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Chapter 3: Adjusting Accounts for Financial Statements
All the important highlighted words.
Terms in this set (6)
Accrual Basis Accounting
Records revenues when services and products are delivered and records expenses when incurred ( Matched with revenues)
Cash Basis Accounting
Records revenues when cash is received and records expenses when cash is paid. Cash basis income is cash receipts minus cash payments.
Revenue Recognition Principle
requires that revenue be recorded when goods or services are provided to customers and at an amount expected to be received from customers.
Expense Recognition Principle
"matching principle requires that expenses be recorded in the same accounting period as the revenues that are recognized as a result of those expenses.
Three step process for adjusting entries.
Step 1: Determine what the current account balance equals.
Step 2: Determine what the current account balance should equal.
Step 3: Record an adjusting entry to get from step 1 to step 2.
An entry made at the end of the accounting period. Affects one or more income statement and one or more balance sheet accounts but NEVER the cash account.
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