Professional Documents
Culture Documents
Accrual Accounting
and
Financial Statements
Learning Objectives
Explicit
Transactions
Implicit
Transactions
Explicit Transactions
Explicit Transactions
Implicit Transactions
Ledger
4.
Liabilities
(Unearned
Revenues)
Buyer
Revenues
Earned
Assets
(Prepaid
Expenses)
Adjustments
Appear in
Balance Sheet
Appear in
Income Statement
Expenses
Incurred
Adjustments
Appear in
Balance Sheet
Appear in
Income Statement
cr.
20,000
20,000
3,000
3,000
b. Accrual of Interest
Accrual of Interest
xxx
xxx
Ledger
Unadjusted
Trial Balance
Journalize &
Post Adjustments
Financial
Statements
Adjusted
Trial Balance
Advance Cash
Payments for
Future Services
to be Rendered
Transformed by
Adjustments
Into
Noncash
Assets in the
Balance Sheet
Expenses in
the Income
Statement
Create
Advance Cash
Collections for
Future Services
to be Rendered
Liabilities in
the Balance
Sheet
Revenues in
the Income
Statement
Passing of Time
and Continuous
Use of Services
Expenses in
the Income
Statement
and
Liabilities in
the Balance
Sheet
Decreased
by
Later Cash
Payments
Passing of Time
and Continuous
Rendering of
Services
Recorded by
Adjustments as
Increases in
Revenues in
the Income
Statement
and
Noncash Assets
in the Balance
Sheet
Decreased
by
Later Cash
Collections
Adjust Cash
STEVENS COMPANY
Balance Sheet
December 31, 2002
Liabilities and Owners Equity
$ 4,525
2,040
Current liabilities:
Accounts payable
Wages payable
6,565
Total liabilities
9,755
6,500
16,255
$22,820
=============
Owners Equity
Stevens, capital
Total liabilities and
owners' equity
$ 9,800
3,765
13,565
9,255
$22,820
=============
Current Ratio/
Working Capital Ratio
Current Ratio
Current Liabilities
Current Ratio
Quick Ratio
Income Statements
$ 98,600
4,000
$102,600
$45,800
12,000
5,000
62,800
$ 39,800
================
Less:
Operating Expenses
Operating Income/ Operating Profit
Add:
Non-operating Revenues
Less:
Non-operating Expense
Profit Before Tax
Less:
Tax
Profit After Tax/ Net Income
2.
3.
4.
Accounting conventions
might be a better way to
describe these rules
because GAAP are not
the result of airtight logic.