Kế toán, kiểm toán - Chapter 4: The accounting cycle accruals and deferrals
Depreciation is the systematic and rational allocation of the cost of a depreciable asset to expense over its estimated useful life. There are many methods of depreciation; the straight-line method will be examined in this chapter. As a depreciable asset is used to produce revenue, the asset loses some of its utility and part of the asset is consumed. At the end of the accounting period, the expense relating to the consumption of the depreciable asset must be recorded.
Bạn đang xem nội dung tài liệu Kế toán, kiểm toán - Chapter 4: The accounting cycle accruals and deferrals, để tải tài liệu về máy bạn click vào nút DOWNLOAD ở trên
The Accounting Cycle Accruals and DeferralsChapter 4Adjusting entries areneeded whenever revenue or expenses affect more than oneaccounting period.Every adjustingentry involves a change in either a revenue or expense and an asset or liability.Adjusting Entries Converting assets to expenses Accruing unpaid expenses Converting liabilities to revenue Accruing uncollected revenueTypes of Adjusting EntriesPrior PeriodsCurrent PeriodFuture PeriodsTransactionPaid cash in advance of incurring expense(creates an asset).End of Current PeriodAdjusting Entry Recognizes portion of asset consumed as expense, and Reduces balance of asset account.Converting Assets to ExpensesThe Concept of DepreciationDepreciation is the systematic allocation of the cost of a depreciable asset to expense.Cash (credit)Fixed Asset (debit)On date when initial payment is made . . .The asset’s usefulness is partially consumed during the period.At end of period . . .Depreciation Expense (debit)Accumulated Depreciation (credit)Prior PeriodsCurrent PeriodFuture PeriodsTransactionCollect cash in advance of earning revenue (creates a liability).End of Current PeriodAdjusting Entry Recognizes portion earned as revenue, and Reduces balance of liability account.Converting Liabilities to RevenuePrior PeriodsCurrent PeriodFuture PeriodsTransactionPay cash in settlement of liability.End of Current PeriodAccruing Unpaid ExpensesPrior PeriodsCurrent PeriodFuture PeriodsTransactionCollect cash in settlement of receivable.End of Current PeriodAdjusting EntryRecognizes revenue earned but not yet recorded, andRecords receivable.Accruing Uncollected RevenueAs a corporation earns taxable income, it incurs income taxes expense, and also a liability to governmental tax authorities.Accruing Income Taxes Expense: The Final Adjusting EntryCosts are matched with revenue in two ways: Direct association of costs with specific revenue transactions. Systematic allocation of costs over the “useful life” of the expenditure.Adjusting Entries and Accounting PrinciplesAn item is “material” if knowledge of the item might reasonably influence the decisions of users of financial statements.SuppliesLight bulbsMany companies immediately charge the cost of immaterial items to expense.The Concept of MaterialityEffects of the Adjusting EntriesAll balances are taken from the ledger accounts on May 31 after preparing the two depreciation adjusting entries.Adjusted Trial BalanceEnd of Chapter 4
