Accrual and cash basis Q The accrual basis of accounting matches revenues earned with expenses incurred. C The cash basis matches revenues received with expenses paid. It is not satisfactory for most businesses because it results in financial statements that are not comparable from period to period, except when the amounts of prepaid, unearned, and accrued items are not material.S Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity
6 Accrual and cash basis ⧫The accrual basis of accounting matches revenues earned with expenses incurred. ⧫The cash basis matches revenues received with expenses paid. It is not satisfactory for most businesses because it results in financial statements that are not comparable from period to period, except when the amounts of prepaid, unearned, and accrued items are not material
Adjust: A Step in Accounting cycle 1. Analyze Transactions Now that we have covered the trial 2. Journalize balance, lets discuss adjusting 3. Post entries 4. Unadjusted trial balance 5, Adjust Adjusting 6. Adjusted trial balance entries 7. Prepare finance statements 8. Close Task Team of FUNDAMEntALaCCOUNtING Business Sehool. Sun )af sen University 7
7 Adjust: A Step in Accounting cycle 1. Analyze Transactions 2. Journalize 3. Post 4. Unadjusted trial balance 5. Adjust 6. Adjusted trial balance 7. Prepare finance statements 8.Close Now that we have covered the trial balance, let’s discuss adjusting entries
Why Need to Adjust Q Some events are not evidenced by the obvious documents the effects of these events are recorded at the end of the accounting period by means of adjusting entries. o The purpose of adjusting the accounts at the end of period is to make the accounting information comparable from period to period. Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity
8 Why Need to Adjust ⧫ Some events are not evidenced by the obvious documents. the effects of these events are recorded at the end of the accounting period by means of adjusting entries. ⧫ The purpose of adjusting the accounts at the end of period is to make the accounting information comparable from period to period
Why Need to Adjust Adjustments are based on three generally accepted accounting principles: a Time period principle. n Revenue recognition principle. a Matching principle. Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity
9 Why Need to Adjust ⧫ Adjustments are based on three generally accepted accounting principles: Time period principle. Revenue recognition principle. Matching principle