Chapter 12 - Accruals, deferrals, and the worksheet. After reading this chapter, you should be able to: Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet; compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet; compute adjustments for accrued and deferred income items, and enter the adjustments on the worksheet; complete a 10-column worksheet; define the accounting terms new to this chapter. | 1- McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Accruals, Deferrals, and the Worksheet Section 1: Calculating and Recording Adjustments Chapter 12 Section Objectives Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Compute adjustments for accrued and deferred income items, and enter the adjustments on the worksheet. Revenue is recognized when earned, not necessarily when the cash is received Revenue is recognized when the sale is complete. A sale is complete when title to the goods passes to the customer or when the service is provided. For sales on account, revenue is recognized when the sale occurs even though the cash is not collected immediately. Accrual Basis of Accounting Expenses are recognized when incurred or used, not necessarily when cash is paid Each expense is assigned to . | 1- McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Accruals, Deferrals, and the Worksheet Section 1: Calculating and Recording Adjustments Chapter 12 Section Objectives Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Compute adjustments for accrued and deferred income items, and enter the adjustments on the worksheet. Revenue is recognized when earned, not necessarily when the cash is received Revenue is recognized when the sale is complete. A sale is complete when title to the goods passes to the customer or when the service is provided. For sales on account, revenue is recognized when the sale occurs even though the cash is not collected immediately. Accrual Basis of Accounting Expenses are recognized when incurred or used, not necessarily when cash is paid Each expense is assigned to the accounting period in which it helped to earn revenue for the business, even if cash is not paid at that time. This is often referred to as matching revenues and expenses. The first step is to remove beginning inventory from the books. Whiteside Antiques began the year with $52,000 in inventory. QUESTION: What is the amount of the first inventory adjustment? ANSWER: Beginning Inventory $52,000 The next step is to place ending inventory on the books. Whiteside Antiques ended the year with $47,000 in inventory. QUESTION: What is the amount of the next inventory adjustment? ANSWER: Ending Inventory $47,000 Under accrual accounting, the expense for uncollectible accounts is recorded in the same period as the related sale. The expense is estimated because the actual amount of uncollectible accounts is not known until later periods. The estimated expense is debited to an account named Uncollectible Accounts Expense. Losses from Uncollectible Accounts Property, plant, and equipment
