Notes Chapter 4

Notes Chapter 4 - Chapter 4 Notes Accrual Accounting...

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Chapter 4 Notes Accrual Accounting Concepts I. Principles a. Time period assumption- Accounting divides the economic life of a business into artificial time periods b. Revenue recognition principle- recognize revenue in accounting period in which it is earned c. Matching Principle- efforts (expenses) should be matched with accomplishments (revenues) II. Accrual vs. Cash Basis a. Accrual-basis accounting- transactions are recorded in the periods in which the events occur. (when earned/incurred) RR and MP b. Cash basis accounting- record revenue only when cash received. (Cash received/paid) III. The Basics of Adjusting Entries a. Adjusting entries- ensure that the revenue recognition and matching principles are followed a.i. Trial balance- the first pulling together of the transaction data b. Types: b.i. Prepayments b.i.1. Prepaid expenses- costs that expire with the passage of time or through use (supplies, insurance, depreciation) b.i.1.a.
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Notes Chapter 4 - Chapter 4 Notes Accrual Accounting...

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