BUSI 1001 Lecture Notes - Lecture 3: Deferral, Accrual, Office Supplies
8 Feb 2019
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Document Summary
One of the most important chapters in the whole book. Chapter 3 will be on transactions that impact the income statement. The balance sheet (statement of financial position) accounts are permanent accounts. Their balances carry over from one fiscal year to the next. They get reset to 0 at the beginning of each fiscal year. Cash basis of accounting: revenues and expenses are recorded only when cash is received or paid. Accrual basis of accounting - revenues are recognized and recorded when they are earned (regardless of when the cash is received) and expenses are recognized when they are incurred (regardless of when the cash is paid) I. e. if you borrowed money from someone and pay them back in 30 days: On the cash basis of accounting: its recorded when you pay them back in 30 days. On the accrual basis of accounting: its recorded right away. Prepayments occur when cash is paid or received before the event.
