17 - The Objectives of Financial Reporting & Concepts of Accrual Accounting
I've read a lot of boring stuff so that you don't have to! Today we will summarize some of the useful information in the FASB Concepts Statements and other literature.
This information will be useful as you move along to more advanced levels of accounting.
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14:30
16 - Closing the Books at the End of the Period (The Closing Process)
Example: You own a sole proprietorship. For this period, you had revenue of $100,000, wage expense of $40,000, and computer expense of $30,000 (net income of $30,000). You also contributed $10,000 to the business this period.
Step 1 – Transfer Revenue and Expense items to Income Summary
Debit Credit
Revenue $100,000
Income Summary $100,000
Income Summary $40,000
Wage Expense $40,000
Income Summary $30,000
Computer Expense $30,000
Step 2 – Transfer Income Summary to Equity (capital account)
Debit Credit
Income Summary $30,000
Capital Account – YOUR NAME $30,000
Step 3 – Transfer contribution/distribution accounts to capital account
Debit Credit
Contributions – YOUR NAME $10,000
Capital Account – YOUR NAME $10,000
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11:43
15 - Adjusting Journal Entries (The Adjusting Process)
Today we will go over the adjusting process. This is where we make our adjusting journal entries to get from our unadjusted trial balance to our adjusted trial balance, which contains the figures we use on the financial statements and tax returns.
We will briefly discuss prepaid expenses, unearned revenues, accrued revenues, accrued expenses, and depreciation/amortization.
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9:40
14 - An Overview of the Accounting Cycle
Today we will discuss the accounting cycle. This is the process taken each period to record transactions, prepare the financial statements, and to reset the temporary accounts to zero for the next period.
Keep in mind that the steps you may see in your accounting textbook or elsewhere may be slightly different - I have simplified some of the steps:
Step 1 – Record transactions as journal entries in the general ledger;
Step 2 – Prepare an unadjusted trial balance as of the end of the period;
Step 3 – Prepare adjusting journal entries and record on general ledger;
Step 4 – Prepare an adjusted trial balance as of the end of the period;
Step 5 – Prepare the financial statements;
Step 6 – Prepare and record closing journal entries to reset temporary accounts;
Step 7 – Prepare a post-closing trial balance.
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6:55
13 - How to Dominate Indirect Cash Flow Statements (Fake Cash Method)
Example # 1
Our Accounts Receivable balance increased by $20,000 from the end of last period to the end of this period.
1. Accounts Receivable is an asset, so it must be debited to increase its balance.
2. Create journal entry:
Debit Credit
Accounts Receivable $20,000
Fake Cash $20,000
3. A $20,000 increase in Accounts Receivable = $20,000 cash flow reduction on the statement of cash flows.
Example # 2
Our Accounts Payable balance increased by $10,000 from the end of last period to the end of this period.
1. Accounts Payable is a liability, so it must be credited to increase its balance.
2. Create journal entry:
Debit Credit
Fake Cash $10,000
Accounts Payable $10,000
3. A $10,000 increase in Accounts Payable = $10,000 cash flow increase on the statement of cash flows.
Example # 3
Our Accrued Expense Payable decreased by $25,000 from the end of last period to the end of this period.
1. Accrued Expense Payable is a liability, so it must be debited to decrease its balance.
2. Create journal entry:
Debit Credit
Accrued Expense Payable $25,000
Fake Cash $25,000
3. A $25,000 reduction to Accrued Expense Payable = $25,000 cash flow decrease on the statement of cash flows.
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