COMMERCE 1BA3 Lecture Notes - Fixed Asset, Debits And Credits, Common Stock
26 Feb 2014
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Document Summary
The next step in the accounting cycle after the trial balance is the adjusting entries. These entries are prepared at the end of the accounting period to bring all accounts balances up to date on an accrual accounting basis so that financial statements can be prepared. You learned in the last chapter that accounting records are prepared under the accrual basis, which requires the adherence to the revenue recognition principle and the matching principle. Adjusting entries are necessary to achieve appropriate matching of revenues and expenses in determining net income for a period and to obtain a faithfully representative balance sheet at the end of the period. Effectively, the adjusting entries assign revenues to the period in which they are earned, expenses to the period in which they are incurred, and update the asset and liability accounts. There is no need for adjusting entries under the cash basis.
