What are closing entries?
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- Closing entries ("closing the books") takes place at the end of the
accounting cycle after adjusting entries are completed and the financial
statements are prepared.
- They transfer balances from temporary accounts to permanent accounts
and make the books ready for a new accounting period.
- Temporary accounts need to be adjusted to a zero balance: income
statement accounts, dividends account.
- Balance Sheet accounts are permanent and are not closed.
(Step 8 of the Accounting Cycle)
What are temporary accounts?
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, Revenues, Expenses, Gains, Losses, Dividends
What is the recording process?
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1. Analyze transactions
2. Enter transactions in the general journal
3. Transfer general journal information to general ledger accounts
("Posting")
Deferred Revenues
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Cash received before services are performed.
1. Creates an Unearned Revenue liability related to the future performance
obligation.
2. Revenue is recognized later when services are performed.
Ex: Person buys KU basketball tickets now, KU will not recognize revenue
until the end of the game because it becomes a liability for them since they
owe the person basketball games.
(Look at pg. 65 in course packet for more examples)
What's wrong with Cash Basis Accounting?
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, The cash basis of accounting is simple but ignores the revenue and
expense recognition principles.
- Therefore, it is not in conformity with GAAP and not allowed for publicly
traded companies.
What are the types of cash flows? Give examples of each.
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Operating Cash Flows:
- Cash receipts from revenues (Day-to-day)
- Cash disbursements for expenses
Investing Activities:
- Purchasing or disposing of long-term assets
- Lending money and collecting (lender) loans
Financing Activities:
- Issuing and repaying debt (borrower)
- Stock transactions with owners
What is the expense recognition principle?
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In accrual accounting, expenses are recorded in the same period as the
revenue they helped generate.
- Product Expenses: Easily matched to the associated revenues
- Period Expenses: Difficult to match with specific revenues; instead, they
are matched to the time period in which they are incurred
(Look at pg. 60 in course packet for an example)
Give this one a try later!
- Closing entries ("closing the books") takes place at the end of the
accounting cycle after adjusting entries are completed and the financial
statements are prepared.
- They transfer balances from temporary accounts to permanent accounts
and make the books ready for a new accounting period.
- Temporary accounts need to be adjusted to a zero balance: income
statement accounts, dividends account.
- Balance Sheet accounts are permanent and are not closed.
(Step 8 of the Accounting Cycle)
What are temporary accounts?
Give this one a try later!
, Revenues, Expenses, Gains, Losses, Dividends
What is the recording process?
Give this one a try later!
1. Analyze transactions
2. Enter transactions in the general journal
3. Transfer general journal information to general ledger accounts
("Posting")
Deferred Revenues
Give this one a try later!
Cash received before services are performed.
1. Creates an Unearned Revenue liability related to the future performance
obligation.
2. Revenue is recognized later when services are performed.
Ex: Person buys KU basketball tickets now, KU will not recognize revenue
until the end of the game because it becomes a liability for them since they
owe the person basketball games.
(Look at pg. 65 in course packet for more examples)
What's wrong with Cash Basis Accounting?
Give this one a try later!
, The cash basis of accounting is simple but ignores the revenue and
expense recognition principles.
- Therefore, it is not in conformity with GAAP and not allowed for publicly
traded companies.
What are the types of cash flows? Give examples of each.
Give this one a try later!
Operating Cash Flows:
- Cash receipts from revenues (Day-to-day)
- Cash disbursements for expenses
Investing Activities:
- Purchasing or disposing of long-term assets
- Lending money and collecting (lender) loans
Financing Activities:
- Issuing and repaying debt (borrower)
- Stock transactions with owners
What is the expense recognition principle?
Give this one a try later!
In accrual accounting, expenses are recorded in the same period as the
revenue they helped generate.
- Product Expenses: Easily matched to the associated revenues
- Period Expenses: Difficult to match with specific revenues; instead, they
are matched to the time period in which they are incurred
(Look at pg. 60 in course packet for an example)
