ch03 - Chapter Chapter 3 3 The Matching Concept The...

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Unformatted text preview: Chapter Chapter 3 3 The Matching Concept The Matching Concept and the Adjusting Process and the Adjusting Process Financial and Managerial Accounting 8th Edition Warren Reeve Fess 1. Explain how the matching concept relates to the accrual basis of accounting. 2. Explain why adjustments are necessary and list the characteristics of adjusting entries. 3. Journalize entries for accounts requiring adjustment. 4. Summarize the adjustment process and prepare an adjusted trial balance. 5. Use vertical analysis to compare financial statement items with each other and with industry averages. Objectives Objectives The Matching Concept TWO METHODS Reporting Reporting Revenue and Expenses Revenue and Expenses Cash Basis of Accounting Accrual Basis of Accounting Under the cash basis for the accounting period concept, revenues and expenses are reported in the income statement in the period in which cash is received or paid . Under the accrual basis for the accounting period concept, revenues are reported in the income statement in the period in which they are earned . Accrual Basis of Accounting Accrual Basis of Accounting Revenue reported when earned Expense reported when incurred Properly matches revenues and expenses in determining net income Requires adjusting entries at end of period The The matching concept matching concept supports supports reporting revenues and related reporting revenues and related expenses in the same period. expenses in the same period. 2004 2005 Paid $10,000 for an advertising campaign for a product that will be introduced in 2003. Sold the advertised product. $10,000 $10,000 expensed in expensed in 2005 to match 2005 to match revenues revenues Paid $10,000 for an advertising campaign for a product that will be introduced in 2005. $10,000 $10,000 recorded as an recorded as an asset asset NetSolutions Trial Balance December 31, 2005 Cash 2 065 00 Accounts Receivable 2 220 00 Supplies 2 000 00 Prepaid Insurance 2 400 00 Land 20 000 00 Office Equipment 1 800 00 Accounts Payable 900 00 Unearned Rent 360 00 Capital Stock 25 000 00 Dividends 4 000 00 Fees Earned 16 340 00 Wages Expense 4 275 00 Rent Expense 1 600 00 Utilities Expense 985 00 Supplies Expense 800 00 Miscellaneous Expense 455 00 42 600 00 42 600 00 Unadjusted trial balance Cash 2 065 00 Accounts Receivable 2 220 00 Supplies 2 000 00 Prepaid Insurance 2 400 00 Land 20 000 00 Office Equipment 1 800 00 Accounts Payable 900 00 Unearned Rent 360 00 Capital Stock 25 000 00 Dividends 4 000 00 Fees Earned 16 340 00 Wages Expense 4 275 00 Rent Expense 1 600 00 Utilities Expense 985 00 Supplies Expense 800 00 Miscellaneous Expense 455 00 42 600 00 42 600 00 NetSolutions Trial Balance December 31, 2005 Assets Cash 2 065 00 Accounts Receivable 2 220 00 Supplies 2 000 00 Prepaid Insurance 2 400 00 Land 20 000 00 Office Equipment 1 800 00 Accounts Payable 900 00 Unearned Rent 360 00 Capital Stock 25 000 00 Dividends 4 000 00 Fees Earned 16 340 00 Wages Expense 4 275 00 Rent Expense...
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ch03 - Chapter Chapter 3 3 The Matching Concept The...

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