MGAB01H3 Lecture Notes - Lecture 7: Retained Earnings, Deferral, Balance SheetPremium
3 pages93 viewsFall 2018
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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
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.
Example 2. Suppose we have a t-account shows
? = 85,000 – 74240 = 10750, therefore, we can record as
Earnings quality: how well can we trust the number the management show to us.
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