Chapter 3 10th ed. Accrual Accounting Financial Accounting 1 7 9 14 19 20 22 39 66 67 17 Transaction What did you receive? What did you give up? What did you receive? Why did you receive it? Why did you give it up? What did you give up? Revenue, Expense, Asset, Liability, Owners’ Equity Income State, State of Ret Earnings, Balance Sheet What kind of Account is it? What statement does it live on? Income Statement Statement of Retained Earnings Balance Sheet For the year ended Dec. 31, 2014 For the year ended Dec. 31, 2014 As of Dec. 31, 2014 Revenues Expenses Net Income Retained Earnings at Jan. 1 2014 plus Net Income less Dividends (paid) Retained Earnings at Dec. 31, 2014 Assets Liabilities Owners’ Equity Assets = Liab +Own Eq Use Problem 2-34/ 3-39 as review and bridge Use Spreadsheet of Chapter 2’s mid-chapter summary as a review and as a bridge page 2 p. 144 The GAP Starbucks Revenue Net Income 14,549 833 13,299 1,384 Which would you rather own? The GAP or Starbucks stock Accrual Accounting implies GAAP GAAP are the principles, rules, standards we follow to prepare accrual based financial statements Fiscal year – vocabulary word p. 116 Revenue Principle S3-7 Matching Principle S3-9 recognize revenue when Earned and Realizable try to recognize expenses in the period they help generate Revenue match prepaid rent to period the rent benefits the ethical example S3-1 S3-20 Adjusting Entries Deferral receive cash pay cash defer defer recognizing the revenue recognizing the expense Unearned Revenue Prepaid Expenses Depreciation is a special case of a Prepaid Expense / Deferral Accrual recognize the revenue recognize the expense before before receiving the cash paying the cash Account receivable Account payable Record Journal Entries in General Journal post JE to General Legder prepare Trial Balance Record Adjusting Jnl Entries in Gen. Jnl. post JE to General Legder prepare adjusted TB Prepare Financial Statements from Adjusted Trial Balance Record Closing Jnl Entries in Gen. Jnl. P3-66 Pr 3-67 post JE to General Legder work as major example on the Board P. 144 Exh 3-15 p. 144 Exh 3-14 Multi-Step Income Statement Classified Balance Sheet See versions on Spreadsheet 3-17 Current Ratio also calculate ratios for P 3-67 & Starbuck’s financial state Exhibit 3-14 p. 143 Debt Ratio