ACCT207-ch 4 - Chapter 4: Accrual Accounting Concepts 1....

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Chapter 4: Accrual Accounting Concepts 1. Time period assumption – accounting divides the economic life of a business into artificial time periods of a month, quarter, or a year 2. Revenue Recognition Principle – requires that companies recognize revenue in the accounting period in which it is earned 3. Matching Principle-Expenses matched with revenues in t the period when efforts are expended to generate revenues 4. Accrual-basis accounting-transactions that change a company’s financial statements are recorded in the periods in which the events occur 5. Cash-basis accounting-companies record revenue only when cash is received and record expense only when cash is paid-prohibited under GAAP 6. Adjusting Entries-ensure that the revenue recognition and matching principles are followed Types of Adjusting Entries: 1. Prepayments a. Prepaid Expenses-expenses paid in cash and recorded as assets before they are used or consumed i. Adjusting entry results in an increase to an expense account an decrease to an asset account
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This note was uploaded on 05/14/2008 for the course ACCT 207 taught by Professor Hudchinson during the Fall '08 term at University of Delaware.

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ACCT207-ch 4 - Chapter 4: Accrual Accounting Concepts 1....

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