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  Contents
  
 
Learning Goal 4:   Prepare Adjusting Entries
   for Prepaid Expenses   39
A Closer Look at Prepaid Expenses   40
Identify Prepaid Expenses   40
How a Prepayment Becomes an Expense   41 How to Adjust Prepaid Expenses   44
The Two Objectives   44
Objective I: Prepare the Adjusting
Journal Entry   46
Step 1: Identify the Key Information Type   46
Step 2: Select the Proper Method to Calculate
Cost Used Up 52

Using Information Type 1: The Asset Cost
Remaining   54

Using Information Type 2: The Asset Cost
Used Up   58

Using Information Type 3: The Cost Per Unit
of the Asset   61

Using Combinations of Information Types   64
Step 3: Prepare the Adjusting Journal Entry   67
Objective II: Determine the New Balances
of the Accounts Affected   69
Three Easy Steps   69
Practice   70

Learning Goal 5:  Prepare Adjusting Entries
  for Unearned Revenues    73
A Closer Look at Unearned Revenue   74
Identify Unearned Revenues   74
How the Liability Becomes a Revenue   75
How to Adjust Unearned Revenues   76
The Two Objectives 76
Objective I: Prepare the Adjusting
Journal Entry   78
Step 1: Identify the Key Information Type   78
Step 2: Select the Proper Method to Calculate the
Revenue Earned    84

Using Information Type 1: The Unearned
Revenue Actually Remaining   86

Using Information Type 2: The Unearned
Revenue That Was Earned    89
  
Learning
Goal 1:
    Explain the Meaning of
    “Accounting Period”    3
 
Overview of Accounting Periods   3
The Need to Measure Change   4
The Best Way of Measuring Financial Change   7
Vocabulary   9
Practice   10

 
Learning Goal 2:   Explain the Basic Principles
   for Recording Revenues and
   Expenses    12
 
Accrual Basis Accounting    12
Overview of Accrual Basis   12
Accrual Accounting Principles   14
Applying the Revenue Recognition Principle   15
Applying the Matching Principle   16
Cash Basis Accounting—A Simplified
Alternative   19
Overview of Cash Basis   19
How to Apply Cash Basis   20
Illustration of Cash and Accrual Method
Differences   21
Revenues   21
Expenses   22
Review and Vocabulary   23
Practice   24
 
 Learning  Goal 3:    Explain the Concept of
    Adjusting Entries    32
 
Overview of General Features   32
Summary   32
What Are Adjusting Entries?   33
Why Adjusting Entries Are Needed   33
The Common Qualities of Adjusting Entries   33
Overview of Adjustment Types   36
The Five Causes of the Five Adjustments   36
Classification, Valuation, and Timing   37
Review   38