Accrued
expenses:
expense
Lever salaries
Ch.3 Acct. 201 Notes
Accountants divide the economic life of a business into
also
artificial time periods (Time Period Assumption
Periodicity assumption
a month quarter, or year
Interim periods: Monthly quartarely time periods
large wartery Eannual financial
companies: prepare
Fiscal year: one year in length (accounting time period
calendar year: Jan 1 -Dec 31
cash-Basis accounting isn't in accordance with GAAP
Revenue recognition principle revenue should be recognized in the
Revenue dexpenses
accounting period in which the service is Perf drone
correcated
*Revenue of expense recognition: accordance with GAAP
The need for adjusting entries:
Ensure that revenue & expense recognition are fallowed
Ensure trial balance correctness
Required for financial statements
will include 1 income statement balance sheet
Deferrals: prepaid expenses& unearned revenues
Accruals: Accrued Revenues Accrued expenses
Revenues for services
Expenses incurred but not
Performed but not yet
yet paid in cash or
received in cash or recorded
recorded
Examples of prepaid expenses: Insurance, advertising, rent
cash payment before expense recorded
Adjusting entry: increase (debit) to expense account &decrease (credit) to asset acct.
Asset prepaid
unadjusted credit expenses Debit
Expense
balance
adjusting
entry
Adjustry
(-)
Entry
H
Depreciation: the process of allocating the cost of an asset to expense over its
useful life
this process doesn't attempt to report the actual change in the
value
of
the asset Accumulated Depreciation: contra credit asset account
contra accounts have increases, decreases,
W
normal balances upp to account they relate
BOOK value: difference between the cost of any depreciable asset sits accumulated deprecial
