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Accrual Accounting Concepts Timing Issues Periodicity assumption: accounting divides the economic life of a business into artificial time periods. (Month, quarter, year)

Revenue recognition principle: companies recognize revenue in the accounting period in which the performance obligation is satisfied

Expense recognition principle: the principle that matches expenses with revenues in the period when the company makes efforts to generate those revenues

Accrual versus cash basis of accounting

Accrual-basis accounting: transactions that change a company's financial statements are recorded in the periods in which the events occur, even if cash was not exchanged

Cash-basis accounting: companies record revenue when they receive cash and record an expense when they pay out cash (Not in accordance with GAAP)

The Basics of Adjusting Entries Adjusting entries: ensure that the revenue recognition

Types of adjusting entries

Adjusting entries for deferrals

Adjusting entries for accruals

Summary of basic relationships

The Adjusted Trial Balance and Financial Statements Preparing the adjusted trial balance

Preparing financial statements

Quality of earnings

Closing the Books

Preparing closing entries

Preparing a post-closing trial balance

Summary of the accounting cycle