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FSU - ACG 2021 - Fin. Acct. Notes - Week 5 - Class Notes

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FSU - ACG 2021 - Fin. Acct. Notes - Week 5 - Class Notes

School: Florida State University
Department: Accounting
Course: Financial Accounting
Professor: Ronald Pierno
Term: Summer 2015
Tags: financial accounting
Name: Fin. Acct. Notes - Week 5
Description: These notes go over Chapter 4.
Uploaded: 02/12/2018
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background image ACG2021 – Chapter 4: Accrual Accounting Concepts 1. Explain the revenue recognition principle and the  expense recognition principle. Timing Issues a. Accountants divide the economic life of a business into artificial time  periods (Periodicity Assumption). a. Generally a month, a quarter, or a year.
b. Fiscal year vs. calendar year
c. Helpful Hint: An accounting time period that is one year long is 
called a fiscal year. The Revenue Recognition Principle a. Companies recognize revenue in the accounting period in  which the performance obligation is satisfied. The Expense Recognition Principle a. Match expenses with revenues in the period when the  company makes efforts to generate those revenues. b. “Let the expenses follow the revenues” 2. Differentiate between the cash basis and the accrual  basis of accounting. Timing Issues Accrual versus Cash Basis of Accounting Cash-Basis Accounting a.  Revenues are recognized only when cash is  received. b. Expenses are recognized only when cash is paid.
c.  Prohibited under generally accepted accounting 
principles (GAAP). Accrual-Basis Accounting a. Transactions recorded in the periods in which the  events occur. 
background image b. Revenues are recognized when services performed,  even if cash was not received.  c. Expenses are recognized when incurred, even if cash  was not paid. 3. Explain why adjusting entries are needed, and  identify the major types of adjusting entries. The Basics of Adjusting Entries Adjusting Entries a. ensure that the revenue recognition and expense  recognition principles are followed. b. are required every time a company prepares financial  statements. c. includes one income statement account and one  balance sheet account. d. never include cash. Types of Adjusting Entries Deferrals:  1. Prepaid Expenses: Expenses paid in cash and recorded as  assets before they are used or consumed. 2. Unearned Revenues: Cash received before service are  performed. Referrals: 1. Accrued Revenues: Revenues for services performed but  not yet received in cash or recorded. 2. Accrued Expenses: Expenses incurred but not yet paid in  cash or recorded. a. Trial Balance – Each account is analyzed to determine whether it is  complete and up to date. 4. Prepare adjusting entries for deferrals. Adjusting Entries for Deferrals a. Deferrals are either: a. Prepaid expenses
b. Unearned revenues
Adjusting Entries for “Prepaid Expenses” b. Payment of cash, that is recorded as an asset because  service or benefit will be received in the future. c. Cash payment BEFORE expense recorded
d. Prepayments often occur in regard to:
a. Insurance
b. Supplies 

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School: Florida State University
Department: Accounting
Course: Financial Accounting
Professor: Ronald Pierno
Term: Summer 2015
Tags: financial accounting
Name: Fin. Acct. Notes - Week 5
Description: These notes go over Chapter 4.
Uploaded: 02/12/2018
6 Pages 32 Views 25 Unlocks
  • Better Grades Guarantee
  • 24/7 Homework help
  • Notes, Study Guides, Flashcards + More!
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