ACCT 2220 Lecture Notes - Lecture 4: Deferral, Accrual, Trial Balance

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Companies need immediate feedback on how well they are doing. Accounting divides the economic life of a business into artificial time periods: One year periods are known as fiscal years. Many transactions affect more than one time period. Sales or performance effort is substantially complete. In a merchandising company, revenue is recognized when merchandise is sold (point of sale). In a service company, revenue is recognized when the service is performed. Due to ordinary activity, a decrease in future economic benefits occurs (a decrease in an asset or an increase in a liability) Expenses are tied to changes in assets and liabilities. Expenses are often (but not always) coincides with revenue recognition this is known as matching. Transactions affecting a company"s financial statements are recorded in the period the events occur, rather than when cash is received or paid. Revenue is recorded when earned, rather than when cash is received.

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