C1 Chapter 04

C1 Chapter 04 - Chapter 4 Accrual Accounting and Adjusting...

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4-1 Chapter 4 Accrual Accounting and Adjusting Entries Financial Accounting 1 st Canadian ed. by PNCS-B
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4-2    Recognition: formally recording an item in the financial statements of an entity Recognition and Measurement I know I need to record this. ..    Measurement: quantification of the effects of the item on the entity ...but at current value or historical cost?
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4-3 Cash vs. Accrual Basis Cash basis : revenues and expenses are recorded only when cash is received or paid Accrual basis : revenues are recognized when earned; expenses are recognized when incurred
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4-4 Cash basis statement Accrual basis statement Statement of Cash Flows Cash flows from operating activities : $ 8,000 Income Statement Net income $ 9,000 What accounts for the difference?
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4-5 Types of Adjusting Entries ALL RECOGNIZE REVENUE OR EXPENSE BEFORE OR AFTER CASH IS EXCHANGED Prepaid expense Accrued liability Accrued asset Unearned revenue
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4-6 Prepaid Expense - Cash paid before expense is incurred Examples: » Prepaid rent & insurance » Office supplies » Plant & equipment Costs are initially recorded as assets and allocated to expense in future periods
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4-7 Unearned Revenue - Cash received before revenue is earned Examples: » Rent collected in advance » Subscriptions collected in advance » Gift certificates Receipts are initially recorded as liabilities and recorded as revenues in future periods when earned.
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This note was uploaded on 10/19/2011 for the course ACCT 2242 taught by Professor Cumming during the Spring '11 term at Dalhousie.

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C1 Chapter 04 - Chapter 4 Accrual Accounting and Adjusting...

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