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Lecture 7

MGAB01H3 Lecture Notes - Lecture 7: Retained Earnings, Deferral, Balance SheetPremium

3 pages93 viewsFall 2018

Department
Financial Accounting
Course Code
MGAB01H3
Professor
H Levy-Shalev
Lecture
7

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MGAB01 class7
Content: chapter 4 closing entries
Review: two principles – revenue recognition
Matching principle (about expense)
Two adjusting: accrual, deferral
Accrual: not pay/receive money yet, already received or provide goods or
service. record at this period
Deferral: already pay/ receive, not receive or offer goods or service, record
at next period.
The order of closing entry: state of earning
Change shareholder’s equity
Plug SHE into Balance sheet
Two types of variable: stock variable for example, balance sheet; flowable variable, for
example income statement
In closing entries: all temporary account come to zero,
Send to retained earning
In this process, intermedia is income summary
Example1. Before the closing, the revenue is 85,000
revenues
85000
85000
0
Since we need to close entry, we should let revenue to be 0. Therefore, we debit 85,000
on revenue account. Like what I am write in red in this t – account.
revenue
85,000
Income summary
85,000
Example 2. Suppose we have a t-account shows
Income summary
85,000
74,240
?
0
? = 85,000 – 74240 = 10750, therefore, we can record as
Income summary
10,750
Retained earnings
10,750
Earnings quality: how well can we trust the number the management show to us.
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