Fin Acct CH4 - Ch 4 I. Timing Issues a. Time Period...

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Ch 4 I. Timing Issues a. Time Period Assumption: accountants divide the economic life of a business into artificial time periods i. Generally a month, a quarter, or a year ii. Fiscal year vs. calendar year b. Revenue Recognition Principle: companies recognize revenue in the accounting period in which it is earned i. Service industries may use Oct-Oct as a year c. Matching Principle: expenses matched with revenues in the period when efforts are expended to generate revenues d. All in accordance with GAAP e. Accrual vs Cash – basis accounting i. Accrual-basis accounting 1. Transactions recorded in the periods in which the events occur 2. Revenues are recognized when earned, rather than when cash is received 3. Expenses are recognized when incurred rather than when paid ii. Cash-Basis 1. The opposite….bad stay away from on tests II. The Basics of Adjusting Entries a. Adjusting entries make it possible to report correct amounts on the balance sheet and on the income statement b. Deferrals i. Prepaid Expenses: expenses paid in cash and recorded as assets before they are used or consumed ii. Unearned Revenues: cash received and recorded as liabilities before revenue is earned c. Accruals i. Accrued Revenues: rev earned but not yet received in cash or recorded
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This note was uploaded on 01/05/2012 for the course ACG 201 taught by Professor Legget during the Fall '08 term at University of North Carolina Wilmington.

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Fin Acct CH4 - Ch 4 I. Timing Issues a. Time Period...

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