4-1 PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA.
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4-1
PowerPoint Authors:Susan Coomer Galbreath, Ph.D., CPACharles W. Caldwell, D.B.A., CMAJon A. Booker, Ph.D., CPA, CIACynthia J. Rooney, Ph.D., CPA
As a corporation earns taxable income, it incurs income taxes expense, and also a liability to governmental tax authorities.
As a corporation earns taxable income, it incurs income taxes expense, and also a liability to governmental tax authorities.
GENERAL JOURNAL
Date Account Titles and ExplanationPR Debit Credit
Dec. 31 Income Taxes Expense 780
Income Taxes Payable 780
Estimated income taxes applicable to
taxable income earned in December.
Accruing Income Taxes Accruing Income Taxes Expense: The Final Expense: The Final Adjusting EntryAdjusting Entry
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Costs are matched with revenue in two ways:
Costs are matched with revenue in two ways:
Direct association of costs with specific revenue
transactions.
Direct association of costs with specific revenue
transactions.
Systematic allocation of costs over the “useful life” of the
expenditure.
Systematic allocation of costs over the “useful life” of the
expenditure.
Adjusting Entries and Adjusting Entries and Accounting PrinciplesAccounting Principles
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An item is “material” if knowledge of the item might reasonably influence the
decisions of users of financial statements.
An item is “material” if knowledge of the item might reasonably influence the
decisions of users of financial statements.
Supplies
Light bulbs
Many companies immediately charge
the cost of immaterial items to
expense.
The Concept of MaterialityThe Concept of Materiality
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Effects of the Adjusting Effects of the Adjusting EntriesEntries
Adjustment Revenue ExpensesNet
Income Assets LiabilitiesOwners' Equity
Type IConverting Assets to Expenses No effect Increase Decrease Decrease No effect DecreaseType IIConverting Liabilities to Revenue Increase No effect Increase No effect Decrease IncreaseType IIIAccruing Unpaid Expenses No effect Increase Decrease No effect Increase DecreaseType IVAccruing Uncollected Revenue Increase No effect Increase Increase No effect Increase