Chapter 3 - Revenue and Expense Reporting accrual basis accounting record revenues when goods and services are provided to customers and record expenses

Chapter 3 - Revenue and Expense Reporting accrual basis...

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Revenue and Expense Reporting accrual basis accounting : record revenues when goods and services are provided to customers and record expenses with related revenues revenue recognition principle : record revenue in the period it is earned record when goods and service are completed regardless the cash matching principle : recognize expenses in the same period as the revenues they help generate cash basis accounting : record revenues at the time cash is received and expenses at the time cash is paid (NOT APART OF GAAP) adjusting entries are a necessary part of accrual basis accounting. they help to update the balances of assets liabilities and revenues and expenses at the end of the accounting period for transactions that have occurred but not yet been recorded adjustments are the result of revenue recognition principle, matching principle, and periodicity every adjustment has either a revenue or expense never both cash is never in an adjusting entry pre-paid: costs of assets required that will be recorded as an expense in a future period adjusting entry : debit an expense and credit an asset deferred revenue: when a customer pays cash for a future service the adjusting entry for a deferred revenue always includes a debit to a liability account (decrease liability) and a credit to a revenue account (increase revenue) with accruals the cash flow occurs after either the expense or the revenue is recorded beginning balance in suppies + purchases of supplies - ending balance in supplies (or supplies on hand) = supplies used
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