Receives $4,000 cash in advance from a customer for services not yet rendered Purchases equipment on account for $3,500, payment due within the month Issues $20,000 shares of common stock for cash
UN EARNED CALCULATION TOOL PLUS
Recall the transactions for Printing Plus discussed in Analyzing and Recording Transactions. Recording Common Types of Adjusting Entries In other situations, companies manage their earnings in a way that the SEC believes is actual fraud and charges the company with the illegal activity.
This method of earnings management would probably not be considered illegal but is definitely a breach of ethics. This will make a positive impact on net income. Doubling the useful life will cause 50% of the depreciation expense you would have had. You can simply change your estimate and insist the new estimate is really better when maybe it is your way to improve the bottom line, for example, changing your annual depreciation expense calculated on expensive plant assets from assuming a ten-year useful life, a reasonable estimated expectation, to a twenty-year useful life, not so reasonable but you insist your company will be able to use these assets twenty years while knowing that is a slim possibility. Is managing your earnings illegal? In some situations it is just an unethical stretch of the truth easy enough to do because of the estimates made in adjusting entries. Satellite images of the project site on March 12, 2012, show it was still largely undeveloped and the vast majority of supposedly sold homes remained unbuilt.” 1 The SEC’s complaint states that Homex reported revenues from a project site where every planned home was said to have been “built and sold by Dec. This company reported revenue earned on more than 100,000 homes they had not even build yet. Take Mexico-based home-building company Desarrolladora Homex S.A.B.
Others leave assets on the books instead of expensing them when they should to decrease total expenses and increase profit. Some companies do this by recording revenue before they should. Some companies engage in something called earnings management, where they follow the rules of accounting mostly but they stretch the truth a little to make it look like they are more profitable. Just the fact that you have to make estimates in some cases, such as depreciation estimating residual value and useful life, tells you that numbers will not be 100 percent correct unless the accountant has ESP. But in reality this is not always the case. It looks like you just follow the rules and all of the numbers come out 100 percent correct on all financial statements. Recording adjusting entries seems so cut and dry. Let’s now consider new transaction information for Printing Plus. Similarly for unearned revenues, the company would record how much of the revenue was earned during the period. For example, if the supplies account had a $300 balance at the beginning of the month and $100 is still available in the supplies account at the end of the month, the company would record an adjusting entry for the $200 used during the month (300 – 100). With an adjusting entry, the amount of change occurring during the period is recorded. If accountants find themselves in a situation where the cash account must be adjusted, the necessary adjustment to cash will be a correcting entry and not an adjusting entry. We will not get to the adjusting entries and have cash paid or received which has not already been recorded. This means that every transaction with cash will be recorded at the time of the exchange. This is true because paying or receiving cash triggers a journal entry. The second rule tells us that cash can never be in an adjusting entry. Balance sheet accounts are assets, liabilities, and stockholders’ equity accounts, since they appear on a balance sheet. What are “income statement” and “balance sheet” accounts? Income statement accounts include revenues and expenses. The adjusting entry records the change in amount that occurred during the period.Cash will never be in an adjusting entry.
0 kommentar(er)
