Ch. 4 - Accounting 2000 Chapter 4 Notes 1 2 3 4 5 6 7 8...

This preview shows page 1 - 3 out of 10 pages.

We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Financial Accounting: The Impact on Decision Makers
The document you are viewing contains questions related to this textbook.
Chapter 4 / Exercise 1
Financial Accounting: The Impact on Decision Makers
Norton/Porter
Expert Verified
Accounting 2000Chapter 4 Notes1.Explain the revenue recognition principle and the expense recognition principle.2.Differentiate between the cash basis and the accrual basis of accounting.3.Identify the major types of adjusting entries.4.Prepare adjusting entries for deferrals.5.Prepare adjusting entries for accruals.6.Describe the nature and purpose of the adjusted trial balance.7.Explain the purpose of closing entries.8.Describe the required steps in the accounting cycle.Timing Issues:The Periodicity Assumption requires accountants to divide the economic life of a business into artificial time periods. (month, quarter, year)Companies recognize revenue in the accounting period in which it is earned. This is called the RevenueRecognition Principle.Expenses are matched with revenues in the period when efforts are expended to generate revenues. This is called the ExpenseRecognition Principle. (match expenses with the revenues they help generate)Accrual versus Cash Basis of AccountingAccrual-Basis Accounting (GAAP)Transactions recorded in the periods in which the events occur.Revenues are recognized when earned,even if cash was not received. Expenses are recognized when incurred (owed), even if cash was not paid.Cash-Basis Accounting (Not GAAP)Revenues are recognized only when cash isreceived.Expenses are recognized only when cash is paid. Prohibited under generally accepted accounting principles.Page 1of 10
We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Financial Accounting: The Impact on Decision Makers
The document you are viewing contains questions related to this textbook.
Chapter 4 / Exercise 1
Financial Accounting: The Impact on Decision Makers
Norton/Porter
Expert Verified
Accounting 2000Chapter 4 NotesExample: Suppose that Fresh Colors paints a large building in 2013. In 2013, it incurs and pays total expenses (salaries and paint costs) of $50,000. It bills the customer $80,000, but does not receive payment until 2014.Prepare income statements using the cash basis:Income Statement-Cash Basis20132014TotalCash Receipts080,00080,000Cash Payments(50,000)(50,000)Net Income (Loss)(50,000)80,00030,000Prepare income statements using the accrual basis:  Income Statement-Accrual Basis20132014TotalRevenues80,000050,000Expenses(50,000)0(50,000)Net Income (Loss)30,000030,000Adjusting Entries

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture