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AAC280_Week+3+Exercises - Chapter 3 Exercises 1 Chapter 3...

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Chapter 3 Exercises 1 Chapter 3 Textbook Exercises Nancy E. Wall ACC 280 December 2, 2010 Carmelita Omran
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Chapter 3 Exercises 2 Chapter 3 Exercises 1. (a) How does the time period assumption affect an accountant’s analysis of business transactions? - A ccountants divide the economic life of a business into artificial time periods and the significance of a transaction is determined by how it affects the accounting periods. For example, if the amount spent on one piece of equipment were to severely affect the budget for the rest of the year, then transaction could be considered significant. (b) Explain the terms fiscal year, calendar year , and interim periods . -Fiscal year is an accounting time period that is one year in length -Calendar year is 1 Jan to 31 Dec, many businesses use the Calendar year as their accounting period. -Interim periods are monthly and quarterly time periods. 2. State two generally accepted accounting principles that relate to adjusting the accounts. -Revenue Recognition Principle -Matching Principle 3. Rick Marsh, a lawyer, accepts a legal engagement in March, performs the work in April, and is paid in May. If Marsh’s law firm prepares monthly financial statements, when should it recognize revenue from this engagement? Why?
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