Chapter 4 Objectives1.Learn the meaning and the importance of the Revenue Recognition PrincipleandMatching Principle.2.Define and learn the difference between the Cash Basisand the Accrual Basis of Accounting.3.Learn why Adjusting Entriesare necessary and categorize adjusting entries into 4 major groupings.4.Prepare Adjusting Entries.5.Describe the Purpose and Prepare an 6.Explain the Purpose and learn how to prepare the Closing Entriesnecessary after the Financial Statements have been prepared.7.Review the required steps in the Accounting Cycle.
Accrual Basis AccountingFollows the Revenue Recognition Principleand the Matching Principle. In other words, Revenueis recognized when it is Earned(not necessarily when received) and Expensesare recognized when the revenue is recognized to which the expense relates. 1. Revenue Recognition PrincipleAn accounting principle that says the Revenue is recognized in the accounting period in which it is Earned.Revenue is Earnedwhen the service isperformedor when the product isdelivered(usually).