Section 3 - ACC 200 Spring 2011 Section 3: The Accrual...

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Click to edit Master subtitle style ACC 200 – Spring 2011 Section 3: The Accrual Basis of Accounting Lecture Class #4 Christopher T. McKittrick CPA, MBA, CFE College of Management
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Section 3 Objectives – ACCRUAL BASIS OF ACCOUNTING ¢ Describe the accrual basis of accounting ¢ Review the revenue recognition and matching principles ¢ Use the accrual basis of accounting to analyze, record and summarize transactions for a business ¢ Use the accrual basis of accounting to prepare financial statements (income statement, balance sheet and retained earnings statement) ¢ Describe the advantages and disadvantages of the accrual basis of accounting
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33 Accounting for Business Transactions ¢ A transaction is defined as … … a simultaneous exchange between one accounting entity and another Customers, suppliers, employees, owners (shareholders), creditors etc.
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Advantages and Disadvantages of Accrual Basis of Accounting ¢ Advantages l Better matching of revenues with expenses l “Truer” (or more accurate) determination of Net Income from Operations and the Net Cash Flow from Operations l “Truer” reflection of financial position ¢ Disadvantage l More detail and complexity in measuring and identifying business events/transactions
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KEY ACCOUNTING CONCEPTS ¢ Key concepts for ACCRUAL vs. CASH l Time Period Assumption When did the transaction occur? l Revenue Recognition Principle When can I recognize that the revenue transaction occurred? l Matching Principle When do I record the expense transaction?
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CASH VERSUS ACCRUAL ACCOUNTING (Review) ¢ Cash-basis Accounting l Accounting events (transactions) are recorded when cash is exchanged l Revenue recorded when cash received l Expenses recorded when cash is paid
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CASH VERSUS ACCRUAL ACCOUNTING (Review) ¢ Accrual-basis Accounting l Accounting events (transactions) are recorded when they occur (not when cash is exchanged) l Revenues recorded when earned (revenue recognition principle) l Expenses recorded when incurred or when related revenue is recognized (matching principle)
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This note was uploaded on 03/10/2011 for the course ACC 200 taught by Professor Buckless during the Spring '08 term at N.C. State.

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Section 3 - ACC 200 Spring 2011 Section 3: The Accrual...

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