ACC 100 Study Guide - Midterm Guide: Historical Cost, Accrual, Trial Balance

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Understand this and you will never go wrong . Canadian accounting standards follows the accrual basis of accounting. Basically, you need to understand and know how to apply two principles: Matching principle expenses have to be recorded in the period in which they helped earned revenue. Revenue recognition principle revenue can only be recognized when it is: earned, 2) measurable, 3) collectable. This leads to adjusting entries relating to accruals and deferrals. The recognition of revenue or expense is postponed even though the actual transaction has taken place. Deferral examples: prepaid insurance or rent, supplies, depreciation / amortization, unearned revenue. Recognition of expenses or revenue that have occurred without the actual transactions taking place. Accrual examples: salaries yet to be paid, past-due expenses, unbilled revenue. Other principles you may want to be familiar with. Historical cost principle most assets and liabilities are recorded at their historical cost, in most cases this is the purchase price.

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