ACCY 206 Chapter Notes - Chapter 4: Deferral, Revenue Recognition, Trial Balance
Document Summary
Periodicity assumption= accounting divides the economic life of a business into artificial time periods. Accrual-basis accounting= transactions are recorded in the periods in which the events occur, even if cash was not exchanged. (when services are performed, expenses are incurred) Cash-basis accounting= revenues are recognized in the accounting period when cash is received and expenses are recognized in the accounting period when paid. Step 5: journalize and post adjusting entries: deferrals/accruals. Step 8: journalize and post the closing entries. Step 6 of the accounting cycle includes adjusting entries. These are needed to ensure that the revenue recognition and expense recognition principles are followed. You need adjusting entries when revenues or expenses have occurred during the period but have not yet been recorded. Look through the examples in the book and the slides. For example, if salaries expense has accrued at the end of the month but not yet paid/recorded, then the adjusting entry would need to be:
