BMGT 220 Lecture Notes - Lecture 4: Deferral, Accrual, Financial Statement
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Therefore, as shown in illustration 3-4, an adjusting entry for prepaid expenses results in an increase (a debit) to an expense account and a decrease (a credit) to an asset account. Accounting time periods are generally a month, a quarter, or a year. Monthly and quarterly time periods are called interim periods. An accounting time period that is one year in length is a fiscal year. A fiscal year usually begins with the first day of a month and ends twelve months later on the last day of a month. Most businesses use the calendar year (january 1 to december 31) as their accounting period. What you will learn in this chapter is accrual-basis accounting. Under the accrual basis, companies record transactions that change a company"s financial statements in the periods in which the events occur. Under cash-basis accounting, companies record revenue when they receive cash. They record an expense when they pay out cash.