INFO' FOR BUSINESS DECISIONS ACTG' 011 SPRING 2006Slide 61

1
Session 6-7Adjustments and Quality of Earnings
2
Accounting Process-Detail

• Analyze Transaction (Exchange)
• Measure and Record
• Summarize Accounts
• Unadjusted Trial Balance
• Adjusting Journal Entries (AJEs)
• Adjusted Trial Balance
• Prepare Income Statement
• Closing Entries
• Final Trial Balance
• Prepare Balance Sheet, SCF and SSE

Focus on 1/26
Focus on 1/31
3
Recognition and Measurement

• Complete exchanges
• External exchanges
• Internal value changes
• Incomplete exchanges--accruals adjustments
• Time related items
• Cost expirations

4
Adjustments

• Accrualsrecall recognition and measurement
• Cost expirations
• Depreciation
• Prepaid expenses
• Deferred revenue

5
Closing Entries

• Temporary accounts
• Zero them out
• Revenue, expenses and dividends
• Permanent accounts
• Retained earnings is the final location for the
  temporary accounts

6
Quality of Earnings

• Management bias
• Measurement bias
• Transparency
• Financially Correct with Ben Stein