COMMERCE 1BA3 Lecture Notes - Lecture 4: Retained Earnings, Bookkeeping, Deferral
3 Oct 2013
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Chapter 4: adjustments, financial statements and the quality of earnings. Accounting cycle: transaction analysis journal entries post to ledger trial balance adjustments. Conceptual framework: adjustments end-of-year journal entries to update account balances, going-concern and periodicity dictate that financial statements be prepared periodically, faithful representation requires updating account balances. Accrual basis, not cash bases; with cash basis; there is no need to adjust entries. Timing differences between cash and performance; require the use of adjusting entries. Adjusting entries are prepared at the end of the accounting period so that accounting information will be faithfully represented. The accounting period for the university ends on dec 31. The transaction spans the period september through april of the following year. The university must prepare an adjusting entry on dec 31 to record the tuition revenue since september. Dec 31 half of services provided; recognize that half of unearned revenue is now earned.
