Week 5- ACCT1101

• Cash Basis


  Revenue and expenses are recognized only when cash is received or paid, respectively. It doesn't consider accounts receivable, accounts payable, or non-cash transactions. It's straightforward but doesn't reflect the actual performance of the business accurately over a period.
• Accrual Basis


  Revenue is recognized when earned, and expenses are recognized when incurred, regardless of when cash is received or paid. It provides a more accurate representation of the financial performance of a business over a period, aligning with the matching principle.
• End-of-period adjusting entries


  Needed to update accounts for accrued revenues, accrued expenses, deferred revenues, deferred expenses, and other items to ensure accurate financial reporting. These adjustments are necessary to match revenues and expenses to the period in which they are incurred.
• Types of Adjusting Entries

  • Accrued Revenues
  • Accrued Expenses
  • Deferred Revenues
  • Deferred Expenses
  • Depreciation
• Accrued Revenues


  Recognize revenues earned but not yet received in cash
• Accrued Expenses


  Recognize expenses incurred but not yet paid in cash
• Deferred Revenues


  Recognize revenues received in advance but not yet earned
• Deferred Expenses


  Recognize expenses paid in advance but not yet incurred
• Depreciation


  Allocate the cost of long-term assets over their useful lives
• Current Assets


  Assets expected to be converted into cash or used up within one year or the operating cycle, whichever is longer. Examples include cash, accounts receivable, and inventory.
• Non-current Assets


  Assets expected to provide economic benefits beyond one year, such as property, plant, equipment, and long-term investments.
• Current Liabilities

  Obligations expected to be settled within one year or the operating cycle, whichever is longer. Examples include accounts payable, short-term loans, and accrued expenses.
• Non-current Liabilities


  Obligations not expected to be settled within one year, such as long-term loans, bonds payable, and deferred tax liabilities.
• Worksheet


  A tool used to organize accounting data and facilitate the preparation of financial statements. It typically consists of columns for trial balances, adjustments, adjusted trial balances, and financial statements.
• Financial Statements

  Provide crucial information about a company's financial performance, position, and cash flows. Decision-makers, including investors, creditors, managers, and regulators, use financial statements to assess the profitability, solvency, and liquidity of a business, make investment decisions, evaluate creditworthiness, and monitor performance.