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Accounting 2140 Chapter 3 Notes

by: Ashley Pirl

Accounting 2140 Chapter 3 Notes ACCOU 2140

Marketplace > College of DuPage > Accounting > ACCOU 2140 > Accounting 2140 Chapter 3 Notes
Ashley Pirl
College of DuPage
GPA 4.0

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About this Document

Goes over the idea of time periods with emphasis on adjustments
Financial Accounting
Dan M. Vitale Jr.
Class Notes
Accounting, financial accounting, Lecture Notes, notes
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This 5 page Class Notes was uploaded by Ashley Pirl on Tuesday September 13, 2016. The Class Notes belongs to ACCOU 2140 at College of DuPage taught by Dan M. Vitale Jr. in Fall 2016. Since its upload, it has received 4 views. For similar materials see Financial Accounting in Accounting at College of DuPage.


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Date Created: 09/13/16
Chapter 3 Time Period Assumption  Definition: o How a company divides up it's economic life o A year o Interim Periods:  A month  A quarter  3 month sets o Quarterly and annual are most common  Fiscal year: o Accounting period that is one year in length o Retail splits it up differently normally  Feb 1 to Jan 31  Calendar year: o January 1 to December 31 2 Types of Methods to Accounting  Accrual-Basic Accounting: o Recorded in the periods in which the events occur o Recognize revenues when they perform the service not when they receive the cash o Revenue Recognition Principle:  Recognizing revenue in the accounting period when the performance obligation is satisfied  When it's earned o Expense Recognition Principle:  Matches expenses with revenues in the period when the company makes efforts to generate those revenue  When it's spent  Cash Basis Accounting: o Revenues is recorded when cash is received o Expenses are recorded when cash is pain o Is not in accordance with GAAP Adjusting Entries  Definition: o Ensures that Revenue and expense recognition principles are followed o Trial balance doesn’t always contain up-to-date and complete data o Required every time a company prepares financial statements  Every entry needs one income statement account and one balance sheet account o Balance sheet account is never cash 2 Different kinds of adjustments:  Deferrals: o Definition: o Expenses or revenues that are recognized at a date later than when the cash was originally exchanged o 2 types: o Prepaid expense:  Cash payment before expense is recorded  Ex.  Insurance  Supplies  Advertising  Expires either through time or through use  Increase (debit) to expense and Decrease (credit) to asset accounts  Depreciation:  The process of allocating the cost of an asset to expense over its useful life  Buildings, equipment, and motor vehicles (things that last for a long time) are recorded as assets on the date acquired  Doesn't attempt to report the actual change in the value of the asset  Contra Asset Account = Accumulated Depreciation (credit)  Price of object/# of years it lasts = how much it depreciates a year  Appears just after equipment on balance sheet  Book value is the difference between original cost and the depreciation o Unearned Revenues:  Receipt of cash that is recorded as a liability, the service hasn’t been preformed yet.  Rent, Airline tickets, Magazine subscriptions, customer deposits are paid for before the service is completed  Accruals: o 2 types: o Accrued Revenue:  Definition:  Revenues for services performed but not yet received in cash or recorded  Ex. Rent, Interest, Services Performed, etc.  Records the receivable revenue for services performed  Increases debits and credits (asset account and revenue account) o Accrued Expenses:  Definition:  Expenses incurred but not yet paid or recorded at the statement date  Ex. Interest, Taxes, Salaries, etc.  Records the obligation and recognizes the expense  Increase debits and credits (expense account and liability account)  Value of Note x Annual Interest Rate x Time in Terms of One Year = Interest  End amount given back is: initial amount needed + (interest x amount of time borrowed) Financial Statements:  Composed of income statement, retained earnings statement, and balance sheeet


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