Chapter 3 - ACG2021 Financial Accounting Chapter 3 Using...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
ACG2021 Financial Accounting Chapter 3 Using Accrual Accounting to Measure Income
Background image of page 1

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

View Full DocumentRight Arrow Icon
Learning Objectives Relate accrual accounting and cash accounting Apply the revenue and matching principles Update the financial statements by adjusting the accounts Close the books Use the current ratio and the debt ratio to evaluate a business
Background image of page 2
GAAP “In the United States , generally accepted accounting principles, commonly abbreviated as US GAAP or simply GAAP, are accounting rules used to prepare, present, and report financial statements for publicly-traded companies and many privately-held companies.” (Wikipedia)
Background image of page 3

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

View Full DocumentRight Arrow Icon
Accrual vs Cash Accounting Generally accepted accounting principles (GAAP) require that business use accrual accounting.
Background image of page 4
Time-Period Concept The time-period concept ensures that accounting information is reported at regular intervals. Basic accounting period is 1 year A fiscal year ends on a date other than December 31. Interim financial statements are usually prepared for periods such as a month, a quarter, or semiannual period.
Background image of page 5

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

View Full DocumentRight Arrow Icon
Revenue Principle When should revenue be recorded? Revenue should be recorded when it has been earned. Delivered Good or Service to a Customer What amount of revenue should be recorded? The amount of revenue recorded is the cash value of the goods transferred to the customer.
Background image of page 6
Matching Principle Expenses are costs of assets used up and/or liabilities created in earning revenue. Matching involves two steps: Identify all expenses incurred during the period. Measure the expenses and match the expenses against revenues earned. Expenses may be paid in cash. result from using up an asset such as supplies result from creating a liability (payable)
Background image of page 7

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

View Full DocumentRight Arrow Icon
Accrual vs Cash Accounting Accrual Accounting Impact of business transactions are recorded when the transaction occurs Revenues are recognized when earned . Expenses are recognized when incurred. Cash Accounting Transactions are recorded when cash is received or paid. Revenues are recorded when cash is received . Expenses are recorded when cash is paid .
Background image of page 8
Accrual vs Cash Accounting Under accrual accounting, cash transactions are recorded as well as noncash transactions such as: Purchases of inventory on account Sales on account Depreciation expense Accrual of expenses incurred but not yet paid Usage of prepaid rent, insurance, and supplies
Background image of page 9

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

View Full DocumentRight Arrow Icon
Accounting Accruals require the use of judgment to determine which period should reflect revenues earned. Managers should not use accruals to
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 53

Chapter 3 - ACG2021 Financial Accounting Chapter 3 Using...

This preview shows document pages 1 - 11. Sign up to view the full document.

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