ACCT 202 Chapter Notes - Chapter 3: Financial Statement, Current Liability, Profit Margin

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C1: explain the importance if periodic reporting and the time period assumption. Time period assumption: presumes that an org"s activities can be divided into specific time periods. Accounting/reporting periods: length of time covered by financial statements. Interim financial statements: one, three, or six months of expenses. C2: explain accrual accounting and how it improves financial statements. Accrual basis accounting: accounting system that recognizes revenues when earned and expenses when incurred; basis for gaap. Cash basis accounting: recognizes revenue when cash is received and records expenses when cash is paid. Expense recognition (matching) principle: aims to record expenses in the same accounting period as the revenues that are earned as a result of those expenses. Determine what the current account balance should equal. Record an adjusting entry to get from step 1 to step 2. Adjusting entry: made at the end of an accounting period to reflect a transaction or event that is not yet recorded.

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