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University of Guelph - Humber
Andrea Chance

CHAPTER 4 ACCRUAL ACCOUNTING CONCEPTSTiming IssuesPeriodicity assumptioneconomic lifetime of a business can be divided into artificial time periodsFinancial statements can be prepared and reported on a periodic basisRevenue is recognized recorded in a journal entryoSales or performance effort is substantially completeoThe amount of revenue is determinable measurableoCollection of the revenue is reasonably assuredRevenue must be earned before it is recorded revenue is earned at the time the service is performed which may not be when cash is receivedAccrual basis accountingrecorded in the periods in which the events occur rather than in the periods in which the company actually receives or pays cashCash basis accountingrevenue is recorded only when cash is received and an expense is only recorded when cash is paid misleading bc revenues will not be recognized when there is a decrease in economic benefitAdjusting EntriesAdjusting entries fix entries not recorded daily expired costs incorrect balances and entries not recordedPrepaymentsinclude prepaid expenses expenses paid for in cash but not yet used or consumed and therefore recorded as assets and unearned revenues cash acquired for revenues not yet earned and therefore recorded as liabilitiesAccrualsaccrued revenues revenues earned but not yet received in cash or recorded and accrued expenses expenses incurred but not yet paid for in cash or recordedAdjustments usually affect an IS account and a statement of financial position accountWill never affect cashPrepaymentsPrepaid expenses are costs that are paid for in cash before they are used or consumedUsually recorded as assets and expire either with the passage of time or useSupplies100Supplies Expense100
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