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ACCOUNTING PROCESS PROCESSO CONTABILSTICO
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Thus, the account increases on the debit side, which is equivalent to a decrease ... a temporary income statement account is increased (debited just like an expense) ... – PowerPoint PPT presentation
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Title: ACCOUNTING PROCESS PROCESSO CONTABILSTICO
1
Session 06
- ACCOUNTING PROCESS - PROCESSO CONTABILÍSTICO
- Major Objectives Understand the accounting
process and learn how to prepare a (simple)
balance sheet and income statement. Understand
the relation between the various financial
statements and supporting notes.
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STEPS IN THE ACCOUNTING PROCESS
- The accounting process has the following steps
- Step 1 Collect data about economic events
- Step 2 Analyze data about economic events
- Step 3 Record economic events in a journal
(Diário) - Step 4 Post from journal to a ledger (Razão)
- Step 5 Prepare an unadjusted trial balance
(Balancete) - Step 6 Record and post adjusting entries
- Step 7 Prepare an adjusted trial balance
- Step 8 Prepare financial statements
- Step 9 Record and post closing entries
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Accounts
- An account is a record of the impact of every
transaction or event on a specific asset,
liability, or owners' equity item. The visual
representation of an account is the form of a T
with a left side and a right side. - Debit (Dr.) entry on the left side of an
account. - Credit (Cr.) entry on the right side of an
account.
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Temporary accounts
- Include the revenue, expense, gain, loss, and
other income accounts that explain the changes in
owners' equity. All temporary accounts begin the
period with a zero balance. Temporary accounts
appear on the income statement.
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Permanent accounts
- These are accounts that reflect cumulative
changes in the elements of the financial
statement from the time that the firm was
incorporated. Permanent accounts begin the
period with the balance brought forward from the
end of the previous period. Permanent accounts
appear exclusively on the balance sheet.
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Changes in account balances
- ASSET ACCOUNTS
- Debits increase asset accounts and credits
decrease asset accounts.
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- LIABILITY AND OWNERS' EQUITY ACCOUNTS
- Credits increase liability accounts and equity
accounts and debits decrease liability accounts
and equity accounts
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- REVENUE AND GAIN ACCOUNTS
- In summary, increases in revenue and gain
accounts are placed on the right side or the
credit side. The purpose of a revenue account is
to accumulate an increase in owners equity that
results from the firms operations for the given
period. Thus the account increases on the
right-hand or credit side, as does an owners
equity account.
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- EXPENSE AND LOSS ACCOUNTS
- In summary, increases in expense and loss
accounts are placed on the left-hand side or the
debit side. The purpose of an expense account is
to accumulate a decrease in owners equity that
results from generating revenue or is otherwise
related to the firms operations for the given
period. Thus, the account increases on the debit
side, which is equivalent to a decrease in an
owners equity account.
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Some Examples
- Firm receives cash at the time of delivery of its
product, it records the following journal entry - Dr. Cash
- Cr. Revenue
- Firm may received cash prior to delivery of the
good - Dr. Cash
- Cr. Unearned Revenue (liability)
- Once the good is delivered, the firm has
completed the earnings process and can recognize
the revenue. - Dr. Unearned Revenue
- Cr. Revenue
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Some Examples
- The firm invested in some asset paid in cash.
- Dr. Asset
- Cr. Cash
- The above journal entry represents
capitalization. Expense recognition
(depreciation) occurs later when the asset is
used and is recorded as - Dr. Expense
- Cr. Asset
- A retail firm purchases inventory to be sold.
First the firm must capitalize the inventory
purchase. The cost of the inventory is not
recognized as an expense until the inventory is
sold. This is an example of a product cost. - At the time of purchase
- Dr. Inventory
- Cr. Cash (or Accounts Payable)
- At the time of sale
- Dr. Cost of Goods Sold
- Cr. Inventory
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Some Examples
- Period costs are typically not capitalized. For
example, if the firm spends money on advertising
a product line, it is not clear which revenues,
if any, this advertising cost helped to generate.
Therefore, the firm (conservatively) does not
recognize an asset because it cannot identify the
future benefits. Rather, the firm recognizes the
expense in the period the cost is incurred. - Dr. Advertising Expense
- Cr. Cash (or a liability account)
- When a loss is recorded, a "loss" account which
is a temporary income statement account is
increased (debited just like an expense). At the
same time, the firm will decrease the value of an
asset (write-down), increase a liability, or some
combination of these two events. For example,
assume the firm has an uninsured loss due to fire
on its building - Dr. Loss on building (income statement account)
- Cr. Building (asset)
- Alternatively, assume the firm realizes that it
will probably have to make a payout related to
litigation - Dr. Loss on litigation (income statement
account) - Cr. Litigation reserve (liability)
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