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Lo Lecture Notes Chapter 3 Version 4 J14 IFRS-ASPE.doc

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BUSI 353
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Lo Chapter 3 Lecture NotesAccrual AccountingBUSI 3531 Securities laws and regulations public companies dictate the requirement for P reporting quarterly yearlyUsers investors and creditors D it 2ACCRUAL ACCOUNTING21Accrual accounting is necessary because if we relied only on abasis Cthen the timingmatching of events would not be in harmonyExampleIf we sell goods on credit the cash may be received 30 days after the sale transactionHowever the cost of goods sold would have already been paid for so a cash basis accounting would be misleading to the users22Definition of accrual accountingA method of accounting that records economic events when they H rather than only when cash exchanges occur We owe the money though we dont have to pay until laterWe own the asset though wehave not paid for it yetDR ComputerCRAccrued LiabilitiesPrepared byDouglas YeePage 1Lo Chapter 3 Lecture NotesAccrual AccountingBUSI 35323Deferrals fall under the category of accrual accountingDeferralthe delayed recognition of a cost as anor a receipt aseven though cash flow has been realizedThe reason for a deferral is because the item has not yet contributed to the earnings processWe paid the annual insurance premium in advanceDRPrepaid InsuranceCRCashWe received the money but we have not yet earned the revenueDRCashCRUnearned RevenuePrepared byDouglas YeePage 2
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