Accounting Principles Weygandt Keiso Kimmel 7th Edition Chapter - 1

Accounting time periods are generally a month, a quarter, or a year. The time period (or periodicity) assumption assumes that the economic life of a business can be divided into artificial time periods. Accounting time periods are generally a month, a quarter, or a year. The accounting time period of one year in length is referred to as a fiscal year. Time period assumption

The revenue recognition and matching principles are used under the accrual basis of accounting. Under cash basis accounting, revenue is recorded when cash is received, and expenses are recorded when cash is paid. Generally accepted accounting principles require accrual basis accounting because the cash basis often causes misleading financial statements. Accrual basis and Cash basis

Accrual basis and Cash basis The revenue recognition and matching principles are used under the accrual basis of accounting. Under cash basis accounting, revenue is recorded when cash is received, and expenses are recorded when cash is paid. Generally accepted accounting principles require accrual basis accounting because the cash basis often causes misleading financial statements.

The revenue recognition principle dictates that revenue be recognized in the accounting period in which it is earned. Revenue recognision In a service business, revenue is considered to be earned at the time the service is performed.

Matching principle The practice of expense recognition is referred to as the matching principle. The matching principle dictates that efforts (expenses) be matched with accomplishments (revenues). Revenues earned this month expenses incurred in earning the revenue are offset against....

Matching principle The practice of expense recognition is referred to as the matching principle. The matching principle dictates that efforts (expenses) be matched with accomplishments (revenues). Revenues earned this month expenses incurred in earning the revenue are offset against....

Generally accepted accounting principles Relationship between revenue recognition and matching principle Time-Period Assumption Economic life of business can be divided into artificial time periods Generally accepted accounting principles Revenue-Recognition Principle Matching Principle Expenses matched with revenues in the same period when efforts are expended to generate revenues Revenue recognized in the accounting period in which it is earned Adjusting entries are required for these two principles

Adjusting entries are required each time financial statements are prepared. Need Types Adjusting entries

Adjusting entries are required each time financial statements are prepared. Need Types

Adjusting entries are made in order for: 1. Revenues to be recorded in the period in which they are earned, and for...... 2. Expenses to be recognized in the period in which they are incurred. Need Types

Adjusting entries are made in order for: 1. Revenues to be recorded in the period in which they are earned, and for...... 2. Expenses to be recognized in the period in which they are incurred. Adjusting entries can be classified as 1. prepayments (prepaid expenses or unearned revenues) 2. accruals (accrued revenues or accrued expenses) Need Types

Liabilities overstated Revenue understated Liabilities Dr. Type of Adjustment Account Relationship Accounts before Adjustment Adjusting Entry Prepaid Assets and Expense Assets overstated Expense understated Expenses Dr. Assets Cr. Unearned Liabilities and Revenue Liabilities overstated Revenue understated Liabilities Dr. Revenues Cr. Summary Accrued Revenue Assets and Revenue Assets understated Revenue understated Assets Dr. Revenues Cr. Accrued Expense Liabilities and Expense Expense understated Liabilities understated Expense Dr. Liabilities Cr.