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Asignatura: Introduction to Accounting, Profesor: Fabrizio di Meo, Carrera: Administració i Direcció d'Empreses - Anglès, Universidad: UAB
Tipo: Apuntes
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Topic 4: The Accounting Cycle
Accounting Principles
The Accounting Cycle
Opening Stage
Development Stage
Adjustment Stage (Deferrals, Accruals, Depreciation)
Closing Stage
Topic 4: The Accounting Cycle
Going-concern Assumption The firm is a
going concern
indefinitely. Partially justifies acquisition cost principle rather than liquidation or exit value basis.
Accrual Basis of Accounting Method of recognizing revenues when goods are sold/delivered orservices are rendered independently of payment; expenses whenoccurred independently of payment. Note: Accrual vs. Cash accounting In cash accounting, transactions are recorded when cash is received (revenues) or paid (expenses)
Topic 4: The Accounting Cycle
Relative Significance Principle Accounting reports should disclose enough information in order notto mislead careful readers about financial matters. Specialdisclosures about changes in expectations, changes in significantcontractual relations, or new activities can be found in the body of thefinancial statements, in the auditor’s opinion, or in the notes to thestatements.
Topic 4: The Accounting Cycle
Steps taken each year in order to determine
the income of the period and
the financial position at the end of the year
Opening Stage: Start of the reporting period
Development Stage: Analysis, Journalizing, and Posting of Transactions, Trial Balance
Closing Stage: Preparation of Financial Statements
Introduction to AccountingUniversitat Autònoma de Barcelona
Topic 4: The Accounting Cycle
Beginning from the starting balances: Recording of the transactions during the
Period in the journal and the ledger
to
The Journal
The Ledger A
o^
o
L
o
t
u
t
u
OE u
t
t
u
u
ExpensesLosses
u
t
OE t
Revenues
Gains
Dr.
Cr.
E Lo
Unadjusted Trial Balance (sums and balances) (before adjustments and corrections)
Dr. … Debit side (“Debitor”), Cr. … Credit Side (“Creditor”) E … expenses, Lo … losses, R … revenues, G … gains
Introduction to AccountingUniversitat Autònoma de Barcelona
Topic 4: The Accounting Cycle
Operations before the “final” closing
Recording some transactions in order to adjust the financial positionat the end of the period (Depreciation/Amortization, Periodification, Regulation of the Inventories, Reclassifications)
to
The Journal
The Ledger A
o^
o
L
o
t
u
t
u
OE u
t
t
u
u
ExpensesLosses
u
t
OE t
Revenues
Gains
Dr.
Cr.
E Lo
Adjusted Trial Balance (sums and balances) (after adjustments andcorrections)
Topic 4: The Accounting Cycle
Revenues of the Period
Expenses of the Period necessary
to generate the revenues
Topic 4: The Accounting Cycle
Topic 4: The Accounting Cycle
Topic 4: The Accounting Cycle
Prepaid rent Suppose Air&Sea Travel prepays three months’ rent on April 1, 20X1. If thelease specifies a monthly rental amount of $1,000, the entry to record thepayment for three months debits Prepaid Rent is as follows:
Topic 4: The Accounting Cycle
PREPAID EXPENSES (continued)
Prepaid rent (continued) At April 30, Prepaid rent is adjusted to remove one month’s expense from theasset account.
Topic 4: The Accounting Cycle
To adjust for one month’s rent expired at April 30
Topic 4: The Accounting Cycle
Supplies On April 2, Air&Sea Travel paid cash of $700 for office supplies
Topic 4: The Accounting Cycle
To adjust for supplies used during April: Supplies available during the period Less: Supplies on hand at the end of the period Equals: Supplies used during the period (expense)
