#cfa-level-1 #reading-23-financial-reporting-mechanics
Where valuation adjustment entries are required for assets, the basic pattern is the following for increases in assets:
An asset is increased with the other side of the equation being a gain on the income statement or an increase to other comprehensive income.
An asset is decreased: An asset is decreased with the other side of the equation being a loss on the income statement or a decrease to other comprehensive income.
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Parent (intermediate) annotation
Open itarket value bypass the income statement and are recorded directly into shareholders’ equity under a component referred to as “other comprehensive income.” This topic will be discussed in more detail in later readings.
In summary, <span>where valuation adjustment entries are required for assets, the basic pattern is the following for increases in assets: An asset is increased with the other side of the equation being a gain on the income statement or an increase to other comprehensive income. Conversely for decreases: An asset is decreased with the other side of the equation being a loss on the income statement or a decrease to other comprehensive income.
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Open itved and the corresponding liability to deliver newsletters) and, subsequently, 12 future adjusting entries, the first one of which was illustrated as Transaction 12. Each adjusting entry reduces the liability and records revenue.
<span>In practice, a large amount of unearned revenue may cause some concern about a company’s ability to deliver on this future commitment. Conversely, a positive aspect is that increases in unearned revenue are an indicator of future revenues. For example, a large liability on the balance sheet of an airline relates to cash received for future airline travel. Revenue will be recognized as the travel occurs, so an increase in this liability is an indicator of future increases in revenue.
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