清华管理学双学位会计学讲义4

nullChapter 4Chapter 4Adjustments, Financial Statements, and the Quality of EarningsBusiness BackgroundBusiness BackgroundRevenues are recorded when earned.Expenses are recorded when incurred.Because transactions occur over time, ADJUSTMENTS are required at the end of each fiscal period to get the revenues and expenses into the “right” period.Accounting CycleAccounting CyclePrepare financial statements. Disseminate statements to users.Close revenues, gains, expenses, and losses to Retained Earnings.During the period: Analyze transactions. Record journal entries. Post amounts to general ledger.At the end of the period: Adjust revenues and expenses. Learning Objectives Learning ObjectivesAnalyze the adjustments necessary at the end of the period to update balance sheet and income statement accounts.Adjusting ProcessAdjusting Process(1) External Transactions v.s. Internal Transactions (2) External transactions between the business and other external parties are recorded during the accounting period as they occur.Adjusting ProcessAdjusting Process At the end of the accounting period, adjusting journal entries are recorded for internal transactions that have a direct and measurable effect on the accounting entity, particularly for revenue and expense recognition.End of Accounting PeriodStart of Accounting PeriodExternal TransactionsAdjusting EntriesAdjusting EntriesAdjusting EntriesThere are two types of adjusting entries.Adjusting EntriesEnd of accounting period.Adjusting EntriesDeferred RevenueDeferred RevenueWhen cash is received prior to earning revenue by delivering goods or services, the company records a journal entry to recognize unearned revenue.Deferred RevenueEnd of accounting period.Example includes rent received in advance (an unearned revenue).Deferred RevenueDeferred RevenueDeferred RevenueOn December 1, 2010, Tom’s Rentals received a check for $3,000, for the first four months’ rent from a new tenant. The entry on December 1, 2010, to record the receipt of the prepaid rent payment would be . . .Deferred RevenueDeferred RevenueWe must record the amount of rent EARNED during December. Since the prepayment is for 4 months, we can assume that 1/4 of the rent will be earned each month. Received cash for rent< 4-month prepayment of rent >Deferred RevenueDeferred RevenueOn December 31, 2010, Tom’s Rentals must adjust the Unearned Rent Revenue account to reflect that one month of rent revenue has been earned. $3,000 × 1/4 = $750 per month.In effect, our obligation to let them occupy the space for a period of time has decreased because they used the space for one month.Deferred RevenueDeferred RevenueAfter we post the entry to the T-accounts, the account balances look like this:Accrued RevenuesAccrued RevenuesWhen revenues are earned but not yet recorded at the end of the accounting period because cash changes hands after the service is performed or goods deliveredAccrued RevenueEnd of accounting period.Example includes interest earned during the period (accrued revenue).Accrued RevenueAccrued RevenueAccrued RevenueOn October 1, 2010, Webb, Inc. invests $10,000 for 6 months in a certificate of deposit that pays 6% interest per year. Webb will not receive the interest until the CD matures on March 31, 2011. On December 31, 2010, Webb, Inc. must make an entry for the interest earned so far.Accrued RevenueAccrued RevenueAfter we post the entry to the T-accounts, the account balances look like this:Chart for Deferred and Accrued RevenuesChart for Deferred and Accrued RevenuesExpensesExpensesNow, we need to look at adjusting entries for expenses.Deferred ExpenseDeferred ExpenseWhen cash is paid prior to incurring an expense, the company records a journal entry to recognize an asset. Deferred ExpenseEnd of accounting period.Examples include prepaid rent, advertising, and insurance.Deferred ExpenseExpense incurred.Deferred ExpenseDeferred ExpenseOn January 1, 2011, Matrix, Inc. paid $3,600 for a 3-year fire insurance policy. They are paying in advance for a resource they will use over a 3-year period. The entry on January 1, 2011, to record the policy on Matrix’s books would appear as follows . . .Deferred ExpenseDeferred ExpenseAt the end of 2011, we determine how much of the “prepaid expense” has been used up during the period. Since the policy is for 3 years, we can assume that 1/3 of the policy will expire each year. 1/1/1112/31/11 Year end12/31/12 Year end12/31/13 Year endPaid cash for insurance< 3-year insurance policy >Deferred ExpenseDeferred ExpenseOn December 31, 2011, Tipton must adjust the Prepaid Insurance Expense account to reflect that 1 year of the policy has expired. $3,600 × 1/3 = $1,200 per year.In effect, the prepaid asset goes down▼, while the expense goes up▲.Deferred ExpenseDeferred ExpenseAfter we post the entry to the T-accounts, the account balances look like this:Remaining two years of insurance at $1,200 per year.Accrued ExpensesAccrued Expenses Recall that accrued expenses are expenses incurred in the current period but not billed or paid until the next accounting period. Common examples are interest expense incurred on debt, wages expense owed to employees, and utilities expense.Accrued ExpensesAccrued ExpensesAs of 12/27/11, Denton, Inc. had already paid $1,900,000 in wages for the year. Denton pays its employees every Friday. Year-end, 12/31/11, falls on a Wednesday. The employees have earned total wages of $50,000 for Monday through Wednesday of the week ending 1/02/12. Accrued ExpensesAccrued ExpensesAfter we post the entry to the T-accounts, the account balances look like this:Chart for Deferred and Accrued ExpensesChart for Deferred and Accrued ExpensesAdjustments Involving EstimatesCertain circumstances require adjusting entries to record accounting estimates. Examples include . . . Depreciation Bad debts Income taxes$$$Adjustments Involving EstimatesAdjustments Involving EstimatesCertain circumstances require adjusting entries to record accounting estimates. Examples include . . . Depreciation Bad debts Income taxesAdjustments Involving EstimatesLet’s look at the adjustment for depreciation expense.Depreciation AdjustmentDepreciation AdjustmentThe accounting concept of depreciation involves the systematic and rational allocation of the cost of a long-lived asset over multiple accounting periods it is used to generate revenue.This is a “cost allocation” concept, not a “valuation” concept.Depreciation AdjustmentDepreciation AdjustmentThe journal entry required is to debit Depreciation Expense and to credit an account called Accumulated Depreciation.This is called a Contra-Asset account.nullAccumulated depreciation is a contra-asset account. It is directly related to an asset account but has the opposite balance.nullCost - Accumulated depreciation = BOOK VALUE.Depreciation AdjustmentDepreciation AdjustmentAt January 31, 2011, Papa John’s trial balance showed Property & equipment of $338,000 (all numbers in thousands) and Accumulated depreciation of $83,000. For the period, Papa John’s needs to record an additional $2,500 in depreciation. Depreciation AdjustmentDepreciation AdjustmentAfter we post the entry to the T-accounts, the account balances look like this:1/31 2,500Bal. 85,500Accumulated Depreciation1/31 83,000SummarySummary4 basic types of end-of-period adjustments Deferred Revenue (revenue earned after cash collection) Deferred Expense (expense incurred after cash payment) Accrual Revenue (revenue earned before cash collection) Accrual Expense (expense incurred before cash payment) Adjusting Entries won’t affect cash account. Accounting CycleAccounting CyclePrepare financial statements. Disseminate statements to users.Close revenues, gains, expenses, and losses to Retained Earnings.During the period: Analyze transactions. Record journal entries. Post amounts to general ledger.At the end of the period: Prepare unadjusted trial balance Adjust revenues and expenses. Prepare adjusted trial balance Learning Objectives Learning ObjectivesExplain the purpose of a trial balance(试算平衡).Unadjusted Trial BalanceUnadjusted Trial BalanceA listing of individual accounts, usually in financial statement order. Ending debit or credit balances are listed in two separate columns. Total debit account balances should equal total credit account balances. nullNote that total debits = total creditsThe Unadjusted Trial BalanceThe Unadjusted Trial BalanceIf total debits do not equal total credits on the trial balance, errors have occurred . . .in preparing balanced journal entries,in posting the correct dollar effects of a transaction,or in copying ending balances from the ledger to the trial balance.The Adjusted Trial BalanceThe Adjusted Trial Balance Learning Objectives Learning ObjectivesPresent an income statement, statement of stockholders’ equity, and balance sheet, and statement of cash flow.Financial Statement PreparationFinancial Statement PreparationThe next step in the accounting cycle is to prepare the financial statements. . . Income statement, Statement of stockholders’ equity, Balance sheet, and Statement of cash flows.Financial Statement RelationshipsThe income statement is created first by determining the difference between revenues and expenses.Net income increases retained earnings (a net loss decreases retained earnings). Dividends decrease retained earnings.Financial Statement RelationshipsRETAINED EARNINGSDIVIDENDSFinancial Statement RelationshipsSTOCKHOLDERS’ EQUITYFinancial Statement RelationshipsCONTRIBUTED CAPITALRETAINED EARNINGSContributed Capital and Retained Earnings make up Stockholders’ Equity.Financial Statement RelationshipsFinancial Statement RelationshipsCONTRIBUTED CAPITALRETAINED EARNINGSnullThe income statement contains revenues and expenses.Earnings Per Share (EPS) must be reported on the income statement.Statement of Stockholders’ EquityStatement of Stockholders’ EquityNet income appears on the statement of stockholders’ equity as an increase in Retained Earnings.From the Income StatementBalance Sheet - AssetsBalance Sheet - Assets$362,000 cost – $151,500 accumulated depreciation is equal to $210,500.Balance Sheet – Liabilities & Stockholders’ EquityBalance Sheet – Liabilities & Stockholders’ EquityFrom the statement of Stockholders’ Equity.Statement of Cash FlowsStatement of Cash FlowsThis statement is a categorized list of all transactions of the period that affected the Cash account. The three categories are . . . Operating activities, Investing activities, and Financing activities.Statement of Cash FlowsStatement of Cash FlowsAccounting CycleAccounting CyclePrepare financial statements. Disseminate statements to users.Close revenues, gains, expenses, and losses to Retained Earnings.During the period: Analyze transactions. Record journal entries. Post amounts to general ledger.At the end of the period: Prepare unadjusted trial balance Adjust revenues and expenses. Prepare adjusted trial balance Learning Objectives Learning ObjectivesExplain the closing process.Closing the BooksClosing the Books Even though the balance sheet account balances carry forward from period to period, the income statement accounts do not.Closing entries: Transfer net income (or loss) to Retained Earnings. Establish a zero balance in each of the temporary accounts to start the next accounting period.Closing the BooksClosing the BooksThe following accounts are called temporary or nominal accounts and are closed at the end of the period . . . Revenues. Expenses. Gains. Losses. Dividends declared.Closing the BooksClosing the Books Assets, liabilities, and stockholders’ equity are permanent, or real accounts, and are never closed.Assets. Liabilities. Stockholders’ Equity.Closing the BooksClosing the BooksTwo steps are used in the closing process . . . Close revenues and gains to Retained Earnings. Close expenses, losses and dividends to Retained Earnings.Closing the Books To close Papa John’s Restaurant Sales Revenue account, the following entry is required:Closing the BooksClosing the BooksClosing the Books If we close the other revenue accounts in a similar fashion, the retained earnings account looks like this . . . Closing the Books To close Papa John’s Cost of Sales - Restaurants account, the following entry is required:Closing the BooksClosing the BooksClosing the Books If we close the other expense accounts in a similar fashion, the retained earnings account looks like this . . . Closing the BooksClosing the Books Finally, we close dividends to Retained Earnings.Dr: Retained Earnings Cr: DividendsPost-Closing Trial BalancePost-Closing Trial BalanceLet’s take a look at the adjusted trial balance of Matrix, Inc. at December 31, 2011. We want to see the difference between the adjusted trial balance and the post-closing trial balance. Post-Closing Trial BalancePost-Closing Trial BalanceClose these accounts. Net income is $1,200Post-Closing Trial BalancePost-Closing Trial BalanceRetained earnings $2,960 ($1,760 + $1,200 net income). Learning Objectives Learning ObjectivesCompute and interpret the net profit margin(净收益率).Key Ratio Analysis: Net Profit MarginKey Ratio Analysis: Net Profit MarginNet Profit Margin indicates how effective management is at generating profit on every dollar of sales.Key Ratio Analysis: Net Profit MarginKey Ratio Analysis: Net Profit MarginIn 2011, Papa John’s net income is $32,000,000 and net sales is $945,000,000, what is the net profit margin?End of Chapter 4End of Chapter 44SummarySummaryReading: Chapter 4 Adjusting Entries & Closing Entries Accounting Cycle Journalize -> Post to Ledger -> Unadjusted Trial Balance -> Adjusting Entries -> Adjusted Trial Balance -> Prepare Financial Statements -> Closing Entries -> Post-closing Trial Balance 4. Net Profit MarginDo adjusting entriesDo adjusting entriesBelow are four transactions completed during 2011 by Timber Lodge. The annual accounting period ends on December 31. Each transaction will require an adjusting entry at December 31, 2011. Provide the journal entries for each transaction and adjusting entries. On July 1, 2011, Timber Lodge paid a two-year insurance $8000 for a policy on its facilities. On December 31, 2011a tenant renting some storage space from Timber Lodge had not paid the rent of $750 for December. On September 1, 2011, Timber Lodge borrowed $25,000 cash and gave a one-year, 10 percent, note payable. The total interest of $2,500 is payable on the due date, August 31, 2012 On October 1, 2011, Timber Lodge collected $3,600 for rental of space two years in advance.Do closing entriesIncome Statement For the year ended Dec. 31, 2011 (in thousands of dollars) Sales Revenue 35,200 Expenses COGS 26,980 S,G&A 3,624 R&D expense 1,982 Interest expense 450 Total Expense 33,036 Pretax Income 2,164 Income Tax Expense 541 Net Income 1,623 Retained earnings, Dec. 31, 2010 132,231 Dividends in 2011 6,000Do closing entries