MGRL-1200 Lecture Notes - Lecture 3: Deferral, Accrual, Matching Principle
9 May 2016
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Document Summary
Time period assumption: the division of the business cycle into time periods (i. e. months, quarters, years) this division can be based on a calendar year or a fiscal year. This can be extended to apply to expenses. Incurred without regard to when cash changes hands. The accrual basis supports the matching principle expenses are to be recorded in the same period for which those expenses generate revenues. In other words, record revenues and the related expenses in the same accounting period. Accrual basis of accounting causes entries to be recorded at the end of each accounting period. Two goals of adjusting entries: update balance sheet accounts assets & liabilities, match revenues and expenses. Two types/classes of adjusting entries: accruals revenue or expense recorded in the current period; cash changes hands in a later period, accrued expenses e. g. salaries, interest exp. , etc. Each accrued expense also creates an adjustment to a liability.
