Chapter 4 notes - Chapter 4 Accrual Accounting Concepts and...

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Chapter 4 Accrual Accounting Concepts and the Accounting Cycle
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In this chapter we need to complete the cycle…
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Revenue Recognition Principle Requires that revenues be recorded in the time period when the work is performed. The Earnings process is complete. Governs the Timing of Revenues
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Matching Principle Requires that expenses be recorded in the same time period as the revenues they helped generate. Governs the Timing of Expenses
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Income Statement Revenues: Service Revenue 45,000 Rental Revenue 0 Total Revenues 45,000 Expenses: Wages Expense 26,300 Equipment Rental Expense 1,500 Rent Expense 0 Advertising expense 2,600 Repairs Expense 900 0 0 Total Expenses 31,300 Net Income (Loss) 13,700 Revenue Recognition Principle Matching Principle
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Adjusting Entry 500 0 0 0 0 Supplies The Economic Activity needs to be recorded This is done by recording an Adjusting Entry Recording Supplies Expense of $350 in the time period when we actually used the supplies is an Example of the Matching Principle 500 350 350 150 0 350 0 Supplies Expense
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Accrual Accounting is all about Timing! Timing of the economic activity Versus Timing of the cash flow
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Sometimes the cash flow precedes the economic activity Insurance Premium paid Use Supplies Purchase Supplies Policy Term Customer Pays In Advance We Perform Services Purchase Equipment We Use Equipment Cash Flow has already been recorded The Economic Activity has not yet been recorded.
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Each of these prepayments Insurance Premium paid Use Supplies Purchase Supplies Policy Term Customer Pays In Advance We Perform Services Purchase Equipment We Use Equipment Cash Flow has already been recorded The Economic Activity has not yet been recorded.
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This note was uploaded on 11/24/2009 for the course BA 2301 taught by Professor Mattpolze during the Fall '08 term at University of Texas at Dallas, Richardson.

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Chapter 4 notes - Chapter 4 Accrual Accounting Concepts and...

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