ACTG 2010 Chapter Notes - Chapter 3: Accrual, Deferred Income, Deferral
Document Summary
Accrual accounting may provide more relevant and detailed information for stakeholders than cash accounting. However, accrual accounting requires judgement to decide what gets realized as revenue and what is not. In accrual accounting, someone decides when revenue is realized. Every economic element is analyzed in terms of their impact to any elements on the accounting equation: ! The accounting equation must be kept in balance with every entry into the accounting! Double entry bookkeeping - when there is a transaction/economic activity, it is recorded in at least two accounts. Journal entries - the record of a transaction into the accounting system ! Debits (dr) vs credits (cr) - represents an increase or decrease in the balance of accounts. An increase or decrease is dependent on the account! In a journal entry, debits must equal to credits! To record the purchase of inventory on credit. To record the sale of common shares to investors.