BUS 201 Chapter Notes - Chapter 3: Accrual, Deferral, Income Statement

• School: USF
• Department: Business Administration
• Course: BUS 201
• Professor: Kathryn Troxel

Document Summary

Accrual accounting records impact of business transactions as it occurs (even if the business receives or pays no cash) Cash-basis accounting records only cash transactions: cash receipts = treated as revenues, cash payments = handled as expenses. Balance-sheet defect: cba does(cid:374)"t (cid:396)e(cid:272)o(cid:396)d a(cid:272)(cid:272)ou(cid:374)ts (cid:396)e(cid:272)ei(cid:448)a(cid:271)le (cid:894)asset(cid:895), so assets (cid:449)ould be understated. Income statement defect: (cba) ignoring sales understates revenue and net income. Cba does not follow gaap therefore statements omit important info. Only really small businesses use cba, all others use aa. Aa records the following cash transactions: collecting cash from customers, receiving cash from interest earned, paying salaries, rent and other expenses, borrowing money, paying off loans. Time period concept: ensure that accounting information is reported at regular intervals. Instead of liquidating businesses at the end of the year to see how the business did, accounting keeps track of the liquidated value: financial statements can also be made at shorter periods of time.