Subtitles: "Round Impact of Transactions when they Occur" "Required by GAAP" "Accrual Accounting" "Cash-Basis Accounting" Content: The notes discuss the differences between accrual accounting and cash-basis accounting. They explain that accrual accounting records transactions when they occur, regardless of whether cash is exchanged, while cash-basis accounting only records transactions involving cash. Accrual Accounting: Records sales on account and purchases of inventory on account. Records expenses incurred but not yet paid (e.g., wages, prepaid rent). Cash-Basis Accounting: Records only cash transactions (e.g., collecting cash from customers, paying salaries). Results in incomplete financial statements. Often used by small businesses. Title: (Not explicitly visible in the provided image) Subtitles: "Revenue Recognition Principle" "The Expense Recognition Principle" "Prepaid Expenses" Content: The notes discuss the principles of revenue recognition and expense recognition in accounting. Revenue Recognition Principle: Revenue is recognized when a business has delivered goods or performed services for a customer. Transactions are recorded as soon as the service is performed. Example: Cash received for a service not yet performed is recorded as unearned revenue (a liability) and service revenue. Expense Recognition Principle: Expenses are recorded when they are incurred during the period. Example: An expense is recognized when it is seen. Prepaid Expenses: Prepaid expenses are expenses paid in advance. They are assets because they provide a future benefit for the owner. Once the asset is "used," it is no longer a prepaid asset and must be reduced and expensed based on the amount used. Subtitles: "Adjusting Entries" "Hailey Corp." Content: The notes discuss adjusting entries related to prepaid insurance and insurance expense. Adjusting Entry for Prepaid Insurance: The adjusting entry is made at the end of each month to record the portion of prepaid insurance that has been used up. The journal entry includes a debit to Insurance Expense and a credit to Prepaid Insurance. Hailey Corp. Example: Hailey Corp. pays $12,000 for one year of insurance on January 1st. To record the monthly insurance expense, the company would debit Insurance Expense and credit Prepaid Insurance for $1,000 each month. The remaining balance in the Prepaid Insurance account at the end of March would be $9,000.

ACCT Chapter 3

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