# Calculating Cost Basis from Closing Statement

Document Sample

```					    Chapter 4

Income Measurement
and
Accrual Accounting

1
Key Concepts & Objectives

 GAAP  Principles: Revenue Recognition,
Measurement & Matching
 Cash Basis vs. Accrual Basis Accounting
» Accrued Revenues & Accrued Expenses
» Deferred Revenues & Deferred Expenses
 Accounting   Cycle & closing Temporary
Accounts
2
Recognition and Measurement

Recognition: Formally
recording economic events
in the accounting records

Current value
or historical cost?

Measurement:How?
Quantifying economic
effects on the company
3
Revenue Recognition Principle
 Recognize revenue when realized & earned
 Goods are sold, or
 Services are provided

4
Matching Principle
Concept: Match efforts (expenses) with rewards (revenues)
so as to get a complete picture of operating performance.
IT TAKES MONEY TO MAKE MONEY.

Indirect        Simultaneous
Direct         over period they     upon their
provide benefits     acquisition

Inventory
5
Cash basis                   Accrual basis
statement                      statement

Statement of                      Income
Cash Flows                       Statement
Cash flows
from operating
Net Income \$ 7,000
activities: \$4,000
(Cash Net Income)

These numbers are almost always different because
they are measuring different effects and events.    6
Cash vs. Accrual Basis

Cash basis: Revenues are recorded when
cash is received and Expenses are
recorded when cash is paid.

Accrual basis: Revenues are recognized
when earned; expenses are recognized when
incurred (or assets used up).

Revenues & Expenses are recorded regardless
of when cash is received or paid.         7
Comparison: Cash vs. Accrual Basis

CASH         ACCRUAL
BASIS         BASIS
When should        Cash           Goods
you recognize                  Delivered or
Receipt
REVENUE?                          Service
Provided
When should         Cash       Asset used up
you recognize   Disbursement    or Liability
EXPENSE?
incurred 8
Expense Recognition
(Expenses are created in many different ways)
Point: Most Assets eventually become Expenses

Balance Sheet                Income Statement
ASSETS:                            EXPENSES:
Inventory     when sold          Cost of Goods Sold
Supplies
(Prepaids)                       Supplies Expense
as used up
Insurance Expense
Plant & Equipment
Intangibles over periods they        Depreciation Exp.
provide benefits       Patent Expense
9
Expense Recognition
(Expenses are created in many different ways)

Point: Cash Basis Expenses are often Accrual Basis Expenses
Examples reflect     ACCRUAL
CASH BASIS          payment in same
EXPENSES:           period when            BASIS
acruall. expense     EXPENSES:
USED
Pay Rent              When paid          Rent Expense
(March 1, 2002)                        (March 2002)
Pay Wages             When paid          Wage Expense
(May 15, 2002)                         (May 2002)
Pay Utility bill When USED               Utilities Expense
(June 10, 2002)                        (May   2002)    10
Financial Statements
at end of period must be on a
Full (100%) Accrual Basis of Accounting
   It is impractical during the period
to be fully Accrual Basis.
   The cost of constantly preparing
Accrual Basis information (e.g.,
calculating depreciation daily!)
outweighs its benefits.
   Companies can manage during
period without having full
Accrual Basis information
   But Accrual Basis is most
important for external financial
statement users  Besides, it is
GAAP!
11
   So, at the end of the period, a company
to bring accounts to 100% Accrual
Basis accounting!                    FOR

12
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   Adjusting journal entry (AJE) never
involves cash (Why?)
   Involves at least one Balance Sheet Balance                                                 Income
account and one Income Statement Sheet                                                     Statement
account                                                                                                                  12
Four Types of Adjustments are needed for
full Accrual Basis of Accounting for F/S

Deferrals mean cash is
BEFORE revenue (or
expense) is recognized
under Accrual Basis
accounting.
Deferred                        Deferred
Revenue                         Expense

13
Four Types of Adjustments are needed for
full Accrual Basis of Accounting for F/S

Accruals mean cash is
AFTER revenue (or
expense) is recognized
under Accrual Basis
Accrued      accounting.       Accrued
Revenue                        Expense
14
(always involve both B/S and I/S accounts)
Deferral = Cash first    Balance Sheet           Balance Sheet
Accrual = Cash later       ASSETS                LIABILITIES
Income                   #1: Accrued Revenue    #2: Deferred Revenue
Statement:              (1)   + A/R + Revenue   (1)   +Cash + Def Rev
(2)   - A/R + Cash      (2)   - Def Rev + Sales
REVENUE                e.g., Credit Sale       e.g., Subscriptions
Income                  #3: Deferred Expense    #4: Accrued Expense
Statement:              (1)   – Cash + Asset    (1)   + Liability - Exp.
(2) -Asset + Expense    (2) - Cash - Liability
EXPENSE                e.g., Prepaid Rent or   e.g., Accrued Wages or
Equipment               Utility bill
15
(always involve both B/S and I/S accounts)
Deferral = Cash first    Balance Sheet           Balance Sheet
Accrual = Cash later       ASSETS                LIABILITIES
Income                   #1: Accrued Revenue    #2: Deferred Revenue
Statement:              (1)   + A/R + Revenue   (1)   +Cash + Def Rev
(2)   - A/R + Cash      (2)   - Def Rev + Sales
REVENUE                e.g., Credit Sale       e.g., Subscriptions
Income                  #3: Deferred Expense    #4: Accrued Expense
Statement:              (1)   – Cash + Asset    (1)   + Liability - Exp.
(2) -Asset + Expense    (2) - Cash - Liability
EXPENSE                e.g., Prepaid Rent or   e.g., Accrued Wages or
Equipment               Utility bill
16
(always involve both B/S and I/S accounts)
Deferral = Cash first    Balance Sheet           Balance Sheet
Accrual = Cash later       ASSETS                LIABILITIES
Income                   #1: Accrued Revenue    #2: Deferred Revenue
Statement:              (1)   + A/R + Revenue   (1)   +Cash + Def Rev
(2)   - A/R + Cash      (2)   - Def Rev + Sales
REVENUE                e.g., Credit Sale       e.g., Subscriptions
Income                  #3: Deferred Expense    #4: Accrued Expense
Statement:              (1)   – Cash + Asset    (1)   + Liability - Exp.
(2) -Asset + Expense    (2) - Cash - Liability
EXPENSE                e.g., Prepaid Rent or   e.g., Accrued Wages or
Equipment               Utility bill
17
(always involve both B/S and I/S accounts)
Deferral = Cash first    Balance Sheet           Balance Sheet
Accrual = Cash later       ASSETS                LIABILITIES
Income                   #1: Accrued Revenue    #2: Deferred Revenue
Statement:              (1)   + A/R + Revenue   (1)   +Cash + Def Rev
(2)   - A/R + Cash      (2)   - Def Rev + Sales
REVENUE                e.g., Credit Sale       e.g., Subscriptions
Income                  #3: Deferred Expense    #4: Accrued Expense
Statement:              (1)   – Cash + Asset    (1)   + Liability - Exp.
(2) -Asset + Expense    (2) - Cash - Liability
EXPENSE                e.g., Prepaid Rent or   e.g., Accrued Wages or
Equipment               Utility bill
18
(always involve both B/S and I/S accounts)
Deferral = Cash first    Balance Sheet           Balance Sheet
Accrual = Cash later       ASSETS                LIABILITIES
Income                   #1: Accrued Revenue    #2: Deferred Revenue
Statement:              (1)   + A/R + Revenue   (1)   +Cash + Def Rev
(2)   - A/R + Cash      (2)   - Def Rev + Sales
REVENUE                e.g., Credit Sale       e.g., Subscriptions
Income                  #3: Deferred Expense    #4: Accrued Expense
Statement:              (1)   – Cash + Asset    (1)   + Liability - Exp.
(2) -Asset + Expense    (2) - Cash - Liability
EXPENSE                e.g., Prepaid Rent or   e.g., Accrued Wages or
Equipment               Utility bill
19
The Balance Sheet Equation can now
be Expanded!

---------Balance Sheet-------------- ---Income Statement---
Assets =Liabilities + Owners’ Equity +Revenue - Expenses

Revenues & Expenses are
still part of Owners’ Equity,
but we just show it
separately to also have       Don’t forget
Revenues increase OE
information on the Income
and
Statement.                    Expenses decrease OE.
20
#1: Accrued Revenue (Asset) -
Revenue earned before Cash is received

   Examples:
»   Accounts Receivable    Revenue
»   Interest Receivable

   Record Revenue (and
corresponding receivable) in
period earned; and

   Receive Cash payment (and pay-
off receivable) in a future period
21
Accrued Revenue Example -
Sell \$1,000 merchandise on account on January 31, 2002
Payment is due in 28 days (2/28/02)
All accruals have no original entry. So we just need to
record the adjusting entry on January 31st.
What two accounts are needed to update to full Accrual
Basis for the merchandise sold?

Now let’s record the effect of this adjusting entry on the
Balance Sheet Equation to get us to these amounts!

A: Accounts Receivable              R: Sales Revenue

22
Accrued Revenue Example -
Sell \$1,000 merchandise on account on January 31, 2002
Payment is due in 28 days (2/28/02)
Now let’s record the effect of this Adjusting entry on the
Balance Sheet Equation to get us to these amounts!
---------Balance Sheet-------------- ---Income Statement---
Assets        = Liab. + OE        + Rev. - Expenses
1/31/02 Accounts                              Sales
Receivable                           Revenue
1,000                              1,000
A: Accounts Receivable             R: Sales Revenue
On I/S
\$1,000     On B/S Jan.                        \$1,000
Jan.

23
Accrued Revenue Example -
Sell \$1,000 merchandise on account on January 31, 2002
Payment is due in 28 days (2/28/02)
Now let’s record the effect of this transaction when it is collected on February 28th

---------Balance Sheet-------------- ---Income Statement---
Assets        = Liab. + OE + Rev. - Expenses
2/28/02 Cash
1,000
A/R
(1,000)
A: Cash                           A: A/R                  R: Sales
\$1,000                      Jan. Rev     \$1,000
\$1,000               Cash                      \$1,000
Receipt                                Feb. Rev          \$0
2/28/02 Balance        \$0                         24
#2: Deferred Revenue -
Cash received before Revenue is earned

   Examples:
»   Rent collected at beginning of month
 Cash receipts are initially recorded as
Liabilities (unearned revenue or
refundable receipts), and
 Recorded as Revenues in future periods
when earned as goods delivered or
service is provided.                         25
Deferred Revenue Example
All deferrals have an original (non-adjusting entry) entry.
So what is this original entry on Jan. 1st?
---------Balance Sheet-------------- ---Income Statement---
Assets         = Liab.       + OE + Rev. - Expenses
1/1/02                                        Why is this a
Cash       1,200     Unearned                 LIABILITY?

Revenue 1,200

Theoretically Revenue should be updated every day to
completely follow the full Accrual Basis.
Practically, Revenue is updated at the end of the period
to its proper balance by an adjusting entry.
Deferred Revenue Example
---------Balance Sheet-------------- ---Income Statement---
Assets        = Liab. + OE + Rev. - Expenses

Cash      \$1,200      Unearned
Revenue \$1,200
Now it is the end of January and     What 2 accounts are needed
time for MONTHLY adjusting entries   to reflect the proper balance
to get F/S on full Accrual Basis     of Revenue?

L: Unearned Revenue R: Rent Revenue               A: Cash
\$1,200   1/1/02                       \$1,200   1/1/02
Deferred Revenue Example
Let’s calculate what earned Rent Revenue should be:

Rent Revenue = \$1,200 /3 months = \$400 per month

Now let’s record the effect of this adjusting entry on the
Balance Sheet Equation to reflect the rent earned.

L: UNEARNED REV                       R: RENT REVENUE
\$1,200 1/1/02
Rev \$400
Earned?                            Jan. ’02 I/S   Rev\$400
Earned?

1/31/02 B/S      \$800
Remaining Liability?
Deferred Revenue Example
Now let’s record the effect of this adjusting entry on the Balance
Sheet Equation to reflect the rent earned.
---------Balance Sheet-------------- ---Income Statement---
Assets         = Liab. + OE + Rev. - Expenses
1/31/01                 Unearned              Rent
Revenue             Revenue
(400)               400
R: RENT REVENUE                           L: UNEARNED REV
1,200 1/1/02
Jan. ’02 I/S       \$400                    \$400

1/31/02 B/S    \$800
#3: Deferred Expense -
Cash paid before Asset (Deferred Expense) is used
 Examples:
»   Prepaid rent
& insurance
»   Office supplies
»   Plant & equipment
 Costs are initially recorded (deferred)
as Assets because they provide future
economic benefit; later they are
 Allocated to Expense in future periods,
as they are used up to help generate
revenues.                                    30
Deferred Expense Example #1 -
Purchase 1-year insurance policy for \$3,600 on 3/1/02
All deferrals have an original (non-adjusting entry) entry.
So what is this original entry?
---------Balance Sheet-------------- ---Income Statement---
Assets         = Liab. + OE + Rev. - Expenses
Prepaid                This is a typical operating activity
Insurance 3,600        and represents an exchange of one
Cash     (3,600)       asset for another.
Theoretically, Insurance Expense (used up asset) should be
updated every day to exactly follow Accrual Basis.
Practically, it’s only updated (to its proper balance) at
the end of the period through adjusting entry.
Deferred Expense Example #1 -
Purchase 1-year insurance policy for \$3,600 on 3/1/02
---------Balance Sheet-------------- ---Income Statement---
Assets         = Liab. + OE + Rev. - Expenses
3/1/02 Prepaid                 Now it is the end of March and
Insurance \$3,600         entry to get the F/S to the full
Cash     (\$3,600)        Accrual Basis
What 2 accounts are needed to reflect
the proper balances of Insurance?

A: Prepaid Insurance E: Insurance Expense    A: Cash
3/1/02 \$3,600                                    3/1/02 3,600
Deferred Expense Example #1 -
Purchase 1-year insurance policy for \$3,600 on 3/1/02
---------Balance Sheet-------------- ---Income Statement---
Assets        = Liab. + OE + Rev. - Expenses
Let’s calculate what Insurance Expense should be:
Formula: Insurance Expense = Yearly Premium / 12
Insurance Expense = \$3,600 / 12 = \$300
Now let’s record the effect of this adjusting entry on the
Balance Sheet Equation to reflect this adjustment.
A: Prepaid Insurance                 E: Insurance Expense
Future benefit
at March 1st       3/1/02   \$3,600                          \$300
Used Up?
\$300
Used up?
On
Marc
What is future benefit                          h
3/31/02 \$3,300
at March 31st?          On 3/31/02 B/S
I/S
Deferred Expense Example #1 -
Purchase 1-year insurance policy for \$3,600 on 3/1/02
Now let’s record the effect of this adjusting entry on the Balance
Sheet Equation to reflect this adjustment.
---------Balance Sheet-------------- ---Income Statement---
Assets      = Liab. + OE + Rev. - Expenses
3/31/02 Prepaid                                    Insurance
Insurance                                     Expense
(\$300)                                      (\$300)
Don’t forget that EXPENSES REDUCE OWNERS’ EQUITY
A: Prepaid Insurance      E: Insurance Expense
3/1/02   \$3,600             \$300
\$300
On
Marc
Future benefit                                    h
3/31/02 \$3,300      On B/S
at March 31st                                   I/S
How is Property, Plant & Equipment
Information shown on the Balance Sheet?
A Refresher!                                    Represents
ORIGINAL
Partial Balance Sheet                               HISTORICAL
COST
Property, Plant & Equipment             \$10,000
Less: Accumulated Depreciation            4,000      expensed over
Net PP&E (Book Value)                   \$6,000     the entire life
of the assets;
Amount of assets’ original        based on the
historical cost that reflects     original cost
estimated future benefit

BOOK VALUE IS NOT MARKET VALUE!
Deferred Expense Example #2 -
Purchase computer on July 1 for \$5,000.
Estimated useful life is 3 years (36 months); estimated
salvage value is \$ 500.
All deferrals have an original (non-adjusting entry) entry.
So what is this original entry?
---------Balance Sheet-------------- ---Income Statement---
Assets        = Liab. + OE + Rev. - Expenses
7/1/02                                   This is a typical investing activity
Computer                            and an exchange of one asset for
Equipment 5,000                     another longer term asset.
Cash     (5,000)                   The expense is deferred (recorded as
an Asset) until is is used up.
Theoretically, Computer Depreciation Expense should be updated every day to
follow full Accrual Basis. Practically, it is only updated to its proper balance at the
end of the period through an adjusting entry.                                        36
Deferred Expense Example #2 -
Purchase computer on July 1 for \$5,000.
Estimated useful life is 3 years (36 months); estimated salvage value
is \$ 500.
---------Balance Sheet-------------- ---Income Statement---
Assets        = Liab. + OE + Rev. - Expenses
7/1/02     Computer                  Now it is the end of the month and
Equipment 5,000           entries to get F/S on full Accrual
Cash     (5,000)          Basis
What 2 accounts are needed to reflect the proper balances
of the Computer used up?
A: Computer Equipt.        CA: Accumulated Depr.     Depreciation Exp
E:A: Cash
7/1/02   5,000                                               7/1/02   5,000

37
Deferred Expense Example #2 -
Purchase computer on July 1 for \$5,000. Estimated useful
life is 3 yrs (36 months); estimated salvage value is \$ 500.

Let’s calculate what Depreciation Expense should be:
Depreciation Expense = (Cost - Salvage Value) / Useful Life
Depreciation Expense = \$5,000 - 500 / 36 months = \$125
Now let’s record the effect of this adjusting entry on the
Balance Sheet Equation to reflect this calculation.

E: Depreciation Exp          A: Computer Equipt.   CA: Accumulated Depr.

7/1/02 \$5,000             Beg. Balance     \$00
Used up                                                         Used up
\$125
this period? On July I/S                                             \$125
this period?
7/31/02 B/S          38
\$ Life?
Total Over125
Deferred Expense Example #2 -
Purchase computer on July 1 for \$5,000. Estimated useful
life is 3 yrs (36 months); estimated salvage value is \$ 500.
Now let’s record the effect of this Adjusting entry on the Balance
Sheet Equation
---------Balance Sheet-------------- ---Income Statement---
Assets      = Liab. + OE + Rev. - Expenses
7/31/02 Accumulated    A Contra Asset (CA) account Depreciation
(more detailed).              (125)
(125)
E: Depreciation Exp.     A: Computer Equipt.    CA: Accumulated Depr.

7/1/02 \$5,000                              \$00
\$125                        July 2002                           \$125
Depreciation Expense
July 2002 I/S
7/31/02   \$125
How is Property, Plant & Equipment
Information shown on the Balance Sheet?
What is happening to Book Value over time? Why?

Partial Balance Sheet (at 7/31/02)
As Assets are
Property, Plant & Equipment       \$5,000     used up over
time, the Book
Less: Accumulated Depreciation (125)
Value
Net PP&E (Book Value)           \$4,875      DECREASES!

What will the Book Value of the PC
be at the end of its useful life (i.e.,
in 36 months)?
\$500 (the estimated salvage value)
#4: Accrued Expense -
before Cash is paid

 Examples:
Does this
»  Payroll expense                  remind you of
» Utilities expense                 anyone you
know?
» Interest expense
 Record Expense (and corresponding Liability)
in the period incurred (when benefit is
 Record Cash in a future period, when paid.
 No cash flow upon recording, only when paid
41
Accrued Expense Example #1-
\$350 telephone bill is received on January 31st but due next month

All accruals have no original entry . So just need to record
What two accounts are needed to update the F/S to reflect
the full Accrual Basis for the telephone bill?

Now let’s record the effect of this Adjusting entry on the
Balance Sheet Equation to get us to these amounts!

L: Utilities Payable                E: Telephone Expense

NOTE: OK, but most
companies would use
“Accounts Payable” (A/P)
Accrued Expense Example #1-
\$350 telephone bill is received on January 31st but due next month
Now let’s record the effect of this adjusting entry on the
Balance Sheet Equation to reflect full Accrual Basis.
---------Balance Sheet-------------- ---Income Statement---
Assets         = Liab. + OE + Rev. - Expenses
1/31/02                   Utilities                 Telephone
Payable                   Expense
\$350                       (350)

L: Utilities Payable           E: Telephone Expense
1/31/02 B/S     \$350                   \$350      January 2002 I/S
Accrued Expense Example #1-
\$350 telephone bill is received on January 31st but due next month
Now let’s record the effect of this Telephone bill when it is
paid on February 15th.
---------Balance Sheet-------------- ---Income Statement---
Assets        = Liab. + OE + Rev. - Expenses
2/15/02    Cash                 Utilities
(\$350)                Payable
(\$350)

A: Cash                    L: Utilities Payable   E: Telephone Exp.
\$350     Cash         \$350        \$350      \$350    Jan. Exp
Pymt.
2/15/02
\$0   Feb. Exp.
2/28/02 Balance       \$0
Accrued Expense Example #2 -
Borrow \$6,000 for six months on January 1st. Principal
plus 10% annual interest is due at end of loan period.
What is the January 1st entry to record the CASH loan?
---------Balance Sheet-------------- ---Income Statement---
Assets       =     Liab. + OE + Rev. - Expenses
1/1/02
Cash             Notes
\$6,000          Payable
6,000
This is a typical financing activity generally used
to short-term address cash flow needs.
The next activity is to accrue Interest Expense at end of January.
45
Accrued Expense Example #2 -
Borrow \$6,000 for six months on January 1st. Principal
plus 10% annual interest is due at end of loan period.
On January 31st we need to recognize interest expense.
Accruals have no original entry .
What two accounts are needed to update F/S to the full
Accrual Basis for the interest? (Monthly adjusting entry)

E: Interest Expense      L: Interest Payable
Accrued                          Accrued
Interest                         Interest

Now let’s calculate the amount of Interest Expense owed at
the end of January but not paid until maturity (June 30th).
46
Accrued Expense Example #2 -
Borrow \$6,000 for six months on January 1st. Principal
plus 10% annual interest is due at end of loan period.
Now let’s figure out the amount of Interest Expense owed but not
paid for this period.     Standard interest formula:
Interest Expense = Principal x Interest rate x Time (adj.)
\$50         = \$6,000      x      10 %       x 1/12

L: Interest Payable             E: Interest Expense
1/31/02 B/S           \$50                  \$50      On Jan. I/S

Same adjustment is   Jan Feb March        April   May   June
made every month     \$50 \$50  \$50          \$50    \$50    \$50

Now let’s record the effect of this adjusting entry on the Balance
Sheet Equation to reflect these accruals!
Accrued Expense Example #2 -
Borrow \$6,000 for six months on January 1st. Principal
plus 10% annual interest is due at end of loan period.
Now let’s record the effect of this adjusting entry on the Balance
Sheet Equation to reflect the \$50 accrual for January interest.

---------Balance Sheet-------------- ---Income Statement---
Assets        = Liab. + OE + Rev. - Expenses
1/31/02                Interest                        Interest
Payable                         Expense
\$50                            (\$50)
E: Interest Expense                   L: Interest Payable
\$50      January I/S              1/31/02 B/S       \$50
Accrued Expense Example #2 -
Repay \$6,000 principal plus 10% annual
interest at end of loan period (June 30, 2002).
Jan Feb March April May June
\$50 \$50 \$50    \$50 \$50 \$50
Interest Expense               Interest Payable
\$50   On I/S Jan          Jan. increase    \$50
\$50   On I/S Feb         Feb. increase     \$50
\$50   On I/S Mar          Mar. increase    \$50
\$50   On I/S Apr          Apr. increase    \$50
\$50   On I/S May          May increase     \$50
\$50   On I/S Jun          June increase    \$50
6/30/02 Balance    \$300
Accrued Expense Example #2 -
Repay principal of \$6,000 plus accrued interest
(at 10% annual) on maturity date (6/30/02).
---------Balance Sheet-------------- ---Income Statement---
Assets        = Liab. + OE + Rev. - Expenses
6/30/02 Cash          Note Payable
(\$6,300)         (\$6,000)
Interest Payable
(\$300)

A: Cash          L: Notes Payable L: Interest Payable
Balances
\$6,300     \$6,000 \$6,000            \$300 \$300
before pymt.

6/30/02
\$0      Balances      \$0
Steps in the Accounting Cycle
1. Collect and
analyze info
7. Close accounts &                       2. Journalize
Start next period                      Transactions (G/J)

6. Prepare                    3. Post transactions to
Financial Statements                  accounts in G/L

5. Record & post       4. Prepare Worksheet

51
Closing the Accounts

   Balance Sheet accounts (permanent or real
accounts) are carried forward to the next
period – e.g., Cash 12/31/X1 = Cash 1/1/X2

12/31/X1              1/1/X2
Ending                Beginning
Balances              Balances

52
Closing the Accounts
   Revenue, Expense and Dividend accounts
(temporary or nominal accounts) are closed at the
end of the period; are not carried over
   Closing means zeroing out this year’s balances
12/31/X1
Ending                      1/1/X2
Balances                 Beginning
(of R, E & Div.)             Balances
are closed to     =      (R, E, & Div.)
Retained                   -\$0-
Earnings                                      53
Summary: Key Concepts & Objectives

 GAAP  Principles: Revenue Recognition,
Measurement & Matching
 Cash Basis vs. Accrual Basis Accounting
» Accrued Revenues & Accrued Expenses
» Deferred Revenues & Deferred Expenses
 Accounting   Cycle & closing Temporary
Accounts
54

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