BA (Topic 4)

• Adjusting Entries, Preparing the Adjusted Trial Balance, Closing Entries, Preparing the Financial Statements, Statements of Comprehensive Income, Statements of Changes in Equity, Statements of Financial Position are parts of the Accounting Cycle.
• The Accounting Cycle consists of Source Documents, Journal, Ledger, Trial Balance, Adjustments, Adjusted Trial Balance, Financial Statements, Closing Entries.
• Fiscal year starts on the 1st day of a month and ends twelve months later on the last day of a month.
• The difference between the cost of any depreciable asset and its related accumulated depreciation is referred to as the book value of the asset.
• Reducing Balance depreciation: The depreciation rate is 15% on book value.
• Straight-line depreciation allocates equal amount of an asset's net cost to depreciation during the estimated useful life.
• Insurance Expense is debited and a contra asset account, Accumulated Depreciation, is credited.
• Insurance premium paid for one year amounting to RM1,200; Expires every month RM100.
• Accrual accounting is when revenue is recorded when it is earned and expenses are recognized at the time they are incurred.
• Cash-basis accounting is when revenue is recorded when cash is received and expenses are recognized when cash is paid.
• Revenue Recognition Principle states that revenue be recognized in the accounting period in which it is earned.
• Matching Principle states that efforts (expenses) be matched with accomplishments (revenues).
• Unearned Subscription Fees are liabilities that represent money received for subscriptions that have not been earned.
• Types of accounts before adjusting entries include prepaid expenses, assets overstated, expenses understated, liabilities overstated, and revenues understated.
• Unearned Subscription Fees are adjusted with a debit to an asset account and a credit to a revenue account.
• Accrued Revenues are revenues earned but not yet received in cash or recorded.
• Accrued Expenses are expenses incurred but not yet paid in cash or recorded.
• Accrued Expenses are adjusted with a debit to an expense account and a credit to a liability account.
• Unearned Revenues are adjusted with a debit to an asset account and a credit to a revenue account.
• Unearned Revenues are liabilities that represent money received but not yet earned.
• Accrued Revenues are adjusted with a debit to an asset account and a credit to a revenue account.
• The need for adjusting entries is to ensure that revenues are recorded in the period in which they are earned, and expenses are recognized in the period in which they are incurred.
• Prepaid Expenses are expenses paid in cash and recorded as assets before they are used or consumed.
• Unearned Revenues are cash received and recorded as liabilities before revenue is earned.
• Before adjusting entries, assets are overstated and expenses are understated.
• The adjusting entry results in a debit to an expense account (increase) and a credit to an asset account (decrease).
• Examples of adjusting entries include Supplies Expense, Insurance Expense, Depreciation Expense.
• An inventory count reveals that RM1,000 of RM2,500 of supplies are still on hand as at 31 Dec 2018.
• The Statement of Financial Position is prepared from the asset and liability accounts and the ending owner’s capital balance as reported in the owner’s equity statement.
• The Statement of Comprehensive Income (summary) is prepared from the revenue and expense accounts.
• During June, Dewi Enterprise made deposits of RM40,000 and made disbursements totaling RM85,000.
• The journal entries for XYZ Company are debited to Office Equipment account for RM4,500, and credited to Cash Account for RM4,500.
• XYZ Company purchased an office equipment for RM4,500 and signed a note for the transaction.
• On 1 June 2011, Dewi Enterprise reported a cash balance in the bank of RM42,000.
• Financial statements can be prepared directly from the adjusted trial balance.
• The Statement of Changes in Equity is derived from the owner’s capital and drawing accounts and the net income (or net loss) from the Statement of Comprehensive Income.
• All of the following rules are true except that credits decrease the drawing account.
• made purchases of RM1,000 and made sales of RM1,500, resulting in a balance of RM200 in the supplies account at the end of the month.
• During February, Mary Sdn Bhd made purchases of RM1,000 and made sales of RM1,500, resulting in a balance of RM200 in the supplies account at the end of the month.
• At 31 January 2011, the balance in Mary Sdn Bhd’s supplies account was RM750.