Accounting Principles Adjusting The Accounts参考.pptx

;;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;One of the following statements about the accrual basis of accounting is false? That statement is: Events that change a company’s financial statements are recorded in the periods in which the events occur. Revenue is recognized in the period in which the performance obligation is satisfied. The accrual basis of accounting is in accord with generally accepted accounting principles. Revenue is recorded only when cash is received, and expenses are recorded only when cash is paid.;;Adjusting Entries Ensure that the revenue recognition and expense recognition principles are followed. Necessary because the trial balance may not contain up-to-date and complete data. Required every time a company prepares financial statements. Will include one income statem