Preparing Financial Statements | Intermediate Accounting | CPA Exam FAR | Chp 3 p 5 financial accounting chapter 3

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The next step in the accounting cycle is the preparation of a trial balance. A trial balance is a list of accounts and their balances at a given time. An entity may prepare a trial balance at any time in the accounting cycle. A trial balance prepared after posting has been completed serves to check the mechanical accuracy of the posting process and provides a listing of accounts to be used in preparing financial statements.

Adjusting Entries

10. (L.O. 3) Preparation of adjusting journal entries is the next step in the accounting cycle. Adjusting entries are entries made at the end of accounting period to bring all accounts up to date on an accrual accounting basis so that correct financial statements can be prepared. Adjusting entries are necessary to achieve a proper matching of revenues and expenses in the determination of net income for the current period and to achieve an accurate statement of the assets and equities existing at the end of the period. One common characteristic of adjusting entries is that they affect at least one real account (asset or liability account) and one nominal account (revenue or expense account). Adjusting entries can be classified as: (1) deferrals (prepaid expenses, unearned revenues), or (2) accruals (accrued revenues, accrued expenses).

11. Prepaid expenses and unearned revenues refer to situations where cash has been paid or received but the corresponding expense or revenue will not be recognized until a future period. Accrued revenues and accrued expenses are revenues and expenses recognized in the current period for which the corresponding payment or receipt of cash is to occur in a future period.

Adjusted Trial Balance

12. After adjusting entries are recorded and posted, an adjusted trial balance is prepared. It shows the balance of all accounts at the end of the accounting period.

Adjusting entries, Deferred expenses, deferred, revenues, depreciation, accrued expenses, accrued revenues, Journalizing, posting to the ledger, normal balances, Accounting equation, Debit, credit, assets, liabilities, equity, stockholders’ equity, revenues, expenses, expenses, cost of goods sold, gains, losses, GAAP, SEC, financial accounting, managerial accounting, CPA exam, income statement, balance sheet, statement of retained earnings, accounting, comprehensive income
General journal, general ledger, source documents, analyzing transactions, debit, credit .

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Preparing Financial Statements | Intermediate Accounting | CPA Exam FAR | Chp 3 p 5
financial accounting chapter 3
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