Ch 03 - LEARNING OBJECTIVE Describe basic accrual...

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1 LEARNING OBJECTIVE 1 Describe basic accrual accounting concepts, including the matching concept.
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2 ACCRUAL CONCEPT Transactions Are recorded as they occur Are recorded even if cash not received or paid Affect accounting equation (A = L + E) LO 1
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3 ACCRUAL MEANS Revenue recognized (recorded) when earned Liabilities recognized when obligation incurred LO 1
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4 MATCHING PRINCIPLE LO 1 Expenses recognized, recorded in same period as related revenue
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5 MATCHING MEANS When revenue is recorded Expenses incurred in generating revenues are Identified Recorded Matching subtracts expenses from revenue to determine net income or loss LO 1
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6 LEARNING OBJECTIVE 2 Use accrual concepts to analyze, record, & summarize transactions.
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7 FAMILY HEALTH CARE, PC Earns revenue when services provided to patients Earnings process complete Patient obligated to pay Incurs expenses to earn revenue Recognize expenses according to Matching Principle LO 2
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8 HEALTH CARE, PC Transactions for November Transactions include Revenue Cash and on account Asset Acquiring insurance Buying equipment Expense Recording insurance, depreciation expense Other LO 2
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Assets = Liabilities + Equity Cash + Land = Note + Unearned rev + Stock + Ret Earn Bal Oct 7,320 + 12,000 = 10,000 6,000 + 3,320 a. Rent 1,800 = 1,800 Bal 9,120 + 12,000 = 10,000 + 1,800 6,000 + 3,320 Cash Flows Balance Sheet Income Statement IFSF: Advance Rent Payment Operating +1,800 Family Health Care, PC receives rent in advance. LO 2
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Assets = Liabilities + Equity Cash + Prepaid Ins + Land = Note + Unearned + Equity Balances 9,120 + 12,000= 10,000 + 1,800 9,320 b. Insurance -2,400 + 2,400 Balances 6,720 + 2,400 + 12,000= 10,000 + 1,800 + 9,320 Cash Flows Balance Sheet Income Statement IFSF: Business Insurance Payment Operating -2,400 Family Health Care, PC buys 2 year business insurance policy LO 2
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Assets = Liabilities + Equity Cash + Prepaid Ins + Land = Note + Unearned + Equity Balances 6,720 + 2,400 + 12,000= 10,000 + 1,800 + 9,320 c. Insurance -6,000 + 6,000 Balances 720 + 8,400 + 12,000= 10,000 + 1,800 + 9,320 Cash Flows Balance Sheet Income Statement IFSF: Malpractice Insurance Operating -6,000 Family Health Care, PC buys 6 mo. malpractice insurance policy LO 2
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Assets = Liabilities + Equity Cash + Other = Note +
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Ch 03 - LEARNING OBJECTIVE Describe basic accrual...

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