Learning Team Weekly Reflection The third week of class, Team “C” collaborated together and shared our understanding for chapter four. The objective was to identify the difference between accrual basis and cash basis accounting, create adjusting entries, and prepare an adjusted trail balance. Differentiate between Accrual Basis and Cash Basis Accounting Accrual basis is a process in which companies use to show a change in their financial statements. These changes are recorded for the period of when these events occurred. Whether or not cash is exchanged these recordings are still recorded.
When this process of accounting is used a company is recognizing revenue when it is earned which is also called the revenue recognition principle. Companies will also recognize when revenue is incurred known as the matching principle. The cash basis accounting is a process company’s use only when cash is received. This process is also recorded also when cash is paid. This process is generally prohibited as an accepted accounting process due to its inability to record revenue when earned. This process also does not record expenses incurred. Create Adjusting Entries (Freddy)
The importance of knowing how to adjust entries is to ensure that the revenue and matching principles are followed (Kimmel, Weygandt, & Kieso, 2009). It is necessary because when a trial balance is prepared, the information may not be current. The adjustments need to be made when financial statements are prepared because it is counter-productive to record some events on a daily basis. The entries affected by adjusting entries are prepaid expenses, insurance, depreciation, and supplies (Kimmel, Weygandt, & Kieso, 2009). Prepare an Adjusted Trial Balance
The intention of an adjusted trial balance is to display the cause of all financial events that has occurred throughout the accounting period. The trial balance shows the balances of all accounts which also include those that have been adjusted at the end of an accounting period. The adjusted trial balance sheet is utilized to confirm the balance of debits and credits after the adjusting entries are made in the accounting cycle. In order to review the balances of each account in preparation of closing entries in the following step of the accounting cycle.
It is critical to stay vigilant of every unadjusted financial item. If one was to pass the journal entry to every adjustment and displays its effect on an adjusted trial balance, it is excellent for fair practical view of financial statements. Below is an example of an adjusted trial balance: References Kimmel, P. D. , Weygandt, J. J. , & Kieso, D. E. (2009). Financial accounting: Tools for business decision making (5th ed. ). Hoboken, NJ: John Wiley & Sons.