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© PHI Learning, 2008. All rights reserved.1 Financial Accounting: A Managerial Perspective Third Edition Prepared by R. Narayanaswamy Indian Institute of Management Bangalore
© PHI Learning, 2008. All rights reserved.2 Measuring Income Chapter 3
© PHI Learning, 2008. All rights reserved.3 Income Measurement Why measure income periodically? What is income? Net profit as income Revenues Gains Expenses Losses Chapter 3
© PHI Learning, 2008. All rights reserved.4 Accrual Accounting Accrual basis and cash basis of accounting Why is accrual a better measure of performance? Accrual: Expected, not necessarily actual, cash receipts and payments Realization principle: Revenue recognition Matching principle: Comparing accomplishment with effort Chapter 3
© PHI Learning, 2008. All rights reserved.5 The Adjustment Process What are adjusting entries? Why are adjusting entries needed? Deferral Delaying the recognition of an expense already paid or of a revenue already received. Accrual Recognizing an expense that has not been paid or of a revenue that has not been received. Chapter 3
© PHI Learning, 2008. All rights reserved.6 Deferral Apportioning recorded expenses Prepaid expenses Office supplies Depreciation Apportioning unearned revenues Advance collection of rents, air tickets, magazine subscriptions, insurance premium, etc. Chapter 3
© PHI Learning, 2008. All rights reserved.7 Accrual Recording accrued expenses Expenses payable for services already used e.g., unpaid salaries, interest, and income tax Recording accrued revenues Revenue not received for services already provided e.g., professional fee revenue receivable, interest revenue receivable Chapter 3
© PHI Learning, 2008. All rights reserved.8 Preparing Financial Statements from the Adjusted Trial Balance Adjusted trial balance Adjustments columns Extending balances to the adjusted trial balance columns Preparing financial statements Profit and loss account from the revenue and expense amounts Balance sheet from the asset, liability and equity amounts Chapter 3
© PHI Learning, 2008. All rights reserved.9 Steps in the Accounting Cycle 1.Analyse transactions 2.Record transactions in the journal 3.Post journal entries to the ledger accounts 4.Prepare a trial balance 5.Journalise and post adjusting entries and prepare adjusted trial balance 6.Prepare financial statements 7.Journalise and post closing entries: temporary accounts 8.Carry forward the balance sheet accounts to the next accounting period: permanent accounts Chapter 3
© Prentice-Hall of India Private Limited, All rights reserved.1 Financial Accounting: A Managerial Perspective Second Edition Prepared by R. Narayanaswamy.
ACCT 100 Chapter 3 Adjusting the Accounts Accrual Accounting and the Financial Statements 2 Objectives of the Chapter I.Introduce the accrual accounting.
Review of the Accounting Process INTERMEDIATE ACCOUNTING I CHAPTER 2 This presentation is under development.
Principles of Financial Accounting
Adjusting the Accounts
The Adjusting Process ACG 2021 Chapter 3.
Chapter 3 Accounting Information System The Basics of Financial Accounting.
© PHI Learning, All rights reserved.1 Financial Accounting: A Managerial Perspective Third Edition Prepared by R. Narayanaswamy Indian Institute.
ADJUSTING THE ACCOUNTS
Accrual Accounting and the Financial Statements Chapter 3.
STUDY OBJECTIVES After studying this chapter, you should understand: Time period assumptionAdjusting entries for prepayments Accrual basis of accountingAdjusting.
Chapter 3 Completing the Accounting Cycle. Chapter 3Mugan-Akman Accounting Cycle Analyze and record the transactions Post the transactions.
Adjustments to the Accounts Most transactions are recorded when they occur. Some transactions might not even seem like transactions and are recognized.
Accrual Accounting and the Financial Statements
Financial and Managerial Accounting Wild, Shaw, and Chiappetta Fifth Edition Wild, Shaw, and Chiappetta Fifth Edition McGraw-Hill/Irwin Copyright © 2013.
Worksheet Using A Worksheet
Chapter 4, Slide #1 Ch.4 Income Measurement & Accrual Accounting.
The Accounting Cycle Continued – Preparing Worksheets and Financial Statements Chapter 4 2.
4-1 ACCRUAL ACCOUNTING CONCEPTS Financial Accounting, Sixth Edition 4.
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