© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill 1 Chapter 3 Adjustments, Work Sheet and Financial Statements 调整分录, 工作底稿和财务报告.

© The McGraw-Hill Companies, Inc., 1999Irwin/McGraw-Hill1

Chapter 3

Adjustments, Work Sheet and Financial Statements调整分录 ,工作底稿和财务报告

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The Accounting Cycle

Journalize transactions. Post entries to

the ledger accounts.

Prepare trial balance.

Make end-of-year

adjustments.

Prepare adjusted trial balance.

Prepare financial

statements.

Prepare after closing trial balance.

Journalize and post closing

entries.

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Work Sheet 工作底稿 A chart which provides necessary data for recording adjusting entries and for preparing such financial statement as the income statement and the balance sheet.

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At the end of the period, we need to

make adjusting entries to get the accounts up to date for the financial

statements.

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The Matching Principle: When To Record Expenses

Matching Principle

配比原则Expenses should be recorded in the period in which assets are u

sed up.

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Adjusting Entries: The Next Step in the Accounting Cycle

Jan 1Dec 31

$3600 Insurance Policy purchased to cover 12

months.

$300 Monthly Supplies Expense

On Jan 1, Guangli service. purchased one-year’s Insurance Policy for $3600.

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Adjusting Entries: The Next Step in the Accounting Cycle

GENERAL JOURNAL

Date Account Titles and ExplanationPR Debit Credit

Jan. 1 Prepaid Insurance 3,600Cash 3,600

Purchase of one-year's insurance policy for truck and equipment.

Initially, costs that benefit more than one accounting period are recorded as assets.

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Adjusting Entries: The Next Step in the Accounting Cycle

The costs are expensed as they are used to generate revenue.

GENERAL JOURNAL

Date Account Titles and ExplanationPR Debit Credit

Monthly Adjusting Entry for Insurance Jan. 31 Insurance Expense 300

Prepaid Insurance 300To recognize expense used in month.

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Adjusting Entries: The Next Step in the Accounting Cycle

Insurance Expense1/31 300

Prepaid Insurance1/1 3,600 1/31 300

Bal. 3,300

Income Statement

Cost of assets used this period to generate revenue.

Balance Sheet

Cost of assets that benefit

future periods.

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The Concept of Depreciation(折旧）

Depreciation is the systematic allocation of the cost of a depreciable asset to

expense.

Depreciable assets are physical objects that retain their size and shape but lose

their economic usefulness over time.

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Acquisition of Plant Assets

Asset price

Reasonable and necessary costs . . .

. . . for getting the asset to the

desired location.

. . . for getting the asset ready

for use.

Cost

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Depreciation

The allocation of the cost of a plant asset to expense in the periods in which services are received from the asset.

Cost of plant

assets

Balance SheetAssets: Plant and equipment

Income StatementRevenues:Expenses: Depreciation

as the services are received

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Estimated Salvage value 残余价值the estimated selling price when disposing o

f the asset. Residual value /scrap value /salvage value /

trade in value

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Cost - Residual ValueLife in Years

DepreciationExpense per Year =

Straight-Line Depreciation直线法 (折旧 )

allocating the cost of the asset (less any estimated residual value) equally over the

estimated useful life of the asset.

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Converting Assets to Expenses –The Concept of Depreciation

When acquiring the fixed asset Fixed asset Cash + - + - xx xx

When recording depreciation Accumulated depreciation Depreciation expense - + + - xx xx

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Review of Depreciation

Depreciation is the systematic allocation of the cost of a depreciable asset to expense

Cash (credit)

Fixed Asset (debit)

On date when initial payment is made . . .

The asset’s usefulness is

partially consumed during the

period. At end of period . . .

Accumulated Depreciation

(credit)

Depreciation Expense (debit)

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Straight-Line MethodExample

On January 1, 2005, Bass Co. buys a new boat. Bass Co. pays $24,000 for the boat. The boat has an

estimated residual value of $3,000 and an estimated useful life of 5 years.

Compute depreciation for 2005 using the straight-line method.

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Straight-Line MethodExample

On January 1, 2005, Bass Co. buys a new boat. Bass Co. pays $24,000 for the boat. The boat has an

estimated residual value of $3,000 and an estimated useful life of 5 years.

Compute depreciation for 2005 using the straight-line method.

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Straight-Line MethodGraph of Depreciation Expense

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(Cost - Residual Value)

DepreciationExpense per Year

=

Straight-Line Depreciation

Depreciation Rate refers to the periodic depreciation expense in

the percentage of total depreciation (Yearly Dep rate or monthly Dep rate)

1/life in years*

Yearly depreciation rate

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Completing the work sheet

1. Complete the Trial balance 2. Enter the adjustments in the Adjustments

columns3. Complete the Adjusted Trial Balance 4. Complete the Income Statement columns5. Complete the Balance Sheet columns

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Income statement 损益表The statement of the results

of operations of a business over a period of time

Profit and Loss statement

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Statement of Owner’s Equity所有者权益变动表The statement shows how and

why the owner’s equity account of a business has changed over the financial period

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Statement of Owner’s Equity

•Owner’s Investments

•Business Earnings

•Owner’s Withdrawals

•Business Losses

This statement summarizes the increases and decreases in owner’s equity during the

period.

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Statement of Owner’s Equity

Statement of Owner’s Equity Beginning Capital + Additional Investment (s) (if any) + Net income (- net loss) - Withdrawals = Ending Capital

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Balance Sheet 资产负债表A statement of the total assets

and liabilities of an organization at a particular date ,usually the last day of the accounting period.

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Relationship among financial statements

Income statement Revenue

- Expenses = Net income (or net loss) Statement of Owner’s Equity Beginning Capital + Additional Investment (s) (if any) + Net income (- net loss) - Withdrawals = Ending Capital Balance sheet Assets = Liabilities + Owner’s equity( Ending Capital)

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Recording and posting

Record and post adjusting entries

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End of Chapter 3