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Chaper3 notes - Adjusting the Accounts Chapter 3 3-1...

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3 - 1 Adjusting the Accounts Chapter 3
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3 - 2 Revenue Recognition Principle The revenue principle governs two things: (1) When to record ___ revenue ______ and… (2) the _____ amount ______ of revenue to record.
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3 - 3 When to record revenue? Revenue is considered earned when service has been _____performed______ or goods delivered . Revenue must be recognized in the accounting period in which it is ____earned____ .
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3 - 4 How much revenue to record? Amount of revenue to record is the cash value or ____selling price___ of the service or product delivered to customer. Sale of bicycle for credit……….? If the bike is ___delivered____ to our customer, then the sales revenue should be recognized.
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3 - 5 The “Matching” Principle Requires that expenses be recorded in the same accounting period or “ ___matched___ ” with the revenues they helped to produce. It is the basis for recording all expenses.
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3 - 6 The “Matching” Principle Requires that we identify and measure all expenses __incurred__ during accounting period …. ….and match them against revenues ___earned___ . Some bicycle store examples….
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3 - 7 The Matching Principle Revenue Expense = Net income
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3 - 8 The Matching Principle Revenue Expense = (Net loss)
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3 - 9 Time Period Assumption Allows regular use of artificial __time intervals__ to report business results in financial statements. Monthly Quarterly Calendar year vs __fiscal__ year financial statements…
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3 - 10 Cash Basis vs Accrual Basis of Accounting Cash Basis : Record revenue when cash is __recieved_ . Cash Basis : Record expense when cash is _paid__ . Accrual Basis to determine when revenues & expenses are recorded.
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3 - 11 Cash Basis vs Accrual Basis of Accounting Accrual accounting uses __adjustments__ to ensure revenues are recorded when earned and to match expenses with revenues. Cash basis accounting does not satisfy the requirements of GAAP. Using the accrual basis is GAAP. Bicycle store manipulations . .…
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Which one of the following statements about the accrual basis of accounting is false ? a. Events that change a company’s financial statements are recorded in the periods in which the events occur. a. Revenue is recognized in the period in which it is earned. a. The accrual basis is in accord with generally accepted accounting principles. a. Revenue is recorded only when cash is received, and expense is recorded only when cash is paid. Review of Accrual Basis of Accounting
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3 - 13 The “Adjustment” Process The adjustment process begins with the _____trail balance_____ . The __unadjusted trial balance___ lists the accounts and their balances after the period’s transactions have been recorded.
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3 - 14 Bicycle Heaven Unadjusted Trial Balance at September 30, 2008 $24,800 2,250 700 3,000 16,500 3,200 950 400 $51,800 13,100 450 20,000 11,250 7,000 $51,800 Cash Accounts receivable Supplies Prepaid rent Furniture Accounts payable Unearned service revenue Common stock Retained earnings Dividends Repair service revenue Salary expense Utilities expense Total
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Chaper3 notes - Adjusting the Accounts Chapter 3 3-1...

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