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Accounting Notes- Day 9 and 10

Accounting Notes- Day 9 and 10 - Types of adjusting entries...

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ACCOUNTING 2000 9/14 PROBLEM FROM PG. 146 IN THE BOOK 9/16 -always prepare trial balance after you post to determine whether it is complete and up to date Timing Issues: -accountants divide the economic life of a business into artificial time periods -generally a month, quarter, or year -fiscal year vs. calendar year Revenue Recognition Principle: -companies recognize revenue in the accounting period in which it is earned Expense Recognition Principle: -let the expenses follow the revenues Accrual vs. Cash basis of accounting: Accrual-Basis…. -transactions recorded in periods in which the events occur -revenues are recognized when earned -expenses are recognized when incurred Cash-Basis… -revenues recognized only when cash is received -expenses are recognized only when cash is paid *we follow accrual basis of accounting
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Unformatted text preview: Types of adjusting entries: Deferrals…means to put it off-prepaid expense-unearned revenues Accruals…means to build it up-accrued revenues-accrued expenses *WHEN ADJUSTING JOURNAL ENTRIES, NEVER USE THE CASH ACCOUNT!!!!!! Deferrals are either a prepaid expense or unearned revenue Cash payment before expense recorded prepayments often occur in regard to:-insurance-supplies-advertising-rent-equipment-buildings Prepaid expenses:-costs that expire either with a passage of time or through use CLICKER: Tiger Co. purchased a 1-year insurance policy on November 1 st for $12,000. Assuming no other adjusting entries are made before December 31 st , what is proper adjusting entry on December 31 st ? Insurance Expense…$2,000 Prepaid Insurance…$2,000 Depreciation- allocation of cost over time...
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