AccountingPrinciplesAdjustingTheAccounts幻灯片.pptxVIP

;;Generally a month, quarter, or year.;Monthly and quarterly time periods are called interim periods. Most large companies must prepare both quarterly and annual financial statements. Fiscal Year = Accounting time period that is one year in length. Calendar Year = January 1 to December 31.;The time period assumption states that: revenue should be recognized in the accounting period in which it is earned. expenses should be matched with revenues. the economic life of a business can be divided into artificial time periods. the fiscal year should correspond with the calendar year.;Accrual-Basis Accounting Transactions recorded in the periods in which the events occur. Companies recognize revenues when they perform services (rather than when they receive cash). Expenses are recognized when incurred (rather than when paid). In accordance with generally accepted accounting principles (GAAP).;Cash-Basis Accounting Revenues recognized when cash is received. Expenses recognized when cash is paid. Cash-basis accounting is not in accordance with generally accepted accounting principles (GAAP).;REVENUE RECOGNITION PRINCIPLE;EXPENSE RECOGNITION PRINCIPLE;Illustration 3-1 GAAP relationships in revenue and expense recognition;Adjusting entries are made to ensure that: expenses are recognized in the period in which they are incurred. revenues are recorded in the period in which services are performed. balance sheet and income statement accounts have correct balances at the end of an accounting period. all of the above.;Illustration 3-2 Categories of adjusting entries;Trial Balance – Each account is analyzed to determine whether it is complete and up-to-date.;;Deferrals are expenses or revenues that are recognized at a date later than the point when cash was originally exchanged. There are two types: Prepaid expenses Unearned revenues;Payment of cash, that is recorded as an asset to show the service or benefit the company will receive in the future.;Expire either with the