BU127 Lecture Notes - Lecture 4: Income Statement, Retained Earnings, Profit Margin
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BU127 Full Course Notes
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Document Summary
Chapter 4: adjustments, financial statements, and the quality of earnings: Management is responsible for preparing financial statements. High quality = relevance + reliability which is useful to investors and creditors. Start of the accounting period external transactions: perform transaction analysis, record journal entries, post amounts to general ledger. End of the accounting period internal transactions: prepare a trial balance, analyze the account balances, record and post adjusting entries, prepare financial statements, record and post closing entries. External transactions between the business and other external parties are recorded as they occur during the accounting period. The account balances are analyzed and adjusting journal entries are recorded for internal transactions that have a direct and measurable effect on the accounting entity particular for revenue and expense recognition at the end of the account period. Deferrals: receipts of assets or payments of cash in advance of revenue or expense recognition. Accruals: revenues earned or expenses incurred that have not been previously recorded.
