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Earned expensesare expensesare recordedwhen

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Unformatted text preview: xpenses are Expenses are recorded when recorded when incurred. incurred. Matching Principle Because transactions occur over time, ADJUSTMENTS are Because transactions occur over time, ADJUSTMENTS are Because Because rrequired at the end of each fiscal period to get the revenues equired at the end of each fiscal period to get the revenues and expenses into the “right” period. and expenses into the “right” period. “right” “right” 4-4 Expense Recognition 4-5 Types of Adjustments There are four types of adjustments. Revenues Revenues 1. Unearned 1. Unearned Revenues. Revenues. Expenses Expenses 3. Prepaid 3. Prepaid Expenses. Expenses. 2. Accrued 2. Accrued Revenues. Revenues. 4. Accrued 4. Accrued Expenses. Expenses. 4-6 Example: Unearned Revenues 4-7 Example: Accrued Revenues 4-8 Example: Prepaid Expenses 4-9 Example: Prepaid Expenses 4-10 Example: Accrued Expenses 4-11 MORE EXAMPLES 1. As of 12/31/12 C Co had paid $1,900,000 in wages for the year. X Co. pays it employees every Friday. Year end,12/31/12 falls On a Wednesday. The employees have earned total wages Of $50,000 for Monday through Wednesday of the week ending 1/2/13. X Co. pays $75,000 wages on 1/2/13 2. Ma...
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