Principles of Financial Accounting Chapter 4

More GAAP Revenue Recognition Principle Matching Principle Accrual basis – report revenues when they are earned. Cash basis – report revenues when cash is received. Matching Principle Accrual basis – report expenses when they are incurred to generate revenues Cash basis – report expenses when they are paid.

Accounting Cycle (cont) Adjusting entries Bring the accounts up to date before financial statements are prepared. Always include one (or more) balance sheet accounts and one (or more) income statement accounts. Never involve cash.

Types of Adjusting Entries Prepaid items Prepaid expenses Prepaid revenues Depreciation Contra assets Accrued items Accrued revenues Accrued expenses

Accounting cycle (cont) Adjusted trial balance Financial statements Income statement Statement of Retained Earnings Balance Sheet Statement of Cash Flows Closing Entries Temporary account balances are transferred to Retained Earnings. Post closing trial balance

Assignment BE4-14 page 186 E4-2 page 186 E4-5 page 187 E4-6 page 188 BYP4-1 page 199 BYP4-9 page 202