Task Team of FUNDAMENTAL ACCOUNTING School of Business Sun Yat-sen University L Notes Lesson 4 Adjusting Accounts for Financial Statement Learning objectives 1. Describe the purpose of adjusting accounts at the end of the period 2. Prepare and explain adjusting entries for prepaid expenses, amortization, unearned revenues, accrued expenses, and accrued revenues 3. Explain how accounting adjustments link to financial statements 4. Explain and prepare an adjusted trial balance Teaching h Students major in accounting: 3 hours Others. 3 hours Teaching contents: Need for adjustments at the end of an accounting period Some events are not evidenced by the obvious documents. They may not recorded and related accounts will not be up-to-date and therefore do not provide a fair presentation of the accounts on the financial statements. Adjustment are necessary to record internal economic events such as the expiration of cost Before financial statements are prepared at the end of an accounting period, it is necessary to adjust the account balances that are not up-to-date. The purpose of making adjustments is to ensure that the information on the accounting statement is comparable from period to period Related gAAP Adjustments are based on three generally accepted accounting principles Time period principle: The continued life of a business is divided into time periods of equal length. Annual Financial reports are prepared at the end of each fiscal period Revenue recognition principle: The revenue is recognized in the period in which it is earned regard less the cash is received or not Matching principle: Matching principle requires that revenues and expenses be matched. All expenses incurred in earning revenues must be deducted from the revenues in determining net income So. Adjustments are required to match Associated revenues with their related costs Revenues and expenses to their appropriate time period Accrual and cash basis of accountingTask Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Yat-sen University Lesson Notes Lesson 4 Adjusting Accounts for Financial Statement Learning objectives 1. Describe the purpose of adjusting accounts at the end of the period. 2. Prepare and explain adjusting entries for prepaid expenses, amortization, unearned revenues, accrued expenses, and accrued revenues. 3. Explain how accounting adjustments link to financial statements. 4. Explain and prepare an adjusted trial balance. Teaching hours Students major in accounting: 3 hours Others: 3 hours Teaching contents: Need for adjustments at the end of an accounting period Some events are not evidenced by the obvious documents. They may not recorded and related accounts will not be up-to-date and therefore do not provide a fair presentation of the accounts on the financial statements. Adjustment are necessary to record internal economic events such as the expiration of cost. Before financial statements are prepared at the end of an accounting period, it is necessary to adjust the account balances that are not up-to-date. The purpose of making adjustments is to ensure that the information on the accounting statement is comparable from period to period. Related GAAP Adjustments are based on three generally accepted accounting principles: Time period principle: The continued life of a business is divided into time periods of equal length. Annual Financial reports are prepared at the end of each fiscal period. Revenue recognition principle: The revenue is recognized in the period in which it is earned regardless the cash is received or not. Matching principle: Matching principle requires that revenues and expenses be matched. All expenses incurred in earning revenues must be deducted from the revenues in determining net income. So, Adjustments are required to match: Associated revenues with their related costs Revenues and expenses to their appropriate time periods Accrual and cash basis of accounting