ACC 210 Lecture Notes - Lecture 3: Deferral, Revenue Recognition, Accrual

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Revenue recognition- recognize revenue when it is earned, when the seller has satisfied a performance obligation and has been paid. Expense recognition- expenses are reported in the same period as the revenues they help to generate. Cash before recognition: prepayments (prepaid expense or unearned revenues) Cash after recognition: accruals (accrued expenses or accrued revenues) To account for transactions that have not been recorded by the end of the period ( never. To record revenues in the period earned and to record expenses in the period they are involve cash) incurred to generate those revenues. All adjusting entries involve one income statement account (revenue or expense) and one balance sheet account (asset or liability) After all adjusting entries are journalized and posted to the general ledger accounts the company prepares another trial balance from the ledger accounts ( adjusted trial balance ). balances in the ledger. The adjusted trial balance"s purpose is to prove the equality of debit balances and credit.

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