ECON 3A Lecture 8: Accrual Accounting Concepts
Document Summary
3 concepts, use expansion to learn and use adjusting entries. Move off balance sheet income statement. Differentiate between the cash basis and the accrual basis of accounting. Closing entries transfer the temporary account balances to the stockholders" equity. Reduce the balances in the temporary accounts to zero. That is what is called closing out , or closing , but we just did it, ignoring the journal entry. Balance sheet doesn"t balance because net income not in retained earnings. We need the income statement to go back to zero, and for the net income to go to retained earnings. (1) zeroed out all the income statement accounts. (2) moved net income to retained earnings. For income statement, show what is happening recently. Divides the economic life of a business into artificial time periods to provide immediate feedback on how the business is doing. Shorter time periods typically for internal use. Fiscal year: an accounting time period that is one year long.
