chapter 4 notes - Periodic Reporting Time Period...

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Fiscal Year --An accounting period that lasts 12 months. Calendar Year --An accounting period that lasts 12 months and ends on December 31. Time Period Concept --The life of a business is divided into distinct and short time periods so the accounting information can be timely. Periodic Reporting
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Life Cycle of a Business Entity Accounting Period 1 Accounting Period 2 Accounting Period 3 Balance Sheet Balance Sheet Balance Sheet Income Statement and Cash Flow Statement Income Statement and Cash Flow Statement Income Statement and Cash Flow Statement
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Accrual Accounting Accrual-basis accounting is a concept in which revenues and expenses are recorded when earned or incurred, not when cash is received or paid. Revenues and expenses must be assigned to the proper accounting period. “Revenue recognition principle” and the “matching principle” determine the accounting period.
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Relevant Accounting Principles Revenue Recognition Principle Revenue is recognized when two criteria are met: The earning process is “substantially complete.” An exchange has taken place Matching Principle All expenses incurred to generate revenues must be recognized in the same period as the related revenues.
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Determining Accrual Income Recognized Revenues of 19x5 - Matched Expenses of 19x5 = Net Income for 19x5
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Cash-Basis Accounting Revenue and expenses are recognized only when cash is received or payments are made. Mainly used by small businesses. Not an accurate picture of true profitability.
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Reported Income for 19x4 Cash-Basis Accounting Accrual Basis Accounting Cash Receipts $41,000 Revenues Earned $48,000 Cash Disbursement 28,000 Expenses Incurred 31,000 Income $13,000 Income $17,000 Example: Accrual vs. Cash-Basis Brewster Enterprises billed their client for $48,000 during 19x4. On December 31, 19x4, they had received $41,000, with the remaining $7,000 to be received in the next year. Total expenses during the year amounted to $31,000 with
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This note was uploaded on 04/07/2008 for the course ACCT 101 taught by Professor K during the Spring '08 term at Appalachian State.

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chapter 4 notes - Periodic Reporting Time Period...

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