Class Notes (836,321)
Canada (509,732)
Administration (2,738)
ADM1340 (195)
Lecture 4

ADM1340 Lecture 4: Chapter 4 note

9 Pages
Unlock Document

Lamia Chourou

Chapter 4 Accrual Accounting Concepts 权责发生制会计 1. Cash basis accounting: 现金制会计 Events are recognized in the period that cash is paid or received • Revenue is recorded only when cash is received • Expenses are recorded only when cash is paid Cash basis accounting can lead to misleading information for decision-making: - Revenue and expenses can be manipulated 操作 by timing the receipt and payment of cash Accruals basis accounting: Transactions are recorded in the period in which the events occur • Revenue is recorded when earned, rather than when cash is received • Expenses are recorded when goods or services are consumed or used, rather than when cash is paid Accrual basis of accounting is central to all accounting standards: - Revenue is recorded when earned - Expenses are recorded when goods or services are consumed or used - Need some standards that define when we should recognize revenues and expenses 2. Timing Issues Revenue recognition Revenue is recognized (recorded) when there is an increase in future economic benefits arising from an increase in an asset or a decrease in a liability, due to ordinary activities Criteria for recognition: 1) The sales or performance effort is substantially complete 2) The amount is determinable (measurable) 3) Collection is reasonably assured Expense recognition Expense are recognized when: ▪ There is a decrease in future economic benefits due to an ordinary activity: • A decrease in an asset • An increase in a liability ▪ This change can be measured reliabl可靠地 Often coincide wit符合 revenue recognition (matching), but not always ▪ When there is a direct association between the expenses incu招致edand the generation or revenue, expenses are matched to revenues ▪ Otherwise, expenses are recognized in the period the related liability arises 3. Adjusting Entries To allocate revenues and expenses to the period in which they actually are app合适的ab, we need to make some adjusting entrie调整分录 • Some events are not recorded daily • Some costs do not result from recurri循环的 daily transaction • Some items may be unrecorded Record adjusting entries to update accounts at the end of the accounting period Adjusting entries ensure that revenue recognition and expense recognition are properly applied Type of adjusting entries: 1) Prepayments • Prepaid expense (prepayments paid) • Unearned revenue (prepayments received) 2) Accruals • Accrued expenses (incurred but not yet paid in cash or recorded) • Accrued revenues (earned but not yet received in cash or recorded) Adjusting Entries 1) Prepaid expenses Are paid for in cash before they are used Expire with the passage of time (insurance, depreciation) or through use (supplies) Original entry Dr. Asset account Cr. Cash Adjusting entry Dr. Expense account Cr. Asset account Until the adjusting is made: - Assets are overstated夸大 - Expenses are understated 被少报的 Depreciation Depreciation is the process of allocating the ac
More Less

Related notes for ADM1340

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.