Chapter 03 PowePoint Presentations

8/19/2019 Chapter 03 PowePoint Presentations

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Financial and Managerial Accounting

John J. Wild

Third EditionMcGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc !ll


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Chapter 3

Adjusting Accounts andPreparing Financial

Statements


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Conceptual Chapter Ojecti!es

C"# E$plain the importance o% periodicreporting and the time period

principle.C E$plain accrual accounting and ho'

it impro!es %inancial statements.

C3# (denti%) steps in the accounting c)cle.C*# E$plain and prepare a classi%ied

alance sheet.

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Anal)tical Chapter Ojecti!es

A"# E$plain ho' accounting adjustmentslin+ to %inancial statements.

A Compute pro%it margin and descrieits use in anal),ing compan)per%ormance.

A3# Compute the current ratio anddescrie 'hat it re!eals aout acompan)-s %inancial condition.

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Procedural Chapter Ojecti!es

P"# Prepare and e$plain adjusting entries.

P E$plain and prepare an adjusted trial

alance.P3# Prepare %inancial statements %rom an

adjusted trial alance.

P*# escrie and prepare closing entries.P/# E$plain and prepare a post0closing trial

alance.

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Procedural Chapter Ojecti!es1Continued2

P# Appendi$ 3A# E$plain thealternati!es in accounting %or

prepaids.P4# Appendi$ 35# Prepare a 'or+ sheet

and e$plain its use%ulness.

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1 2 3 4 5 6 7 8 9 10 11 12

1 2 3 4

Annually

1 2

Monthly

Quarterly

Semiannually

The Accounting Period

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

C 1

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Accounting

Accrual 5asis !s. Cash 5asis

Accrual Basis

Revenues are

recognized whenearned and epensesare recognized whenincurred!

"ash Basis

Revenues are

recognized whencash is received andepenses recordedwhen cash is paid!

Not #AA$Not #AA$

C 1

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On the cash asis the entire 6&7*88 'ould erecogni,ed as insurance e$pense in &889. :o insurancee$pense %rom this polic) 'ould e recogni,ed in &8"8 or

&8""7 periods co!ered ) the polic).

On the cash asis the entire 6&7*88 'ould erecogni,ed as insurance e$pense in &889. :o insurancee$pense %rom this polic) 'ould e recogni,ed in &8"8 or

&8""7 periods co!ered ) the polic).

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On the accrual asis6"88 o% insurance

e$pense is recogni,ed in&8897 6"7&88 in &8"87and 6"7"88 in &8"". Thee$pense is matched 'ith

the periods ene%ited )the insurance co!erage.

On the accrual asis6"88 o% insurance

e$pense is recogni,ed in&8897 6"7&88 in &8"87and 6"7"88 in &8"". Thee$pense is matched 'ith

the periods ene%ited )the insurance co!erage.

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Adjustments Adjustments

An adjusting entr) is recorded to ring an asset orliailit) account alance to its proper amount.

Adjusting Accounts

$aid %or received& cash before epense %or revenue& recognized

$aid %or received& cash before epense %or revenue& recognized

$aid %or received& cash after epense %or revenue& recognized

$aid %or received& cash after epense %or revenue& recognized

$repaid%De'erred&epenses(

$repaid%De'erred&epenses(

)nearned%De'erred&revenues

)nearned%De'erred&revenues

Accruedepenses

Accruedepenses

Accruedrevenues

Accruedrevenues

Frame'or+ %or Adjustments

;including depreciation

C2, P1

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*ere is the chec+'or ,y 'irst

- ,onths. insurance!

*ere is the chec+'or ,y 'irst

- ,onths. insurance!

Prepaid 1e%erred2 E$penses

Resources paid'or prior to

receiving theactual bene'its!

Resources paid'or prior to

receiving theactual bene'its!

Asset E$pense

)nad/ustedBalance

"reditAd/ust,ent

DebitAd/ust,ent

P"

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Supplies

uring &8897 Scott Compan) purchased 6"/7/88 o%supplies. Scott recorded the e$penditures asSupplies. On ecemer 3"7 a count o% the supplies

indicated 6&7// on hand.0hat ad/ust,ent is re1uired2

uring &8897 Scott Compan) purchased 6"/7/88 o%supplies. Scott recorded the e$penditures asSupplies. On ecemer 3"7 a count o% the supplies

indicated 6&7// on hand.0hat ad/ust,ent is re1uired2

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P"

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Straight67ineDepreciation

8pense

9 Asset "ost 6 Salvage :alue

)se'ul 7i'e

epreciation

epreciation is the process o% computinge$pense %rom allocating the cost o% plant

and e


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epreciation

On Januar) "7 &8897 5arton7 (nc. purchasede


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epreciation

On Januar) "7 &8897 5arton7 (nc. purchasede


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epreciation

E


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>nearned 1e%erred2 ?e!enues

?e!enue

Buy your season tic+ets 'or all ho,e bas+etball ga,es NO0?

“ “ Go Big Blue” Go Big Blue”

"ash received inadvance o'providing

products orservices!

"ash received inadvance o'providing

products orservices!

=iailit))nad/usted

Balance"redit

Ad/ust,entDebit

Ad/ust,ent

P"

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On Octoer "7 &8897 O$ >ni!ersit) sold "7888season tic+ets to its &8 home as+etall games %or6"88 each. O$ >ni!ersit) ma+es the %ollo'ing entr)#

P"

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On ecemer 3"7 O$ >ni!ersit) has pla)ed "8 o%its regular home games7 'inning & and losing @.

P"

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0e.re about one6hal' done with this /ob and

want to be paid 'or our wor+?

0e.re about one6hal' done with this /ob and

want to be paid 'or our wor+?

Costs incurred in aperiod that areoth unpaid and

unrecorded.

Costs incurred in aperiod that areoth unpaid and

unrecorded.

Accrued E$penses

E$pense =iailit)"redit

Ad/ust,entDebit

Ad/ust,ent

P"

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34@3@;< "&3"89Bear end

7ast paydate

34@4-@;<

Net paydate

Record ad/usting /ournal entry!

Record ad/usting /ournal entry!

Accrued E$penses

Barton> nc! pays its e,ployees every Friday! ear6end>34@C3@; 'alls on a 0ednesday! As o' 34@C3@; thee,ployees have earned salaries o' =E>45; 'or Monday

through 0ednesday!


through 0ednesday!

P"

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Accrued E$penses


through 0ednesday!


through 0ednesday!

P"

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Accrued ?e!enues

S,ith Jones> "$As> had =C3>4;; o' wor+co,pleted but not yet billed to clients! 7et.s ,a+ethe ad/usting entry necessary on Dece,ber C3> 4;;

the end o' the co,pany.s 'iscal year!

S,ith Jones> "$As> had =C3>4;; o' wor+co,pleted but not yet billed to clients! 7et.s ,a+ethe ad/usting entry necessary on Dece,ber C3> 4;;the end o' the co,pany.s 'iscal year!

P"

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=in+s to Financial Statements A"

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FastFor'ard 0 Trial 5alance 0ecemer 3"7 &889

First> theinitialunad/usteda,ounts are

added to thewor+ sheet!

6

P&

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Net>FastForward.sad/ust,entsare added!

FastFor'ard 0 ?ecording AdjustmentsTrial 5alance 0 ecemer 3"7 &889

P&

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Finally> thetotals are

deter,ined!

FastFor'ard Computing the AdjustedTrial 5alance 0 ecemer 3"7 &889

P&

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". Prepare the (ncomeStatement

P3

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&. Prepare Statement o% ?etainedEarnings

NoteG Net nco,e 'ro, the nco,eState,ent carries to the State,ento' Retained 8arnings!

P3

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3. Prepare 5alance SheetP3

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The Closing Process# Temporar) andPermanent Accounts

Temporar) 1nominal2 accounts accumulate data related toone accounting period. The) include all income statementaccounts7 the di!idends account7 and the (ncome Summar)

account. These accounts are Dclosed at the end o% the periodto get read) %or the ne$t accounting period.

Temporar) 1nominal2 accounts accumulate data related toone accounting period. The) include all income statementaccounts7 the di!idends account7 and the (ncome Summar)account. These accounts are Dclosed at the end o% the periodto get read) %or the ne$t accounting period.

Permanent 1real2 accounts report acti!ities related to one ormore %uture accounting periods. The) carr) ending alances

to the ne$t accounting period and are not Dclosed.

Permanent 1real2 accounts report acti!ities related to one ormore %uture accounting periods. The) carr) ending alances

to the ne$t accounting period and are not Dclosed.

C3

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?ecording Closing Entries

nco,e Su,,ary

Salaries 8penses "onsulting Revenues

= 3H>3;; = 45>;;;

Retained 8arnings

= E>;;;

8a,ine theaccounts

presented!

8a,ine theaccounts

presented!

P*

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= 45>;;;

"lose revenueswith a debit to therevenue account

and a credit tonco,e Su,,ary!


= 3H>3;;


nco,e Su,,ary

= 45>;;;

= 45>;;;

P*

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= 45>;;;= 45>;;;

"lose epenseaccounts with a

credit to epensesand a debit to

nco,e Su,,ary!

= 45>;;;


= 3H>3;;


nco,e Su,,ary

= 3H>3;;

= 3H>3;;

P*

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= 3H>3;; = 45>;;;

= 3H>3;; = 45>;;;= 45>;;;= 3H>3;;

Deter,ine the

balance in thenco,e Su,,aryaccount!

Deter,ine the

balance in thenco,e Su,,aryaccount!



nco,e Su,,ary

= ->


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= 3H>3;; = 45>;;;

= 3H>3;; = 3H>3;;

= E>;;;

"lose the nco,eSu,,ary to

Retained 8arnings!

"lose the nco,eSu,,ary to

Retained 8arnings!


= ->


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Dividends

= 4>;;; = E>;;;

->;;; = 4>;;;

P*

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Dividends

= 4>;;; = 4>;;; = 4>;;;

Deter,ine the endingbalance in Retained

8arnings!

Deter,ine the endingbalance in Retained

8arnings!

= 33>;;;

->


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Post Closing Trial 5alance

Trial 5alance prepared a%ter theclosing entries ha!e een posted.

The purpose is to insure that allnominal or temporar) accounts ha!eeen closed.

The onl) accounts on this trial alanceshould e assets7 liailities7 and e


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The Accounting C)cle

Start

Anal),etransactions

Journali,e

Post

Prepareunadjusted

trial alance

AdjustPrepareadjusted

trial alance

Prepare

statements

Close

Preparepost0closingtrial alance

C3

?e!erse 1optional2

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Classi%ied 5alance Sheet

Current items are those e$pected to come due1either collected or o'ed2 'ithin one )ear or thecompan)-s operating cycle7 'hiche!er is longer .

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Classi%ied 5alance Sheet

Plant AssetsPlant assets are tangile assets that are othlong li!ed and used to produce or sell products

or ser!ices. E$amples include e


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=ong Term =iailities

Oligations due to e paid or settled 'ithin one )earor the operating c)cle7 'hiche!er is longer.Oligations due to e paid or settled 'ithin one )earor the operating c)cle7 'hiche!er is longer.

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Oligations not due 'ithin one )ear or the

operating c)cle7 'hiche!er is longer.

Oligations not due 'ithin one )ear or the

operating c)cle7 'hiche!er is longer.

Current =iailities

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"lassi'ied Balance Sheet

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Pro%it Margin

The pro%it margin ratio measures thecompan)-s net income to net sales.

$ro'it

Margin

Net nco,e

Net Sales

A&

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Current ?atio

"urrentratio

"urrent assets"urrent liabilities

This ratio is an important measure o% a compan)-s ailit) to

pa) its short0term oligations.

A3

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End o% Chapter 3

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