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Chapter 4

ACCT 2000 Chapter 4 Class Notes

10 Pages

Course Code
ACCT 2000

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Accounting 2000Chapter 4 Notes1Explain the revenue recognition principle and the expense recognition principle2Differentiate between the cash basis and the accrual basis of accounting3Identify the major types of adjusting entries4Prepare adjusting entries for deferrals5Prepare adjusting entries for accruals6Describe the nature and purpose of the adjusted trial balance7Explain the purpose of closing entries8Describe the required steps in the accounting cycleTiming IssuesThe periodicity assumption requires accountants to divide the economic life of a business into artificial time periodsCompanies recognize revenue in the accounting period in which it is earned This is called the Revenue Recognition PrincipleExpenses are matched with revenues in the period when efforts are expended to generate revenues This is called the Expense Recognition PrincipleAccrual versus Cash Basis of AccountingAccrualBasis AccountingTransactions recorded in the periods in which the events occurRevenues are recognized when earned even if cash was not received Expenses are recognized when incurred even if cash was not paidCashBasis AccountingRevenues are recognized only when cash is receivedExpenses are recognized only when cash is paid Prohibited under generally accepted accounting principlesPage 1 of 10
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