MGT 11A Chapter Notes - Chapter 3: Trial Balance, Accrued Interest, Retained Earnings
Document Summary
Assu(cid:373)es that a (cid:271)usi(cid:374)ess"s a(cid:272)tivities (cid:271)e divided i(cid:374)to ti(cid:373)e pe(cid:396)iods, like (cid:373)o(cid:374)ths, quarters, intervals, yrs etc. Annual financial statements = reports covering 1-yr period. Interim financial statements = reports covering 1/3/6 months of activity. Uses an adjusting process to recognize revenues when earned & expenses when incurred, are matched with revenues. Recognizes revenues when cash is received, records expenses when cash is paid. Aims to record expenses in same accounting period as revenues earned as result of expenses. Determine what the current account balance should equal. Record an adjusting entry to get from step 1 -> 2. Are necessary for transactions/events extending over more than 1 period. Group the adjustments by timing of cash receipt/cash payment in relation to recognition of related revenues/expenses. Are made at end of accounting period to reflect transaction/event that is not yet recorded. Each entry affects 1 or more income statement and one or more balance sheet accounts (but never cash account)
