Chapter 3 - 3-11Chapter 3Accruals and Deferrals: Timing is...

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Unformatted text preview: 3-11Chapter 3Accruals and Deferrals: Timing is Everything in Accounting2More About AccrualsAccrual Accounting: Recording the financial transactions of a business in the period in which they occur, rather than in the period in which cash is exchanged.The economic substanceof the transaction signals the recording…NOTdisbursing or receiving cash.3-23Examples of Accrual EventsSales made “on account”Purchases made “on credit”Wages expense for employees»when they’ve worked but you haven’t yet paid themInterest on money borrowed or lent»when time has passed (so interest has been earned by the lender) but the actual cash for the interest has not changed handsIncome tax expense»when you owe it but haven’t yet paid 4What is a Deferral?A deferral event occurs when cash is received or paid before revenue is earned or an expense is incurred.Deferral events are a part of the accrual basis of accounting3-35Deferred RevenueYou’vereceivedpayment for something you have NOT yet...
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Chapter 3 - 3-11Chapter 3Accruals and Deferrals: Timing is...

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