Chapter3Outline

Chapter3Outline - CHAPTER REVIEW Time-Period Assumption 1....

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER REVIEW Time-Period Assumption 1. (S.O. 1) The time period (or periodicity) assumption assumes that the economic life of a business can be divided into artificial time periods. 2. Accounting time periods are generally a month, a quarter, or a year. The accounting time period of one year in length is usually known as a fiscal year. Accrual Basis of Accounting 3. (S.O. 2) The revenue recognition and matching principles are used under the accrual basis of accounting. Under cash basis accounting, revenue is recorded only when cash is received and expenses are recorded only when paid. 4. Generally accepted accounting principles require accrual basis accounting rather than cash basis accounting because the cash basis of accounting often leads to misleading financial statements. Revenue Recognition Principle 5. The revenue recognition principle states that revenue should be recognized in the accounting period in which it is earned. The Matching Principle 6. The matching principle dictates that efforts (expenses) be matched with accomplishments (revenues). Adjusting Entries 7. (S.O. 3) Adjusting entries are made in order for: a.Revenues to be recorded in the period in which they are earned, and for expenses to be recognized in the period in which they are incurred. b.The revenue recognition and matching principles to be followed. 8. (S.O. 4) Adjusting entries are required every time financial statements are prepared. Adjusting entries can be classified as (a) prepayments (prepaid expenses or unearned revenue) or (b) accruals (accrued revenues or accrued expenses). Prepayments 9. (S.O. 5) Prepaid expenses are expenses paid in cash and recorded as assets before they are used or consumed. a.Prepaid expenses expire with the passage of time or through use and consumption. b.An asset-expense account relationship exists with prepaid expenses. c.Prior to adjustment, assets are overstated and expenses are understated. d.The adjusting entry results in a debit to an expense account and a credit to an asset
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 4

Chapter3Outline - CHAPTER REVIEW Time-Period Assumption 1....

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online