FABM1 2nd sem

• Trial Balance

  is a list of all accounts with their respective debit or credit balances.

  it is prepared to verify the equality of debits and credits in the ledger at end of each accounting period or at any time the postings are updated.

  • the accounts are listed in a straight column and their balances in two money columns: the debits and the credits. The heading of the trial balance consists of Name of the Company, Name of the Report and the Date.
• Preliminary Trial Balance (the trial balance before adjustments)

  –Trial balance of balances –Trial balance of totals
• Adjusted Trial Balance (the trial balance after adjustments)
• Post-closing Trial Balance (the trial balance after the closing entries
• A worksheet is a tool used by an accountant to summarize account balances for financial statements. Below are the stepby-step procedures for accomplishing the
• Ledger-

  ·       Grouping of accounts; Used to classify and summarize transactions and to prepare data for basic financial statements.
• Posting

  ·       Transferring the amounts from the general journal to appropriate accounts in the ledger.
• accounting cycle

  analyze business transactions

  journalise the transactions

  post to ledger accounts

  prepare trial balance

  make adjusting entries

  adjusted trial balance

  prepare financial statement

  make closing entries

  Post-closing trial balance

  reversing entries
• accrual

  a means of recording an expense that was incurred in one accounting period but not paid until a future accounting period
• accrued expenses

  is an expense recognized as incurred but not yet paid
• Deferral

  to delay an action or proceeding; synonym: postpone
• deferred expense

   is any account where the income or expense is not recognised until a future date,
• Depreciation expense the expenses that are charged to fixed assets based on how much the assets get consumed during the accounting period according to the accounting policy of the business.

   
• adjusting entries

  is an entry in a company's general ledger that occurs at the end of an accounting period to record any unrecognized income or expenses for the period
• trial balance

   a financial report showing the closing balances of all accounts in the general ledger at a point in time
• posting

  moving a transaction entry from a journal to a general ledger, which contains all of a company's financial accounts.
• ledger

   a book or digital record containing bookkeeping entries. Ledgers may contain detailed transaction information for one account, one type of transaction
• Debit

  asset, expenses, owners drawings
• Credit

  liabilities, revenue, owners capital
• Adjusting Entry Entries

  - made at the end of the accounting period before closing procedures to update balances of asset, liability, revenue and expense accounts to make their balances ready for the preparation of financial statement.
• Adjusting Entry

  - Some accounts in the trial balance need to reflect the correct balances before the issuance of the financial statement; this requires journal entries. Journal entries to be done before the issuance of financial statements are called an Adjusting entry.
• Adjusting Entry

  - Failure to make adjusting entries may overstate and understate income and expense and may lead to an erroneous presentation of the financial statement.
• Purposes of adjusting entries:

  1. recognize unrecorded income and expenses of the period.
  2. record actual expenses and prepayments.
  3. make necessary adjustments to errors committed.
• The 5 Most Common Types of Adjusting Entries:

  1. Prepaid/Deferred expenses
  2. Deferred revenue/income
  3. Accrued revenue/income
  4. Accrued expenses
  5. Assets depreciation
• #1 Deferred Expenses or Prepaid Expenses.

  - These are items that have been initially recorded as assets but are expected to become expenses over time or through the operations of the business.
• 2 Deferred Income/Revenue or Unearned Income/Revenue.

  - These are items that have been initially recorded as liabilities but are expected to become income over time or through the operations of the business
• Accrued Income/Revenue or Accrued Assets

  - These are income items that have been earned but have not been recorded and paid by the customer. In short, these are receivables of the business.
• Accrued Expenses or Accrued Liabilities.

  - These are items of expenses that have been incurred but have not been recorded and paid.
• Depreciation

  - is the allocation of cost or the purchase amount of assets such as buildings, equipment, furniture and fixtures, and other fixed assets of the company subject to depreciation.
• Accrued Income /Revenue Accrual of income

  - is classified under Asset accounts. Transactions such as services rendered but not yet paid is an example of an accrued income. Another example is that of an interestbearing promissory note, wherein income may arise in the form of interest. Renting is also an example as illustrated here.
• Accrued Expenses On the other hand,

  - some expenses were already incurred (used) but not yet paid. Applying the accrual principles of accounting, expenses already incurred must be recorded though payment has not yet been made. An example of accrual expenses is a utility expense. The billing statement is usually received a month after consumption. Expenses will be recorded on the period it was incurred and a liability account.
• Deferral

  - Deferral may be considered as the opposite of accrual. In this concept, payment was already received before services were rendered or payment has been made before consumption or usage. Under deferral, classifications are unearned revenues and prepaid expenses. Understanding adjusting entries for these accounts depends on the initial recording of income and expenses.
• Prepayment of Expenses

  - Prepayment is an advanced payment of expense. There are two methods that can be used in the initial recording of prepayment as illustrated below.
• Depreciation

  - Depreciation is the allocation of cost or the purchase amount of assets such as buildings, equipment, furniture and fixtures, and other fixed assets of the company subject to depreciation.
• Bad debt expense (Doubtful accounts)

  - This is an expense that refers to the portion of accounts receivable that is in doubt of being collected. Most often the company’s policy states the percentage for a doubtful account.
• Trial Balance

  • is a list of all accounts with their respective debit or credit balances.
  • it is prepared to verify the equality of debits and credits in the ledger at end of each accounting period or at any time the postings are updated.
  • the accounts are listed in a straight column and their balances in two money columns: the debits and the credits. The heading of the trial balance consists of Name of the Company, Name of the Report and the Date.
• Preliminary Trial Balance (the trial balance before adjustments) –Trial balance of balances –Trial balance of totals
• Adjusted Trial Balance (the trial balance after adjustments)
• Post-closing Trial Balance (the trial balance after the closing entries
• Kinds of Trial Balance

  Preliminary Trial Balance

  Adjusted Trial Balance

  Post-closing Trial Balance