What is the Accounting Cycle?
A series of 9 steps performed every month by accountants to process financial information
Steps 1-4 in the Accounting Cycle happen when?
throughout the month
Steps 1-5 in the Accounting Cycle happen when?
at month-end (Month-end process)
What are Adjusting Journal Entries?
Journal entries recorded at the end of the month to adjust accounts to their updated balances. Needed for various reasons, such as financial impact without a business transaction.
What are the first 3 common adjusting journal entries?
Prepaid Expenses, Supplies, Depreciation
What are the last 3 common adjusting journal entries?
Unearned Revenues, Accrued Revenues, Accrued Expenses
Accrual Basis Accounting is when
expenses are recorded and recognized when they are incurred
Two activities when it comes to expenses...
recognize when the expense was incurred and cash payment of that expense
When prepaid expense occurs when adjusting journal entry it is called
deferral; deferral expense
When accrued expense occurs when adjusting journal entry it is called
accrual; accrued expense
Property, Plant, and Equipment records their amount under
Depreciation Expense
Accumulated Depreciation is
an account used to record the cumulative to date depreciation on the PP&E. It is considered a contra-asset account
Contra-Account is
an account with an opposite normal balance. Example: contra-liability would increase debit
As the depreciation expense goes up, in debit, accumalted depreciation goes up in
credit
Book Value
indicates their amount that a company reports the PP&E asset.
Equation to find book value
PP&E - Accumulated Depreciation = Book Value
Accrual basis accounting
revenues are recorded and recognized when the underlying performance obligations are satisfied
When an unearned revenue results in the recording of an adjusting journal entry, it is called a
deferral
When an accrued revenue results in the recording of an adjusting journal entry, it is called
accrual
Interest equation is
Interest = Principle * Rate * Term(Time)
Step 6 of the Accounting Cycle
is Adjusted Trial Balance
Adjusted Trial Balance is when you
run another trial balance with the newly updated account balances
After step 6, we need to report the information, which are known as
financial statements
Income statement
states company revenues and expenses, yields either net income or net loss
Statement of retained earnings
shows activity in retained earnings account
balance sheet
lists companys assets, liability,es and equities
statement of cash flows
shows companys cash receipts, cash disbursments
All financial statements begin with
(1) name of company, (2) name of financial statement, and (3) date or date range
Financial statements should be prepared in this order
1. Income statement
2. Statement of retained earnings
3. Balance sheet
4. Statement of Cash flows