专业英语Using Accrual Accounting to Masure Income.ppt

Chapter 3 Using Accrual Accounting to Masure Income Learning objectives Relate accrual accounting and cash flows Apply the revenue and matching principles Update the financial statements by adjusting the accounts Prepare the financial statements Close the books Use the current ratio and the debt ratio to evaluate a business Accrual Accounting Versus Cash-Basis Accounting In Accrual Accounting, an accountant records the impact of a business transaction as it occurs. When the business performs a service, makes a sale, or incurs an expense, the accountant records the transaction even if it receives or pays no cash. In Cash-Basis Accounting, the accountant records a transaction only when it receives or pays cash. Cash receives are treated as revenues, and cash payments are handled as expenses. Accrual vs. Cash-Basis Accounting ACCRUAL Records business transactions when they occur When sale is made When bill is received Complies with GAAP Presents accurate financial picture CASH Records transactions only when cash is received or paid When customer pays for product or service When bills are paid Only used by very small businesses Omits important info Accrual Accounting and Cash Flows Accrual Accounting records cash transactions, including Collecting from customers; Borrowing money; receiving cash from interest earned; paying off loans; paying salaries, rent, and other expenses; Issuing stock. Accrual Accounting also records noncash transactions, such as Sales on account; Depreciation expense; Usage of prepaid rent, insurance, and supplies; Accrual of expenses incurred but not yet paid. accrual accounting and cash flows Accrual accounting records both cash and non-cash transactions Accounting Concepts Time period concept (periodicity) Ensures that accounting information is reported at regular intervals. A Month, a quarter, a semiannual period Recognition issue Revenue principle 1.when to record revenue (after it has been earned) 2.the amount of revenue to