会计英语unit5 Completion of the Accounting Cycle.ppt

Unit 5 Completion of the Accounting Cycle Ⅰ. Adjusting Entries Ⅱ. Closing Entries Ⅲ. Adjusted Trial Balance Accounting Cycle Ⅰ. Adjusting Entries Adjusting entries are journal entries which are classified as either prepayments or accruals. Adjusting entries are needed because they assign revenues to the period when they are earned and expenses to the period when they are incurred. With adjusting entries, related asset and liability accounts balances are corrected under the concept of accrual-basis. Prepaid expenses Unearned revenues 1.Prepayments: Prepaid expenses: expenses paid in cash and recorded in assets before they are used or consumed. Unearned revenues: cash received as liabilities before revenue is earned. 2.Accruals: Accrued revenues: revenues earned but not yet received in cash or recorded. Accrued expenses: expenses incurred but not yet paid in cash or recorded. 1. Prepaid Expenses Payments of expenses that will benefit more than one accounting period are called prepaid expenses. Common prepayments are insurance, taxes, rents, and depreciation, etc. An asset account is increased to show the benefit that will be received in the future Adjustment for prepaid expenses Example(1) Prepaid Insurance Target paid a $1,200 for a 3-month insurance. Example(2) Supplies Target purchases supplies costing $5,000. Example(3) Depreciation Depreciation is a special kind of prepayment. It means the wear and tear on fixed assets that have long lives and will serve for years in a company, such as buildings, equipment, and motor vehicles. The period of service is called the useful life or service life of the asset. Depreciation is the process of allocating the cost of an asset to expense over its useful life. An account called Accumulated Depreciation is set up, which is a deduction of the assets account it offsets. Example(3) Depreciation A company buys a piece of equipment for $1 million and expects it to have a useful life for 10 years. 2. Unearned Revenues When paym