Principles of Financial Accounting: The Adjustment Process

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Principles of Financial Accounting

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COURSE Principles of Financial Accounting MODULE: The Adjustment Process (Chapter 4)

Accrual basis accounting Record revenues when earned and expenses when incurred; regardless of when cash changes hands. Required under both US GA

Cash basis accounting Record revenues and expenses only when cash is received or paid. Simpler but less accurate for matching performance to t

Modified accrual accounting Government accounting hybrid of cash and accrual.

Tax basis accounting Determines tax liability; separate from GAAP reporting.

Accounting period Time span used to report financial data; monthly, quarterly, half-year, or annual.

Calendar year January 1 through December 31.

Fiscal year Any 12-month reporting cycle; can begin in any month.

Interim period Any reporting period shorter than a full year.

Two main categories Deferrals and Accruals.

Definition A list of all general ledger accounts with nonzero balances; including the effect of all adjusting entries. This is step

Common examples Supplies, prepaid insurance, prepaid rent, depreciation.

Shows Assets, liabilities, and stockholders' equity at a specific point in time. Represents the accounting equation: Assets =

Sources All asset, liability, and equity accounts from the adjusted trial balance; plus ending retained earnings from the statem

Formula Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends