3achapter4

3achapter4 - Chapter 4 Accrual Accounting Concepts...

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1 4-1 Financial Accounting: Tools for Business Decision Making, 4th Ed. Kimmel, Weygandt, Kieso CHAPTER 4 4-2 Chapter 4 Accrual Accounting Concepts Explain the revenue recognition principle and the matching principle. Differentiate between the cash basis and the accrual basis of accounting. Explain why adjusting entries are needed and identify the major types of adjusting entries. Prepare adjusting entries for prepayments. 4-3 Chapter 4 Accrual Accounting Concepts Prepare adjusting entries for accruals. Describe the nature and purpose of the adjusted trial balance. Explain the purpose of closing entries. Describe the required steps in the accounting cycle. 4-4 Time Period Assumption. .. Divides the economic life of a business into artificial time periods WHY? to provide immediate feedback on how the business is doing. 11 1
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2 4-5 Time Period Assumption. .. Generally a month, a quarter, or a year. An accounting time period that starts on January 1 and ends December 31 is called a calendar year. An accounting time period that is one year long is called a fiscal year. 4-6 Revenue Recognition Principle. .. Dictates that revenue be recognized in the accounting period in which it is earned. Is considered earned when the service has been provided or when the goods are delivered. 4-7 NOT THAT FUNNY 4-8 Matching Principle. .. Requires that expenses be recorded in the same period in which the revenues they helped produce are recorded.
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3 4-9 Review a. Cost Principle. b.Matching Principle c. Periodicity Principle d.Revenue Recognition Principle Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)? 4-10 Review a. Cost Principle. b.Matching Principle c. Periodicity Principle d.Revenue Recognition Principle Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)? 4-11 When would revenue be recorded for the following scenario . . . Ad agency is hired for a project in May, does the work in June and is paid in July? June Review 4-12 Review When would expenses be recorded for this companion scenario ? The Ad agency on this project incurs $1,500 of expenses in May, $3,000 in June, and none in July? The answer is June! Matching says the expenses should follow the revenue.
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4 4-13 Review When would revenue be recorded for the following scenario . . . Sell plane ticket on September 1 for a flight on October 15? The answer is October – when the service is provided! 4-14 Review When would expenses be recorded for the following scenario . . . The airline pays pilot salaries on October 7 th for the week ended September 30th? The answer is September – the pilots provided labor services for September flights during that month. 4-15 CURRENT: Cash Accounts receivable Accrued revenue Inventory Prepaid expenses LONG TERM: Fixed assets Allowance for doubtful accounts Accumulated depreciation STOP Ignoring the 1 st word Of an asset defintion It is ?
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3achapter4 - Chapter 4 Accrual Accounting Concepts...

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