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ADM 1340 Lecture Notes - Lecture 4: Main Source, Current Asset, Financial Statement

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rubytoad231
29 Jul 2016
School
University of Ottawa
Department
Administration
Course
ADM 1340
Professor
Lamia Chourou

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ADM 1340 Full Course Notes
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ADM 1340 Full Course Notes
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Document Summary

C h a p t e r 6 : a c c r u a l ac c o u n t i n g co n c e p t s. Explain when revenues and expenses are recognized. Prepare closing entries and a post-closing trial balance. Cash basis accounting: events are recognized in the period that cash is paid or received. Revenue is recorded only when cash is received. Expenses are recorded only when cash is paid. Accruals basis accounting: transactions are recorded in the periods in which the events occur. Revenue is recorded when earned, rather than when cash is received. Expenses are recorded when goods or services are consumed or used, rather than when cash is paid. Cash basis accounting can lead to misleading information for decision-making: revenue and expenses can be manipulated by timing the receipt and payment of cash.

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Related Questions

Completely and Precisely Define the Following Terms

The accrual basis of accounting:

The Matching principle:

Name and define one type of adjusting entry where cash is paid(or received) BEFORE Expenses or Revenues are Recognized:

Name and Define one type of adjusting entry where cash is paid(or received) AFTER Expenses or Revenue are Recognized:

Adjusted Trial balance:

Under accrual-basis accounting

A.

events that change a company's financial statements arerecognized in the period they occur rather than in the period inwhich cash is paid or received.
B.

net income is calculated by matching cash outflows against cashinflows.
C.

the ledger accounts must be adjusted to reflect a cash basis ofaccounting before financial statements are prepared under generallyaccepted accounting principles.
D.

cash must be received before revenue is recognized.

1. Undercash-basis accounting, when is revenue recorded? When is itrecorded under accrual-basis accounting?

2. Under accrualaccounting, when is revenue considered earned?

3. If amembership represents an advance payment for services provided,when is it recognized as revenue under the accrual basis, and whatis it called?

4. Why isinsurance expense spread over multiple periods even though thepolicy coverage is paid in advance?

5. At the end ofthe month for Silver’s Gym, what entries need to be made under thecash basis of accounting for wages that have not yet been paid?What entries need to be made under the accrual method?

6. Why is itimportant to match expenses and revenues to reflect the performanceof a business over a particular time period?

7. When mightthe use of cash basis accounting overstate the actual profitsearned by Silver’s gym? When might it understate the actual profitsearned?

8. Which basisof accounting is in accordance with GAAP for large companies?