Module 4

1. Module 4 Adjusting Entries and Closing Process

2. Learning Objectives

3. The Accounting Cycle Analyze transactions Prepare post-closing trial balance 9 1 Journalize 2 2 Close 8 Post 3 Prepare statements 7 Prepare unadjusted trial balance 4 Adjust Prepare adjusted trial balance 6 5

4. Adjusting the Accounts

5. GAAP and the Adjusting Process

6. Accounting Principles

7. Accounting Principles

8. Cash vs. Accrual Basis of Accounting

9. Adjustments

10. Prepaid Expenses

11. Prepaid Expenses–Example Introductory Accounting SAP 2007 / SAP University Alliances

12. Prepaid Expenses — Example Introductory Accounting SAP 2007 / SAP University Alliances

13. Prepaid Expenses — Example Introductory Accounting SAP 2007 / SAP University Alliances

14. Prepaid Expenses — Example Introductory Accounting SAP 2007 / SAP University Alliances

15. Prepaid Expenses — Example Introductory Accounting SAP 2007 / SAP University Alliances

16. Straight-Line Amortization/depreciation Expense Asset Cost - Salvage Value Useful Life = Amortization

17. Straight-Line Amortization Expense Asset Cost - Salvage Value Useful Life $96,000 - $6,000 6 years = = Amortization/depreciation — Example • On January 1,2005, a company purchased a piece of equipment for $96,000. The equipment is expected to have a useful life of six years and have a salvage value of $6,000. =$15,000/year

18. Amortization/depreciation

19. Amortization/depreciation

20. Amortization/depreciation

21. Amortization/depreciation

22. Amortization/depreciation

23. Amortization/depreciation Book Value is equal to the Net value of the Fixed Asset Account Introductory Accounting SAP 2007 / SAP University Alliances

24. Unearned Revenues

25. Unearned Revenues — Example Introductory Accounting SAP 2007 / SAP University Alliances

26. Unearned Revenues — Example Introductory Accounting SAP 2007 / SAP University Alliances

27. Unearned Revenues — Example Introductory Accounting SAP 2007 / SAP University Alliances

28. Accrued Expenses

29. Accrued Expenses — Example

30. Accrued Revenues

31. Accrued Revenues — Example

32. Adjustments and Financial Statements Introductory Accounting SAP 2007 / SAP University Alliances

33. Adjusted Trial Balance Introductory Accounting SAP 2007 / SAP University Alliances

34. Financial Statement Preparation

35. Correcting Errors

36. Correcting Errors — Example

37. Correcting Errors — Example

38. Correcting Errors — Example

39. Alternatives in Accounting for Prepaids and Unearned Revenues Introductory Accounting SAP 2007 / SAP University Alliances

40. Alternatives in Accounting for Prepaids and Unearned Revenues

41. Payment Recorded as an AssetPayment Recorded as an Expense Jan.1 Prepaid Insurance 2,400 Insurance Expense 2,400 Cash 2,400 Cash 2,400 Jan.31 Insurance Expense 800 Prepaid Insurance 1,600 Prepaid Insurance 800 Insurance Expense 1,600

42. Alternatives in Accounting for Prepaids and Unearned Revenues Introductory Accounting SAP 2007 / SAP University Alliances

43. Alternatives in Accounting for Prepaids and Unearned Revenues

44. Receipt Recorded as a LiabilityReceipt Recorded as a Revenue Mar.1 Cash 18,000 Cash 18,000 Unearned Revenue 18,000 Maintenance Revenue18,000 Mar.31 Unearned Revenue 9000 Maintenance Revenue 9,000 Maintenance Revenue 9000 Unearned Revenue 9,000

45. The Closing Process

46. Four-Step Closing Process (REID)

47. Step 1: Close Revenue accounts to Income Summary Consulting Revenue6850 Rental Revenue500 Income Summary7,350

48. Step 2: Close Expense Accounts to Income Summary Income Summary 4,105 Insurance Expense 300 Rent Expense 1,400 Interest Expense 65 Amortization Expense 150 Salaries Expense 1,100 Supplies Expense 900 Utilities Expense 190

49. Step 3: Close Income Summary to Owner’s Capital Income Summary 3,245 Ms Owner, Capital3,245

50. Step 4: Close Drawings to Owner’s Capital Carol Finlay, Capital 945 Carol Finlay, Withdrawals945