Ch.4 Completing the Accounting Cycle

Ch.4 Completing the Accounting Cycle - Completing the...

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Click to edit Master subtitle style 12/26/10 Completing the Accounting Cycle Chapter 4
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12/26/10 Periodic Reporting Beginning of the Year End of the Year Calendar Year – Year beginning Jan. 1st and ending Dec. 31st Fiscal Year – Year beginning and ending on a date other than Jan. 1st and Dec. 31st
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12/26/10 Accrual Accounting What do we do if a transaction is not complete by the end of the company’s reporting period? Accrual Accounting Revenues and expenses are recorded as they are incurred Not necessarily when cash is received (or paid) Better measures the performance of a firm in the respective period than does simply looking at cash flows
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12/26/10 Accrual Accounting GAAP requires that all firms use accrual accounting This leads to the implementation of two accounting principles: 1. Revenue Recognition Principle § Mandates revenues be recognized (recorded) when they are earned
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12/26/10 Revenue Recognition Principle The Revenue Recognition Principle states that a revenue should be recognized when: 1. The earning process is substantially complete, AND
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12/26/10 Matching Principle The matching principle states that all expenses incurred in generating revenues must be recognized in the same period the revenue is recognized Revenues are recognized in current period Any expenses incurred to generate revenue must be recognized also
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12/26/10 Accrual Accounting Example During 2009, XYZ Consulting billed a client $48,000 for work completed in 2009. On December 31, 2009, it had received $41,000 from the client, with the remaining amount to be received in 2010. Total expenses in 2009 amounted to $31,000, with $28,000 of those
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This note was uploaded on 12/26/2010 for the course MGQ 201 taught by Professor Orrange during the Fall '09 term at SUNY Buffalo.

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Ch.4 Completing the Accounting Cycle - Completing the...

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