Essay on Accounting: Generally Accepted Accounting Principles and Adjusting Entry
Submitted By sexymama26
Words: 762
Pages: 4
Accounting Cycles
ACCT205
Cassandra Sanders
American Intercontinental University
Abstract
As an accountant in a medium-sized manufacturing company it’s my job to help people out whenever I can. Last week I was asked to mentor an accounting clerk who is new to my accounting department. I will be explaining why adjusting entries are necessary, also I will be describing the four types of adjusting entries, and provide a manufacturing industry example of each and describing how these entries would be recorded in a computerized accounting system. Finally I will be describing one ethical issue that could result from the preparation of these manufacturing entries.
Adjusting entries are necessary because in order to achieve a clean cut-off at the end of the accounting period and to ensure the accounts are complete and accurate. (Adjusting JE, 2010) Adjusting entries can be either permanent or temporary. A friendly reminder if the entry is temporary it can eventually be reversed or another adjusting entry will be made to the account.
The four types of adjusting entries is prepaid expenses, accrued revenues, accrued expenses and unearned expenses. Prepaid expenses (or deferred expenses) are expenses paid in cash and recorded as assets prior to being used. Often a transaction affects the revenue or expenses of two or more accounting periods. The related cash inflow or outflow does not always coincide with the period in which these revenue or expense items are recorded. Thus, the need for adjusting entries results from timing differences between the receipt or disbursement of cash and the recording of revenue or expenses. The most common form of an adjusting entry for prepaid expense would be for the used portion of an insurance premium. These types of adjusting entries are usually permanent. Here are some examples:
Insurance Expense 1,000
Prepaid Insurance 1,000
Other adjusting entries include depreciation of fixed assets, allowances for bad debts, and inventory adjustments.
Bad Debt Expense 50
Allowance for Bad debt 50 (Adjusting EN, 2010)
Accrued revenues (also called accrued assets) are revenues already earned but not yet paid by the customer or posted to the general ledger. An example of accrued revenue would be for a custom ordered machine that has been shipped FOB shipping point on the day the accounts receivable module is closed and the approval to bill the customer has not been received by the billing clerk. An adjusting entry would be recorded to recognize the revenue in the correct period. This entry will reverse when the customer is appropriately invoiced. Accrued Expenses (also called accrued liabilities) are expenses already incurred but not yet paid or recorded. Examples of these types of adjusting entries could be for payroll that has been earned by employees on the last day of the period but not paid until the next payroll date. These types of entries generally reverse the next month.
Unearned expenses (or deferred revenues) are revenues received in cash
Related Documents: Essay on Accounting: Generally Accepted Accounting Principles and Adjusting Entry
ACCT 2301 Study Guide Comprehensive Final Exam Chapter 1 Purpose and objectives of Generally Accepted Accounting Principles (GAAP). Purpose of financial reporting Purposes of and differences between financial accounting/management accounting/tax accounting Purposes/Authority of the Securities and Exchange Commission and the Financial Accounting Standards Board Chapter 2 3 primary/general purpose financial statements, nature of and reporting periods/dates covered by each. Nature of Assets…
Accounting Cycle Michelle Corniciuc ACC/421 11/24/2014 Art Trujillo Accounting Cycle A transaction is a type of external or internal event or exchange between two entities where each receives and sacrifices value. In every type of business there is some form of transactions occurring like sales, wages, and expenses, receivables, using buildings and machinery or consuming raw materials. A company will normally record these transactions and prepare financial statements using the steps…
students who must also take Accounting 2603: Special binder: Financial and Managerial Accounting, Waybright and Braun, with MyAccountingLab, 2011, Prentice Hall, 1st edition -- $160.00 For those who need to take only Financial Accounting (Accounting 2602): MyAccountingLab Access Code W/E-text Financial Accounting, Waybright, 2011, Prentice Hall, 1st ed., $105.00 Course Description Students will study of the accounting cycle and generally accepted accounting principles including preparation…
purpose of accounting for an organisation What is accounting Accounting is a recording, reporting, and analysis of financial transactions of the business. The person which is in charge or accounting is known as an accountant, this person is specifically in charge to follow rules and regulations, such as the generally accepted accounting principle. Accounting lets businesses to analyze the financial performance of the business, and look for statics such as net profit. The accounting process…
basic purpose of Generally Accepted Accounting Principles (GAAPs) is to: a. Minimize the possibility of the business becoming insolvent b. Ensure the financial statements include the type of information that is best suited to every type of business decision c. Provide a framework for financial reporting that is understood by both the preparers and the users of financial statements d. Eliminate the need for professional judgment in preparing financial statements 2. The accounting principle of matching…
Chapter 3- Intro to Debits and Credits Know the basic equation of accounting (Assets= Liabilities+Stockholders’ Equity) Know that Stockholders Equity is equal to common stock plus retained earnings Know that Retained Earnings = Expenses and Dividends subtracted from Revenues When you increase cash it is a debit and when you decrease cash it is a credit Increases in Liabilities are entered as credits and Decreases in Liabilities are entered as debits The normal balance is the side…
Accounting: Test 1 Study Guide (Chapters 1-4) Definitions Working Capital: current assets- current liabilities Current Ratio: Current Assets/Current Liabilities Free Cash Flow: Operating cash flow Contra Asset: An asset account which is expected to have a credit balance (as opposed to a normal debit balance) Liquidity: How easily something can be turned into cash Profitability Ratios: How efficient a company is at making money Liquidity Ratios: How quickly could a company pay off short…
head: Client Understanding Client Understanding Paper Letitia Edwards University of Phoenix July 1st, 2013 Professor Boswell Abstract One of the most important responsibilities of accounting personnel is to ensure compliance with Generally Accepted Accounting Principles. To ensure compliance, a new employee would need to review the firms’ current financial statements and get clarification if needed. Client Understanding Paper Reorganization of personnel is almost…
Situation Re- port Comment 1. A company has not followed generally accepted accounting principles in the recording of its leases. 7 2. A company has not followed generally accepted accounting principles in the recording of its leases. The amounts involved are immaterial. 1 3. A company valued its inventory at current replacement cost. While the auditor believes that the inventory costs do approximate replacement costs, these costs do not approximate any GAAP inventory valuation method…
Arthur Andersen LLP Arthur Andersen LLP was a national accounting firm. They performed accounting and consulting services for businesses throughout the United State and all over the world. Arthur Andersen LLP was one of the “Big Five” accounting firms in the United States. Arthur Andersen LLP headquarters was in Chicago, Illinois and they had several other smaller offices all over the world. Arthur Andersen LLP was accused of “cooking the books” of Waste Management for several years. Arthur Andersen…