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3 4 Pagesdetailsyou Are An Accountant In a Medium Sized Manufacturing

You are an accountant in a medium-sized manufacturing company. You have been asked to mentor an accounting clerk who is new to your accounting department. Explain why adjusting entries are necessary. Describe the 4 types of adjusting entries, and provide a manufacturing industry example of each. Describe how these entries would be recorded in a computerized accounting system.

Describe 1 ethical issue that could result from the preparation of these manufacturing entries.

Select a company that you are familiar with from the transportation industry. Collect the 4 main financial statements from credible sources (e.g., nationally syndicated newspapers, peer-reviewed journals, investor relations, web sites, or annual reports). Create a flow chart that illustrates the steps in the accounting cycle. Include any other relevant information in the chart that would apply within the steps. When reviewing the financial statements, focus your attention on the expenses and revenues incurred by the company.

Paper For Above instruction

Understanding the importance of adjusting entries in accounting is fundamental for accurate financial reporting. Adjusting entries are necessary because they ensure that a company's financial statements reflect the true financial position by accounting for revenues earned and expenses incurred within a specific accounting period. Without these adjustments, financial statements could misrepresent the company's performance and financial health, leading to poor decision-making by management, investors, and other stakeholders.

Adjusting entries are typically made at the end of an accounting period before the financial statements are prepared. They correct initial entries that were made on an accrual basis but do not yet reflect all earned revenues or incurred expenses, especially when the cash transactions occur after the revenue or expense recognition. In a computerized accounting system, these entries are recorded through journal entries, often facilitated by software that prompts for adjustments at period-end. The system then updates the ledger accounts automatically, ensuring that the financial statements are accurate and complete.

The Four Types of Adjusting Entries with Manufacturing Examples

1. Accrued Revenues

Accrued revenues are revenues earned but not yet received or recorded by the end of the accounting period. In manufacturing, an example would be services performed but not yet billed, such as when a manufacturing company provides maintenance services on machinery that will be invoiced in the next period. To record this, the accounting clerk would debit accounts receivable and credit revenue, ensuring the income is recognized in the correct period.

2. Accrued Expenses

Accrued expenses are expenses incurred but not yet paid or recorded. For a manufacturing firm, this could be wages payable to employees who worked but have not yet received payment before the period-end. The adjusting entry involves debiting wages expense and crediting wages payable, accurately reflecting the company's obligations.

3. Deferred Revenues

Deferred revenues, also called unearned revenues, occur when cash is received before revenue is earned. An example in manufacturing is receiving advance payment for custom orders that will be fulfilled over multiple periods. The initial entry records cash received and a liability (unearned revenue). As the company delivers the product, the journal entry is made to recognize revenue and reduce the liability.

4. Deferred Expenses

Deferred expenses are costs paid in advance that are initially recorded as assets but gradually recognized as expenses over time. For example, a manufacturing company might prepay for a one-year insurance policy. The initial entry is a debit to prepaid insurance and a credit to cash. Each period, a portion of the prepaid insurance is expensed, matching the expense with the period it benefits.

Recording Adjusting Entries in a Computerized System

In a computerized accounting system, adjusting entries are input through journal entry modules at the end of each accounting period. The software facilitates the process by providing prompts and templates for common adjustments, reducing errors and ensuring consistency. Once entered, the software automatically updates the affected ledger accounts. Additionally, many systems have automated functions for recurring adjustments such as depreciation or amortization, streamlining the financial closing process.

Ethical Issues in Preparing Manufacturing Entries

One ethical issue that can arise in the preparation of manufacturing adjusting entries is the potential for misstatement or manipulation of financial results. For instance, intentionally overstating revenues through premature recognition or understating expenses by delaying the recording can present a skewed view of profitability. Such actions may deceive stakeholders, violate accounting standards, and lead to legal repercussions. Ethical conduct demands that accountants adhere to principles of integrity, objectivity, and transparency when recording and adjusting entries, preserving the trustworthiness of financial statements.

Analysis of Financial Statements from a Transportation Company

For this segment, I selected a publicly traded transportation company, FedEx Corporation. The company’s main financial statements—income statement, balance sheet, statement of cash flows, and statement of shareholders’ equity—are available in its annual report and credible financial news sources. These documents provide comprehensive insights into revenues and expenses, shedding light on the company’s operational efficiency and profitability.

The income statement reveals core revenues from parcel shipping and logistics services, while expenses include costs of goods sold, transportation costs, salaries, and administrative expenses. Analyzing these figures helps understand the company’s cost management strategies and revenue streams. The balance sheet reflects the company’s assets, liabilities, and equity, giving a snapshot of financial stability. The cash flow statement offers details on cash inflows and outflows from operating, investing, and financing activities, crucial for assessing liquidity.

Flow Chart of the Accounting Cycle

The accounting cycle begins with the identification and analysis of transactions, followed by journalizing entries, posting to ledger accounts, preparing a trial balance, making adjusting entries, preparing adjusted trial balance, preparing financial statements, and closing temporary accounts. Additional steps include preparing supporting schedules and ensuring compliance with accounting standards. The flow chart visually maps these steps, highlighting the iterative nature of the process and how each stage contributes to accurate financial reporting.

Within each step, relevant activities such as data collection, validation, and review are integrated to ensure completeness and accuracy. For example, after posting transactions, the trial balance verifies that debits equals credits. Adjusting entries are then made to address accrued and deferred items, followed by the preparation of financial statements that present the company’s financial health comprehensively.

Conclusion

Adjusting entries play a vital role in aligning financial data with the actual economic events of a period, ensuring transparency and compliance with accounting standards. Proper understanding and implementation of these adjustments, alongside ethical practices, are essential for maintaining credible financial reporting. Additionally, applying these principles to real-world companies, such as those in transportation, provides practical insights into the significance of accurate accounting cycles and financial statement analysis.

References

• Brown, P., & Rose, D. (2019). Financial Accounting: Tools for Business Decision Making. McGraw-Hill Education.
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• Graham, L., & Harvey, C. (2001). The Theory and Practice of Corporate Finance: Evidence from the Field. Journal of Financial Economics, 60(2-3), 187-243.
• Healy, P. M., & Palepu, K. G. (2003). The Fall of Enron. Journal of Economic Perspectives, 17(2), 3-26.
• Nobes, C., & Parker, R. (2016). Comparative International Accounting. Pearson Education.
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• United States Securities and Exchange Commission. (2023). Annual Report Filings. https://www.sec.gov/
• FedEx Corporation. (2023). Annual Report. https://about.van.fedex.com/financials/