustingentries:
Dr. Prepaid Insurance 1,200
Cr. Cash 1,200
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Insurance
Prepaid Insurance
Insurance ExpenseCash 1,200 Ins. Exp 100
Pre. Insurance 100
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DepreciationDepreciation is the allocation of the cost of an asset to
expense over its useful life in a rational and systematic
manner.
Depreciation is an estimate rather than a factual measurement of the cost that has expired.
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Depreciation
In recording depreciation, Depreciation Expense is debited and a contra asset account, Accumulated Depreciation, is credited
The difference between the cost of any depreciable
asset and its related accumulated depreciation is
referred to as the book value of the asset.
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Depreciation
DepreciationMethods
Straight Line Method
Reducing Balance Method
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Depreciation
Straight-line depreciation allocates equal amount of anassets net cost to depreciation during the estimateduseful life.
Eg: Equipment costing RM26,000, estimated to have a useful life of 4 years and expected to be sold for RM8,000 at the end of the 4th year.
Formula: Cost - Scrap Value
Estimated useful life
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Depreciation
Calculation: RM26,000 - RM8,000
4 years
= RM4,500 per year
Adjustingentries:
Dr. Depreciation Expense 4,500
Cr. Accumulated Depn. 4,500
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Depreciation
Depreciation Expense
Accumulated Depn.Off. Eqpt. 4,500
Depn. Exp. 4,500
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Depreciation
Reducing Balance depreciation :
Eg: Equipment costing RM35,000, accumulated depreciation RM5,250. The depreciation rate is 15% on book value.
Formula: Net Book Value x Depreciation rate
(Cost - Accumulated Depn) x Depreciation rate
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Depreciation
Calculation: (RM35,000 - RM5,250) x 15%
= RM4,463 per year
Adjustingentries:
Dr. Depreciation Expense 4,463
Cr. Accumulated Depn. 4,463
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Unearned Revenues
Prior to adjustment, liabilities are overstated and
revenues are understated.
The adjusting entry results in a debit to a liability account
and a credit to a revenue account.
Examples of unearned revenues include rent, magazine
subscriptions, and customer deposits for future services.
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Unearned Revenues
Liability Revenue
Unadjusted balance
Credit Adjustment
Debit Adjustment
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Unearned Revenues
RM2,000 subscription fees has been earned, out of RM5,000 unearned subscription fees that has been received last month.
Adjustment:
Dr. Unearned Subscription Fees 2,000Cr. Subscription Fees 2,000
Dr. Cash 5,000Cr. Unearned
Subscription Fees 5,000
Entries before adjustment:
Adjustingentries:
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Unearned Revenues
Unearned Subscription Fees
Suscription FeesSubscriptionFees 2,000
Balance 5,000
UnearnedSubscriptionFees 2,000
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Accrued Revenues
Prior to adjustment, assets and revenues are understated.
Accrued revenues may accumulate with the passing of time
or through services performed but not billed or collected.
The adjusting entry requires a debit to an asset account
and a credit to a revenue account.
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Accrued Revenues
Asset Revenue
Debit Adjustment Credit
Adjustment
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Accrued Revenues
The company has completely performed the audit service but has not bill the customer yet, RM7,000.
Adjustment:
Dr. Account Receivable 7,000
Cr. Audit Fees 7,000
Adjustingentries:
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Accrued Revenues
Account Receivable 7,000
Audit Fees
Audit Fees 7,000
Account Receivable
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Accrued Expenses
Prior to adjustment, liabilities and expenses
are understated.
The adjusting entry results in a debit to an expense
account and a credit to a liability account.
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Accrued Expenses
Expense Liability
Debit Adjustment Credit
Adjustment
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Accrued Expenses
Salaries accrued at the end of the month RM4,000.Adjustment:
Dr. Salary Expense 4,000
Cr. Salary Payable 4,000
Adjustingentries:
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Accrued Expenses
Salary Exp. 4,000
Salary payable
Salary Payable 4,000
Salary Expense
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Summary of Adjusting Entries
Types of Accounts Before AdjustingEntriesAdjustments Adjustments
Prepaid Expenses
Assets overstatedExpenses understated
Dr. Expense Cr. Asset
UnearnedRevenues
Liabilities overstatedRevenues understated
Dr. Liability Cr. Revenue
AccruedRevenues
Dr. Asset Cr. Revenue
Dr. Expense Cr. Liability
Assets understatedRevenues understated
AccruedExpenses
Liabilities understatedExpenses understated
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The adjusted trial balance An Adjusted Trial Balance is prepared after all
adjusting entries have been journalized and posted.
Its purpose is to prove the equality of the total debit
and credit balances in the ledger after all adjustments
have been made.
Financial statements can be prepared directly from
the adjusted trial balance.
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Closing Entries
Temporary /Nominal Accounts
Permanent /Real Accounts
All revenue accounts
All expense accounts
Owner’s drawings
All asset accounts
All liability accounts
Owner’s capital account
CLOSE
CN LO OT S E
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Closing Entries
Revenues
Expenses
IncomeSummary
Drawings
Owner’sCapital
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Closing Entries
Revenues
Expenses
Dr. Revenue Account
Cr. Income Summary
Dr. Income Summary
Cr. Expense Account
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Closing Entries
Drawings Dr. Owner’s Capital
Cr. Drawings Account
IncomeSummary
Loss
ProfitDr. Income Summary
Cr. Owner’s Capital
Dr. Owner’s Capital
Cr. Income Summary
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Preparing the Financial Statements
~ The income statement is prepared from the revenue
and expense accounts.
~ The owner’s equity statement is derived from the owner’s capital and drawing accounts and the net income (or net loss) from the income statement.
~ The balance sheet is then prepared from the asset
and liability accounts and the ending owner’s capital
balance as reported in the owner’s equity statement.
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