tailieunhanh - Lecture Introduction to financial accounting - Chapter 4: Accrual accounting concepts

Chapter 4 - Accrual accounting concepts. The main contents of the chapter consist of the following: Accounting method, cash basis method, accrual method, Adjusting Journal Entries, permanent accounts, the closing process,. | Accrual Accounting Concepts 1 Reports made every month, quarter, or year. GAAP allows end of year to be: - December 31 (calendar year-end company) or - Other month end (fiscal year-end company) Accountants divide the economic life of a business into reporting periods (PeriodicityAssumption). 4 Determines which time period revenues and expenses are recorded. Example: Suppose that Chuck’s Painting Co. paints a large building in 2014. It bills the customer $80,000, but does not receive payment until 2015. What year would you record the revenue? Suppose that in 2014 Chuck pays $50,000 cash for paint and supplies. Half of these were used on the job above. When and how much would you record as expense? Two general methods exist: - Cash Basis - Accrual Basis Accounting Method . . . . . 2 Defined: CASH BASIS Method 3 Record revenue when cash is received. Record expense when cash is paid out. Not GAAP -> We won’t use in class. Possible manipulation. (Receipt or payment of cash can be controlled.) Allowed for Income Taxes (sometimes). Defined: ACCRUAL Method 4 Record revenues when earned. (When goods are sold or services performed) Called Revenue Recognition Principle Record expenses when incurred. (When they were used up to produce revenue) Called Matching Principle. GAAP -> We will concentrate on in class. Requires adjustments and additional accounts. Chuck’s Painting Co. 5 2014 2015 Revenue $80,000 Expense -25,000 Net Income $55,000 Revenue $ 0 Expense -50,000 Net (loss) $(50,000) Revenue $ 0 Expense - 0 Net Income $ 0 Revenue $ 80,000 Expense - 0 Net (loss) $ 80,000 Are used to handle inter-period timing issues Split up a revenue or expense (when needed) and record part of it in one accounting period and the rest of it in a later period. In the previous example 1/2 of the paint and supplies. Getting revenues and expenses in the correct accounting periods is referred to as achieving a proper “Cut-Off” of the accounting period. Adjusting Journal Entries (AJE) | Accrual Accounting Concepts 1 Reports made every month, quarter, or year. GAAP allows end of year to be: - December 31 (calendar year-end company) or - Other month end (fiscal year-end company) Accountants divide the economic life of a business into reporting periods (PeriodicityAssumption). 4 Determines which time period revenues and expenses are recorded. Example: Suppose that Chuck’s Painting Co. paints a large building in 2014. It bills the customer $80,000, but does not receive payment until 2015. What year would you record the revenue? Suppose that in 2014 Chuck pays $50,000 cash for paint and supplies. Half of these were used on the job above. When and how much would you record as expense? Two general methods exist: - Cash Basis - Accrual Basis Accounting Method . . . . . 2 Defined: CASH BASIS Method 3 Record revenue when cash is received. Record expense when cash is paid out. Not GAAP -> We won’t use in class. Possible manipulation. (Receipt or payment of cash .