Chap. 3-Concept - Chapt er 3 Concept Chapter 3 The...

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Unformatted text preview: Chapt er 3 Concept Chapter 3 The Adjusting Process (Concept) 1. Accounting Period Concept: revenues and expenses are reported in the proper period. 2. Accrual Basis of Accounting a). Revenue Recognition Concept- revenues are reported in the income statement in the period in which they are unnecessary to be received. b). Matching Concept (matching principle)- reporting revenues and related expenses in the same period. 3. Cash Basis of Accounting: revenues and expenses are reported in the income statement in the period in which cash is received or paid. 4. Adjusting Process: the analysis and updating of accounts at the end of the period before the financial statements are prepared. 5. Adjusting entries: all adjusting entries affect at least one income statement account and one balance account. 6. Four major types of accounts requiring adjustment: Title Accts Cash Services Prepaid Expenses Paid Unreceived Unearned Revenues Received Non-offered Title Cash Services Accts Accrued Revenues Unreceived Offered Accrued Expenses Unpaid Received 7. Prepaid Expenses a). the advance payment of future expenses and are recorded assets when cash is paid. b). The adjusted balance of a prepaid expense is an asset that will become an expense in a future period. Example: A company paid $x for insurance of 2010. Journal Page 10 Date Descriptions Post Ref. Debit Credit 2009 Dec 31 2010 Jan 31 Prepaid Insurance Cash Paid cash for insurance Insurance Expense Prepaid Insurance 15 11 56 15 $ x $ x/12 $ x $ x/12 Account Prepaid Insurance Account No. 15 Post Balance Date Items Referenc e Debit Credit Debit Credit Dec 31, 09 10 $ x $ x Jan 31, 10 Adjusting 10 $ x/12 $ 11x/12 Account Insurance Expense Account No. 56 Date Items Post Reference Debit Credit Balance Debit Credit Jan 31, 10 Adjusting 10 $ x/12 $ x/12 c). If the prepaid expenses are not adjusted at the end of the month:c)....
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This note was uploaded on 06/30/2011 for the course ACCOUNTING 2301 taught by Professor Sarah during the Fall '10 term at HCCS.

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Chap. 3-Concept - Chapt er 3 Concept Chapter 3 The...

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