100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
Previously searched by you
Previously searched by you
logo
Summary Chapter 3, 4 and 5 Accounting Principles $3.22
Add to cart
Quickly navigate to
Preview
  2.  
  3. Erasmus Universiteit Rotterdam (EUR)
  4.  
  5. Accounting

Summary

Summary Chapter 3, 4 and 5 Accounting Principles
 3 purchases
  • Course
  • Accounting
  • Institution
  • Erasmus Universiteit Rotterdam (EUR)

Comprehensive summary of sections 3,4 and 5 of the book Accounting Principles (12th edition). This material is among other things necessary for the midterm exam and the examination of accounting of study Economics and Business Economics at the Erasmus University. The summary contains pictures from ...

[Show more]

Preview 1 out of 14  pages

Document information

  • September 17, 2016
  • 14
  • 2016/2017
  • Summary

Subjects

  • accounting
  • samenvatting
  • accounting erasmus universiteit
  • accounting principles samenvatting

Written for

  • Erasmus Universiteit Rotterdam (EUR)
  • Economie en Bedrijfseconomie
  • Accounting
All documents for this subject (23)

Seller

avatar-seller
SophieEUR

Reviews received

Content preview

Chapter 3: Adjusting the Accounts
1) Explain the accrual basis of accounting and the reasons for adjusting entries.
The Internal Revenue Service (belastingdienst VS) requires all businesses to file annual tax
returns. Therefore, accounts divide the economic life of a business into artificial time
periods. This assumption is referred to as the time period assumption.

Interim periods = montly and quarterly accounting time periods
fiscal year = an accounting time period that is one year in length (mostly a calender year
which starts at January 1 and ends on December 31).

Under accrual-basis accounting, companies record transactions that change a company’s
financial statements in the periods in which the events occur. FE: using the accrual basis to
determine net income means companies recognize revenues when they perform services
(rather than when they receive cash). It also means recognizing expenses when incurred
(rather than when paid).
Under cash-basis accounting, companies record revenue when they receive cash. They
record an expense when they pay out cash. It often produces misleading financial
statements. Accural-basis accounting is therefore in accordance with GAAP.

Revenue recognition principle: when a company agrees to perform a service or sell a
product to a customer, it has a performance obligation. When the company meets this
performance obligation, it recognizes revenue. The revenue recognition principle therefore
requires that companies recognize revenue in the accounting period in which the
performance obligation is satisfied. (Dus: opbrengsten boeken bij de periode waarin ze
worden geleverd i.p.v. wanneer ze worden betaald).
Expense recognition principle: let the expenses follow the revenues. The critical issue in
expense recognition is when the expense makes its contribution to revenue. This may or
may not be the same period in which the expense is paid. If Dave’s does not pay the salary
incurred on June 30 until July, it would report salaries payable on its June 30 balance sheet.
Expense recognition principle is the same as ‘matching principle’.

Adjusting entries ensure hat the revenue recognition and expense recognition principles are
followed. Adjusting entries are necessary because the trial balance may not contain up-to-
date and complete date. This is true for several reasons:
- Some events are not recorded daily because it is not efficient to do so (salaries).
- Some costs are not recorded during the accounting period because these costs expire
with the passage of time rather than as a result of recurring daily transactions.
Examples are charges related to the use of buildings and equipment, rent, insurance.
- Some items may be unrecorded. Example: a utility service bill that will not be
received until the next accounting period.
Note: every adjusting entry will include one income statement acount and once balance
sheet account.

Adjusting entries are classified as either deferrals or accurals. Each has two subcategories.
Deferrals:
1) Prepaid expenses: expenses paid in cash before they are used or consumed (debited)
2) Unearned revenues: cash received before services are performed.

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

Quick and easy check-out

You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.

Focus on what matters

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller SophieEUR. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for $3.22. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

69411 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy study notes for 15 years now

Start selling
$3.22  3x  sold
  • (0)
Add to cart
Added