ACCT 1201 Chapter Notes - Chapter 4: Financial Statement, Retained Earnings, Gift Card

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The financial statements are not distributed to users until management and the external auditors make many critical evaluations. Usually requires estimations, assumptions, and judgments about the timing of revenue and expense recognition and values for assets and liabilities. Most common errors include: failure to provide adequate product warranty liability, failure to include items that should be expensed, and end of period transactions recorded in the wrong period. Managers are responsible to providing high quality (unbiased, information that is relevant, and faithful representation) financial reports to investors. Expenses are recorded when incurred regardless of when cash payments occur. Many companies wait until the end of the period to make adjustments to record related revenues and expenses in the correct period. When the customer redeems the gift card, the company provided the service thus revenue was earned that had not been previously recorded: reduce unearned revenue (-l) and debit the account, and credit restaurant sales revenue (+r, +se)

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