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This chapter’s objectives are to: Explain the accrual basis of accounting and the reasons for adjusting entries, prepare adjusting entries for prepayments, prepare adjusting entries for accruals, prepare an adjusted trial balance and financial statements, prepare closing entries and a post-closing trial balance. | Accrual Accounting Concepts Kimmel ● Weygandt ● Kieso Financial Accounting, Eighth Edition 4 Prepare adjusting entries for deferrals. CHAPTER OUTLINE Explain the accrual basis of accounting and the reasons for adjusting entries. 1 2 LEARNING OBJECTIVES Prepare adjusting entries for accruals. 3 Prepare an adjusted trial balance and closing entries. 4 LEARNING OBJECTIVE Explain the accrual basis of accounting and the reasons for adjusting entries. 1 LO 1 Generally a month, a quarter, or a year. Fiscal year vs. calendar year. Accountants divide the economic life of a business into artificial time periods (Periodicity Assumption). Jan. Feb. Mar. Apr. Dec. . . . . . ▼ HELPFUL HINT An accounting time period that is one year long is called a fiscal year. Periodicity Assumption Review Question What is the periodicity assumption? Companies should recognize revenue in the accounting period in which it is earned. Companies should match expenses with revenues. The economic life of a business can | Accrual Accounting Concepts Kimmel ● Weygandt ● Kieso Financial Accounting, Eighth Edition 4 Prepare adjusting entries for deferrals. CHAPTER OUTLINE Explain the accrual basis of accounting and the reasons for adjusting entries. 1 2 LEARNING OBJECTIVES Prepare adjusting entries for accruals. 3 Prepare an adjusted trial balance and closing entries. 4 LEARNING OBJECTIVE Explain the accrual basis of accounting and the reasons for adjusting entries. 1 LO 1 Generally a month, a quarter, or a year. Fiscal year vs. calendar year. Accountants divide the economic life of a business into artificial time periods (Periodicity Assumption). Jan. Feb. Mar. Apr. Dec. . . . . . ▼ HELPFUL HINT An accounting time period that is one year long is called a fiscal year. Periodicity Assumption Review Question What is the periodicity assumption? Companies should recognize revenue in the accounting period in which it is earned. Companies should match expenses with revenues. The economic life of a business can be divided into artificial time periods. The fiscal year should correspond with the calendar year. LO 1 Companies recognize revenue in the accounting period in which the performance obligation is satisfied. REVENUE RECOGNITION PRINCIPLE LO 1 TEACHING TIP Service businesses recognize revenue when the services are performed, although many customers may have been billed for the services (on account). The cash has not been received; however, the services have been performed. Therefore, revenue should be recognized. Illustration: Assume Conrad Dry Cleaners cleans clothing on June 30, but customers do not claim and pay for their clothes until the first week of July. The journal entries for June and July would be: REVENUE RECOGNITION PRINCIPLE LO 1 “Let the expenses follow the revenues.” ILLUSTRATION 4-1 EXPENSE RECOGNITION PRINCIPLE LO 1 ILLUSTRATION 4-1 GAAP relationships in revenue and expense recognition EXPENSE RECOGNITION PRINCIPLE LO 1 INVESTOR INSIGHT Reporting Revenue Accurately The
