ACCOUNITNG CYCLE

4. SUMMARIZING PREPARATION OF REPORTS

a. ADJUSTING ENTRIES

b. ADJUSTED TRIAL BALANCE

c. FINANCIAL STATEMENTS


d. CLOSING





e. POST CLOSING TRIAL BALANCE



STEPS
ACCOUNITNG CYCLE
4a.ADJUSTING ENTRIES
TIME PERIOD CONCEPT
REVENUE RECOGNITION
PRINCIPLE


EXPENSE RECOGNITION PRINCIPLE
(MATCHING PRINCIPLE)


ACCRUAL AND CASH SYSTEM OF
ACCOUNTING
CONCEPTS
TIME PERIOD CONCEPT
ACCOUNITNG CYCLE
ACCOUNTANTS DIVIDE THE ECONOMIC LIFE OF A BUSINESS INTO
ARTIFICIAL TIME PERIODS (TIME PERIOD ASSUMPTION).
GENERALLY A MONTH, A QUARTER, OR A YEAR.
ALSO KNOWN AS THE PERIODICITY ASSUMPTION
MONTHLY AND QUARTERLY TIME PERIODS ARE CALLED INTERIM
PERIODS.
FISCAL YEAR = ACCOUNTING TIME PERIOD THAT IS ONE YEAR IN
LENGTH.
CALENDAR YEAR = JANUARY 1 TO DECEMBER 31.

Jan. Feb. Mar. Apr. Dec.
. . . . .
REVENUE RECOGNITION
PRINCIPLE
ACCOUNITNG CYCLE
RECOGNIZE REVENUE IN THE ACCOUNTING PERIOD IN WHICH IT IS
EARNED.(WHEN EARNING PROCESS IS COMPLETED)
SALE HAS BEEN MADE OR SERVICES HAVE BEEN PERFORMED
CASH EITHER BEEN COLLECTED OR COLLECTIBILTY IS REASONABLY
ASSURED
EXPENSE RECOGNITION
PRINCIPLE
ACCOUNITNG CYCLE
Match expenses with
revenues in the period
when the company makes
efforts to generate those
revenues.
Let the expenses follow
the revenues.
MATCHING PRINCIPLE
CASH AND ACCRUAL SYSTEM
OF ACCOUNITNG
ACCOUNITNG CYCLE
CASH ACCRUAL
TRANSACTION RECORDED IN THE
PERIOD WHEN SETTELED
RECORDED IN THE
PERIOD WHEN INCURRED
REVENUE
EXPENSES
RECOGNIZED WHEN
RECEIVED
RECOGNIZED WHEN
EARNED
RECOGNIZED WHEN
PAID
RECOGNIZED WHEN
DUE/INCURRED
GAAP
NOT AS PER GAAP AS PER GAAP
ACCOUNITNG CYCLE
WHY THERE IS A NEED OF ADJUSTMENTS
TO RECORD/ADJUST
UNRECORDED /UNADJUSTED
LIABILITIES
REVENUE
EXPENSES
ASSETS
ACCOUNITNG CYCLE
TYPES OF ADJUSTING ENTRIES
DEFERRALS
TRANSACTIONS

ACCRUALS
TRANSACTIONS

RECOREDED BUT
UNADJUSTED
UN RECORDED
PREPAID
EXPENSES
UNEARNED
REVENUES
ACCRUED
REVENUES
ACCRUED
EXPENSES
Revenue received
in advance
ACCOUNITNG CYCLE
PREPAIDS
EXPENSES




Expenses paid in advance
Example: Insurance,supplies,advertising,
rent, equipment, buildings




PREPAID /SUPPLIES/BUILDING..DR
CASH. CR
RENT/INSURANCE
/SUPPLIES
EXPENSEDR
PREPAID/SUPPLIES..CR
BUILDING
/EQUIPMENT
DEPRECIATION EXPENSEDR
ACCUMULATED DEPRECIATIONCR
ADJUSTMENT
DEFERRALS
REASON:ASSET HAVE BEEN USED
ACCOUNITNG CYCLE
UNEARNED
REVENUES

Revenue has received in advance
Example: Magazine subscriptions, Customer
deposits,Rent, Airline tickets

CASH..DR
UNEARNED REVENUE..CR
ADJUSTMENT
UNEARNED REVENUEDR
EARNED REVENUE..CR
DEFERRALS
REASON:REVENUE HAS BEEN EARNED
ACCOUNITNG CYCLE
ACCRUALS
ACCRUED
REVENUE

REVENUE EARNED BUT NOT RECEIVED
EXAMPLES :RENT , SERVICES PERFORMED

ADJUSTMENT
REASON:NOT RECORDED
ACC/RECV..DR
REVENUE..CR
ACCRUED
EXPENSES

EXPENSES DUE BUT NOT PAID
EXAMPLES :RENT ,SALARIES, INTEREST,

ADJUSTMENT
REASON:NOT RECORDED
EXPENSE..DR
PAYABLES..CR
ACCOUNITNG CYCLE ADJUSTMENT SUMMARY
EXPENSE
DUE BUT
NOT PAID
PAID IN
ADVANCE
EXPENSEDR
PAYABLESCR

EXPENSEDR
PREPAID/SUPPLIES..CR

REVENUE
EARNED
BUT NOT
RECEIVED
ALREADY
RECEIVED IN
ADVANCE
ACC/RECVDR
REVENUECR
UNEARNED REVENUEDR
EARNED REVENUE..CR