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Ag Econ 31- Notecard 4-6

Ag Econ 31- Notecard 4-6 - CH4 The official accounting...

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CH4 The official accounting period is called the fiscal year, but financial statements can be prepared for the shorter periods. They are called interim statements. Accrual accounting measured revenue and expenses during an accounting period and the difference between them, which is net income. Accrual accounting is more complicated, but more useful, than accounting only for cast receipts and cash payments. The conservatism concept is-recognize increases in equity when they are reasonably certain, but recognize decreases as soon as they are reasonably possible. Materiality concept-disregard trivial matters but disclose all important matters. Realization concept-revenue is usually recognized when goods and services are delivered. If revenue is recognized before the cast receipt, an asset. Accounts receivable is debited (increased). If cast is received before revenue is recognized a liability. Advances from customers is credited (increased). The liability is debited (decreased) is the period in which revenue is recognized. The equity and accounts receivable balances in a period are reduced by estimated bad debt losses. A bad debt expense account is used to record the decreases in equity. When specific bad debts are later discovered, accounts receivable is reduced but revenue is unaffected.
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