Lecture International accounting: Chapter 2 - Nguyễn Quốc Nhất

Lecture "International accounting - Chapter 2: The adjusting process" has content: Accrual accounting versus cash basis, accounting, other accounting principles, why we adjust the accounts, two categories of adjusting entries, the adjusted trial balance, the financial statements, ethical issues in accrual accounting
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Lecture International accounting: Chapter 2 - Nguyễn Quốc NhấtInternational AccountingChapter 2: The Adjusting processChapter 2: The adjusting processMA. Nguyen Quoc Nhat1Accounting cycle2Quick check- overview chapter 1What is the accounting term of these definitions?1. A list of all a company’s accounts with their accountnumbers.2. A system of accounting where every transactionaffects at least two accounts.3. Summary device that is shaped like a capital “T” withdebits posted on the left side of the vertical line andcredits on the right side of the vertical line. A“shorthand” version of a ledger.4. A list of all the ledger accounts with their balances ata point in time.3MA. Nguyen Quoc Nhat –nhatnq.faa@gmail.com1International AccountingChapter 2: The Adjusting processQuick check- overview chapter 1Answer:1. A list of all a company’s accounts with their accountnumbers.  Chart of accounts2. A system of accounting where every transactionaffects at least two accounts.  Double – entrysystem3. Summary device that is shaped like a capital “T” withdebits posted on the left side of the vertical line andcredits on the right side of the vertical line. A“shorthand” version of a ledger.  T - account4. A list of all the ledger accounts with their balances ata point in time.  The trial balance4Learning objective Differentiate between accrual and cash-basisaccounting. Define and apply the accounting period concept,revenue recognition and matching principles, andtime period concept.Explain why adjusting entries are neededJournalize and post adjusting entriesExplain the purpose of and prepare an adjusted trialbalancePrepare the financial statements from the adjustedtrial balance5Chapter’s contents2.1 Accrual Accounting Versus Cash-BasisAccounting2.2 Other Accounting Principles2.3 Why We Adjust the Accounts2.4 Two Categories of Adjusting Entries2.5 The Adjusted Trial Balance2.6 The Financial Statements2.7 Ethical Issues in Accrual Accounting6MA. Nguyen Quoc Nhat –nhatnq.faa@gmail.com2International AccountingChapter 2: The Adjusting process2.1 Accrual Accounting Versus CashBasis AccountingLook at the picture, explain the difference betweenthe accrual basis and the cash basis:72.1 Accrual Accounting Versus CashBasis AccountingAccrual basisCash basisRecords the effect of eachtransaction as it occurs,that is:• Revenues are recordedwhen earned• Expenses are recordedwhen incurred.Records only cash receiptsand cash payments, thatis:• Revenues are recordedwhen cash is received• Expenses are recordedwhen cash is paid82.1 Accrual Accounting Versus CashBasis AccountingExample 1: Smart Touch purchased $200 of officesupplies on account on May 15, 2013, and paid theaccount in full on June 3, 2013. On the accrual basis,the business records this transaction as follows: Under the cash basis, the company would onlyrecognize expense on June 3, 2013.9MA. Nguyen Quoc Nhat –nhatnq.faa@gmail.com3International AccountingChapter 2: The Adjusting process2.1 Accrual Accounting Versus CashBasis Accounting Example 2: Smart Touch performed service andearned revenue on May 20,2013, but did not collectcash until June 5, 2013. Under the accrual basis, thebusiness records: Under the cash basis, the business would record norevenue until the cash receipt, which in this casewould be on June 5.102.1 Accrual Accounting Versus CashBasis AccountingQuick check: Which system of accounting is used in each ofthese case?1. A business sold goods to Roy on 7th December on credit.The business recognizes this sale on 7th December.2. A dentist receives fees from patient, 100$ on givingservices. The dentist accounts for his fee only when cashreceived.3. A internet service provider receives advance of $400 thismonth for services that he will provide in next month. Herecognizes the income in the next month, when heprovides service for it. (but records it as an advanceimmediately).112.1 Accrual Accounting Versus CashBasis AccountingAnswer:12MA. Nguyen Quoc Nhat –nhatnq.faa@gmail.com4International AccountingChapter 2: The Adjusting process2.2 Other Accounting Principles2.2.1 The Accounting Period Concept2.2.2 The Revenue Recognition Principle2.2.3 The Matching Principle2.2.4 The Time-Period Concept13The Accounting Period Concept andThe Time-Period Concept The time period (or periodicity) concept assumesthat the economic life of a business can be dividedinto artificial time periods — generally a month, aquarter, or a year. The basic accounting period is one year, andmost businesses prepare annual financialstatements. Calendar year: from January 1 through December31. Fiscal year: which ends on a date other thanDecember 31.14The Revenue RecognitionPrinciple Record revenue when it has been earned15MA. Nguyen Quoc Nhat ...