1. Accounting Principles
Weygandt
Keiso
Kimmel
7th Edition
Chapter - 1

2. 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

3. 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

4. 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.

5. 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.

6. 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....

7. 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....

8. 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

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

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

11. 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

12. 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

13. 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.