ACC 240 Lecture Notes - Lecture 15: General Ledger, Retained Earnings, Financial Statement
High Quality Financial Statements
Relevant + Faithful Representation
The Accounting Cycle
Start of Period: 1. Analyze transactions, 2. Record journal entries in the general journal, 3. Post amounts
to the general ledger. Ata the end of the period: 4. Prepare a trial balance to determine if debits equal
credits, 5. Adjust revenues and expenses and related balance sheet accounts (record in journal and post
ledger), 6. Prepare a complete set of financial statements and disseminate it to users, 7. Close revenues,
gains, expenses, and losses to retained earnings (record in journal and post to ledger).
The purpose of adjustments
Revenues are recorded when earned (revenue recognition principle), Expenses are recorded when they
are incurred to generate revenue (expense recognition principle). Assets are reported at amounts that
represent the probable future benefits remaining at the end of the period. Liabilities are reported at
amounts that represent the probable future sacrifices of assets or services owed at the end of the
period.
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Deferred Revenues
Previously recorded liabilities that were created when cash was received in advance and the must be
reduced for the amount of revenue actually earned during the period.
Accrued Revenues
Revenues that have been earned but not yet recorded because cash will be received after the services
are performed or goods are delivered.
Deferred Expenses
Previously recorded assets, such as Prepaid Rent, Supplies, and Equipment, that were created when
cash was paid in advance and that must be reduced for the amount of expense actually incurred during
the period through use of the asset.
Accrued Expenses
Expenses that have been incurred but not yet recorded because cash will be paid after the goods or
services are used.
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Document Summary
Record journal entries in the general journal, 3. Prepare a trial balance to determine if debits equal credits, 5. Adjust revenues and expenses and related balance sheet accounts (record in journal and post ledger), 6. Prepare a complete set of financial statements and disseminate it to users, 7. Close revenues, gains, expenses, and losses to retained earnings (record in journal and post to ledger). Revenues are recorded when earned (revenue recognition principle), expenses are recorded when they are incurred to generate revenue (expense recognition principle). Assets are reported at amounts that represent the probable future benefits remaining at the end of the period. Liabilities are reported at amounts that represent the probable future sacrifices of assets or services owed at the end of the period. Previously recorded liabilities that were created when cash was received in advance and the must be reduced for the amount of revenue actually earned during the period.