MGAB01H3 Lecture Notes - Lecture 4: Deferral, Trial Balance, AccrualPremium
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1. The accounting cycle
a) Phase1: during the accounting period(external) which we have learnt before
b) Phase2: end of the accounting period(internal)
i. Prepare unadjusted trial balance
ii. Record and post adjusting balance
iii. Prepare financial statements
iv. Record and post closing entries
The cash flowable account’s money send to shareholder’s equity to become
2. Unadjusted trial balance: a list of all the account with their ending balance,
check whether debit equal to credit.
If not equal, there is error. We can check the journal entry whether it balance,
double check the process of posting and copying journal entry.
3. Adjusting entries
Since transaction perhaps cross two fiscal period, we need adjust the account.
a) Time: at the end of each fiscal period
b) Use revenue and matching principle to adjust revenue and expense at the right
There are two types of adjusting entries: accrual and deferral
Deferral revenue: the company receive the money but not yet offer service (for
example, unearned revenue)
Deferral expense: the company has already pay for the service but not yet get
It (for example, prepaid expense)
Accrual revenue: the company offer the service before collect money
Accrual expense: the company get the service before pay for it.
There is some condition that need to record accounting estimates, for example,
depreciation, income taxes, bad debts
There are several factors that help us make estimate:
how long will the assets last? (which determine how many parts it should be
the last value
which expense it should be recognized
for example, depreciation. For depreciation, the beginning value minus the end
value is the amount it depreciates. then dividend by the time it use. Calculate each
period the depreciation value
When a company pay a year-insurance in advance, it should be a deferral expense.
We debited the assets up, as the prepaid insurance account and cash down, assets
go down, no change.
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