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Chapter 4.3

chapter 4.3

2 Pages

Financial Accounting
Course Code
Liang Chen

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Chapter 4 Adjusting Entries for Accruals Adjusting entries for accruals are required in order to record revenues earned, or expenses incurred, in the current accounting period. Unlike prepayments, accruals have not been recognized through daily entries and thus are not yet reflected in the accounts. Revenue that have been earned but not yet received in cash or recorded in the books is called accrued revenues. Accrued revenues may accumulate with the passage of time, as in the case of interest revenue. An adjusting entry is required for two purposes: (1) to show the receivable that exists at the balance sheet date and (2) to record the revenue that has been earned during the period. Expenses incurred but not yet paid or recorded at the statement date are called accrued expenses. Adjustments for accrued expenses are necessary to (1) record the obligations that exist at the balance sheet date, and (2) recognize the expenses that apply to the current accounting period. The Adjusted Trial Balance and Financial Statements After all adjusting entries have been journalized and posted; another trial balance is prepared from the general ledger accounts. This trial balance is called an adjusted trial balance. Closing the Books Since revenue, expense, and dividends are a sub
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