Chapter_3_Key_Terms_and_Concpets

Chapter_3_Key_Terms_and_Concpets - Types of adjusting...

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Chapter 3 Key Terms and Concepts Accounting Period Concept : assumption that the economic life of the business can be divided into time periods Revenue Recognition principle : Dictates that revenue be recognized in the accounting period in which it is earned. Matching principle : Requires that expenses be recorded in the same period in which the revenues they helped produce are recorded Cash basis : revenue and expenses are recorded in the period that cash is received Accrual Basis: revenue and expenses are recorded in the period that they occurred, regardless of when cash was given or received. This method of accounting adheres to the Revenue Recognition Principle and Matching Principle, and adheres to GAAP
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Unformatted text preview: Types of adjusting entries : a) Prepayments: i) Prepaid expenses: Expenses paid in cash and recorded as assets before they are used or consumed. ii) Unearned Revenues: Cash received and recorded as liabilities before revenue is earned. b) Accruals: i) Accrued revenues: Revenues earned but not yet received in cash or recorded. ii) Accrued expenses: Expenses incurred but not yet paid in cash or recorded. c) Depreciation – the portion of a fixed asset recorded as an expense each year of its useful life Adjusted Trial balance : Trial balance prepared after adjusting entries have been prepared and posted....
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