ACCOUNTG 221 Lecture Notes - Lecture 3: Retained Earnings, Net Income, Financial Statement
19 Sep 2016
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Balance sheet example: company name, balance sheet, as of [date] 12/31/16, assets, cash: 51,000, land: 500,000, total assets: 551,000. Liabilities: note payable: 400,000, owner"s equity, common stock: 120,000, retained earnings: 31,000. L + oe = 551,000 (equals total assets) Revenue is earned / expenses are incurred: matching: pick up revenue and expenses in the same time they happen. Cash basis accounting can distort the measurement of net income because it sometimes fails to properly match revenues with expenses. The problem is that cash is not always received or paid in the period when the revenue is earned or when the expense is incurred. The object of accrual accounting is to improve matching of revenues with expenses. Record transactions adjust accounts prepare statements . Virtually all of the major companies operating in the us use accrual accounting. It means you earn revenue before cash comes in and/or you incur an expense or buy an asset before cash goes out.
