đź“… Monday, April 22nd, 2024
Nature and books belong to the eyes that see them.
— Ralph Waldo Emerson
MGT011A Lecture: Accounting Cycle cont’d: adjust, report, close
adjust step
- unadjusted trial balance: trial balance before adjustments (i.e., before adjust step); adjustment entries may be needed to bring it to to the correct balance
- adjusted trial balance: trial balance after adjustments have been made; this is ready for the next step (reporting step) of the accounting cycle
adjusting entries
- Example: prepaid expense (e.g., rent)
- original entry (at pre-paid time): debit prepaid expense (asset), credit cash
- the adjusting journal entry (as the prepaid expense is being used): debit expense, credit prepaid expense
- Example: pre-paid fees (unearned revenue)
- Note: Under the accrual basis of accounting, we record revenue when it’s earned (i.e., when the company delivers the service/product to the customer). When customer pre-pays the company cash for an undelivered service/product, we credit unearned revenue, and use an adjusting entry later to move that to revenue.
- original entry (at contract-time): debit cash, credit unearned revenue
- cannot credit revenue, since pre-paid revenue doesn’t count as “earned”—the services haven’t been performed yet
- adjusting entry (when contract is complete): debit unearned revenue, credit service revenue
- Example: accrued expenses
- billed for utilities expense of this month that will be paid in cash next calendar month
- adjusting: debit utilities expense, credit accounts payable
- monthly interest for loan due at the end of year
- adjusting (per month): debit interest expense, credit interest payable
- billed for utilities expense of this month that will be paid in cash next calendar month
- Example: accrued revenue
- billed customer for services in January
- adjusting: debit accounts receivable, credit service revenue
- Example: depreciation (see notes below)
Asset types
- current assets: assets that can be liquidated or will be used quickly, i.e., within a year
- example: supplies, equipment
- Note: expenses for current assets like supplies, equipment, etc aren’t recorded until they are actually used, i.e., they don’t count as expense when they’re purchased; the purchase entry debits assets and credits assets (cash), so this is not an expense and won’t show up on the income statement, only the balance sheet
- initial purchase: debit supplies, credit cash
- supplies usage (adjusting entry): debit supplies expense, credit supplies
- noncurrent assets: assets that cannot or won’t be liquidated quickly, i.e., within a year
- example: land, building
- Note that we never credit noncurrent asset accounts for usage; use depreciation accounts instead.
Depreciation of noncurrent assets
- Depreciation expense account is how we record usage of the noncurrent asset.
- Note that, again, buying the noncurrent asset is not an expense per se, like any other asset. The expense is usually depreciation, wear and tear, etc. Estimate the number of years the building will be used for (i.e., its useful life), then divide the cost of building by the number of years—that’ll be the depreciation expense per accounting period (e.g., year).
- initial purchase of building: debit building asset, credit asset
- each accounting period (adjusting entry): debit building depreciation expense, credit building accumulated depreciation (a contra asset)
- Contra asset is an account (with credit normal balance) paired with an asset account that can be used to track the depreciation of the asset. This is useful for preserving the original cost/value of the asset (e.g., building) in the records.
- On the balance sheet, we use the original cost (e.g., “building” account) minus the accumulated depreciation (e.g., “building accumulated depreciation”) to obtain the net asset balance (e.g., “building, net”). This is the book value of this noncurrent asset.
- Note that depreciation is not meant to track the asset’s fair market value. It’s simply used to track the useful life of an asset.
- cost of goods sold: the cost of the inventory/goods involved in a sale
- e.g., if a bike was sold for 500 from the manufacturer, then we need an adjusting entry that debits cost of goods sold by $500 (in addition to the entry that records the sale)
- note that on a multi-step income statement, cost of goods sold is still listed as positive (i.e., no parentheses) directly below net revenue / sales revenue / etc
reporting step
- Note: statement of cash flows involves more information that adjustment trial balance, etc, so it won’t be talked about more extensively in this class.
- Income statement is simply prepared by copying adjusted trial balance of revenue & expense accounts.
- Statement of stockholders’ equity is prepared by adding beginning balance of equity (common stock, retained earnings) and net income minus dividends paid. The ending balances of equity (e.g., ending retained earnings) will be used in the balance sheet.
- Note that the retained earnings on adjusted trial balance is the beginning balance on SSE, not the ending balance.
- Balance sheet
- Take the equity values from SSE
- Represent accumulated depreciation as an asset with negative balance (parentetheses) next to the paired asset account.
- Order that financial statements are prepared in: income statement → statement of stockholders’ equity (needs net income) → balance sheet (needs ending equity balance) → statement of cash flows
closing step
- closing step
- journalize closing entries
- prepare post-closing trial balance
- permanent accounts: the accounts presented on the balance sheet (assets, liabilities, and equity)
- These accounts carried over to the next year.
- They are called “permanent” because they’re never reset, closed, etc.
- temporary accounts: accounts that pertain to the current accounting period and do not carry from year to year, i.e., revenue, expenses, and dividends
- At the end of each accounting period, they are reset to zero and recorded in retained earnings.
- closing process / closing procedures: closing temporary accounts into retained earnings
- closing entries: does the opposite of the normal balance to bring each temporary account to zero, adjusting retained earnings in the process
- post-closing trial balance: prepared after tempmorary accounts are closed into retained earnings
HTB Academy SOC Analyst Path
- Cyber Kill Chain (another trademarked variant of the attack lifecycle)
- Recon: may consist of both passive & active enumeration
- Weaponize: develop malware & payload for initial access, hopefully bypassing AV & EDR detection, with the eventual goal of providing persisted remote code execution
- Deliver: sending the payload to victim(s) (e.g., phishing, social engineering, USB stick in a parking lot, executables)
- Exploit: payload is triggered and attempts to gain control of the system
- Install: now that the payload gained sufficient privileges, it tries to install persistence mechanisms (e.g., via droppers, backdoors, rootkit)
- Command and Control: attacker gain persistent remote access to the system; staged payloads may require additional data from the C2 server at this time to finish installation
- Actions: fulfill goals related to the attack, e.g., exfil data, deploy ransomware
- One goal of the incidence response process is to stop attackers from moving along the kill chain as soon as possible.
- incident handling process (according to NIST) mainly consists of two activities: investigation and recovery
- stages
- Preparation
- Detection & Analysis
- Containment, Eradication, & Recovery
- Make sure there’s spare people doing preparation & detection even as an incident is being handled.
- Post-incident Activity
- create a report: costs, reflection
- return to regular business activities
- investigation
- determine initial victim
- create timeline of the attack (& keep updated)
- document affected systems, attacker actions, & damages
- recovery
- create a recovery plan
- execute it
- stages