BU227 Chapter Notes - Chapter 4: Retained Earnings, Income Statement, Deferred Income

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Published on 12 Oct 2012
School
WLU
Department
Business
Course
BU227
BU227 Chapter 4 Adjustments, Financial Statements, and the Quality of Earnings Week 4
Adjusting Revenues and Expenses
Accounting Cycle
-Accounting cycle the process used by entities to analyze and record transactions adjust the records at
the end of the period, prepare financial statements, and prepare records for the next cycle
-During the accounting period, transactions that result in exchanges between the company and other
external parties are analyzed and recorded in the general journal in chronological order and the related
accounts are updated in the general ledger (T-accounts)
-End-of-period steps focus on adjustments to record revenues and expenses in the proper period and to
update the statement of financial position accounts or reporting purposes
Purpose and Types of Adjustments
-Revenues are recorded when earned (revenue principle)
-Expenses are recorded when they are incurred to generate revenue during the same period
(matching process)
-Assets are reported at amounts that represent the probable future benefits remaining at the
end of the period
-Liabilities are reported at amounts that represent the probable future sacrifices of assets or
services owed at the end of the period
-Companies wait until the end of the accounting period to adjust their accounts because adjusting the
records daily would be very costly and time-consuming
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Document Summary

Accounting cycle the process used by entities to analyze and record transactions adjust the records at the end of the period, prepare financial statements, and prepare records for the next cycle. During the accounting period, transactions that result in exchanges between the company and other external parties are analyzed and recorded in the general journal in chronological order and the related accounts are updated in the general ledger (t-accounts) End-of-period steps focus on adjustments to record revenues and expenses in the proper period and to update the statement of financial position accounts or reporting purposes. Expenses are recorded when they are incurred to generate revenue during the same period (matching process) Assets are reported at amounts that represent the probable future benefits remaining at the end of the period. Liabilities are reported at amounts that represent the probable future sacrifices of assets or services owed at the end of the period.

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