chapter 3 - Third Quiz Chapter 3 Accrual Accounting Income...

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Ron Lazer, Ph.D. Chapter 3, Page 1 Chapter 3: Accrual Accounting & Income Dr. Ron Lazer Fall 2009 Third Quiz s Tuesday, September 22 nd , 2009 s Content: Chapter 3 (specific instructions will be provided during class) s Allowed material: 4 function calculator Ron Lazer, Ph.D. Financial Accounting GAAP (General y Accepted Accounting Principles) The Accounting Information System Financial Statements Transaction Analysis Financial Statements Double Entry Accounting The Accounting Cycle Ron Lazer, Ph.D. Chapters’ Objectives The Accounting Information System Double Entry Accounting The Accounting Cycle Debit (DR) Credit (CR) T-Account Journal Entries Record General Journal Entries Ron Lazer, Ph.D. Post to Ledger (T-account) Prepare the Trial Balance Accrual Basis and Cash Basis The most common ways of measuring income are the accrual basis and the cash basis . s Accrual basis - recognizes the impact of transactions for the time periods when revenues and expenses occur even if no cash changes hands s Cash basis - recognizes the impact of transactions only when cash is received or paid Ron Lazer, Ph.D. Accrual Basis and Cash Basis Under the accrual basis: s Revenues are recorded when earned. b For example, a sale on account is recorded as revenue when the transaction takes place even though the seller receives no cash at that moment. s Expenses are recorded when incurred. b For example, a purchase on account is recorded as an expense when the transaction takes place even though the buyer pays no cash at that moment. Ron Lazer, Ph.D.
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Ron Lazer, Ph.D. Chapter 3, Page 2 Accrual Basis and Cash Basis Under the cash basis: s Revenues are recorded when a sale is made for cash at the time when the cash changes hands. s Expenses are recorded when a purchase is made for cash at the time when the cash changes hands. Ron Lazer, Ph.D. s The Revenue Principle b When is revenue recognized? When it is earned. Revenue is recognized when earnings process substantially complete (generally, when goods and services are delivered). Not necessarily when cash is received. b How much revenue should be recognized? Cash value of item transferred to customer s The Matching Principle b Expenses incurred to generate revenues should be recorded in the same period. s The Time-Period Concept b Requires that accounting information be reported at regular intervals. b Information is presented in discrete time periods (years, quarters, months). Ron Lazer, Ph.D. Accrual Basis and Cash Basis Phoenix Magazine sells annual subscriptions for the 12 monthly magazines mailed out each year. The company collects cash in advance and then mails out the magazines to subscribers each month. Apply the revenue principle to determine (a) When should revenue be recorded? and (b) How much revenue should be recorded for magazines mailed out January through March?
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This note was uploaded on 01/09/2010 for the course ACCT 2331 taught by Professor Staff during the Fall '08 term at University of Houston.

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chapter 3 - Third Quiz Chapter 3 Accrual Accounting Income...

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