Preface
xiv
Chapter 5: The Accounting Cycle: Adjustments
Introduction to Adjustments......................................................................................................................... 105
Accrued Revenue............................................................................................................................................... 107
Accrued Expenses.............................................................................................................................................. 108
Salaries Expense.......................................................................................................................................... 109
Interest Expense.......................................................................................................................................... 111
Unearned Revenue. .......................................................................................................................................... 112
Prepaid Expenses............................................................................................................................................... 114
Prepaid Rent................................................................................................................................................. 114
Office Supplies............................................................................................................................................. 115
Depreciation........................................................................................................................................................ 117
Contra Account. .......................................................................................................................................... 117
Calculation of Depreciation.................................................................................................................... 118
Adjusted Trial Balance...................................................................................................................................... 120
Ethics...................................................................................................................................................................... 124
In Summary.......................................................................................................................................................... 125
Review Exercise.................................................................................................................................................. 126
Appendix 5A: Correcting Entries.................................................................................................................. 132
In Summary.......................................................................................................................................................... 133
Review Exercise.................................................................................................................................................. 134
Chapter 6: The Accounting Cycle: Statements and Closing Entries
Preparing the Financial Statements............................................................................................................ 135
The Income Statement............................................................................................................................. 136
Statement of Owner’s Equity.................................................................................................................. 137
The Balance Sheet...................................................................................................................................... 138
Closing Entries.................................................................................................................................................... 139
Direct Method: Close Directly to Owner’s Capital.......................................................................... 140
Income Summary Method: Close Using the Income Summary Account............................... 144
Post-Closing Trial Balance............................................................................................................................... 149
Classified Balance Sheet.................................................................................................................................. 150
Current Assets vs. Long-Term Assets................................................................................................... 150
Current Liabilities vs. Long-Term Liabilities....................................................................................... 151
Analyzing the Financial Statements............................................................................................................ 155
The Evolution from Manual to Computerized Accounting................................................................ 156
In Summary.......................................................................................................................................................... 158
Review Exercise.................................................................................................................................................. 159
