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1、AdjustingAccountsandPreparingFinancialStatementsChapter3TheAccountingPeriodC1AccountingAccrualBasisversusCashBasisAccrualBasisRevenuesarerecognizedwhenearnedandexpensesarerecognizedwhenincurred.CashBasisRevenuesarerecognizedwhencashisreceivedandexpensesa
2、rerecordedwhencashispaid.C2CashBasisRevenuesarerecognizedwhencashisreceivedandexpensesarerecordedwhencashispaid.AccountingAccrualBasisversusCashBasisNon-GAAPC2AccrualBasisRevenuesarerecognizedwhenearnedandexpensesarerecognizedwhenincurred.AccrualBasisver
3、susCashBasisOnDecember1,2013,FastForwardpaid$2,400cashforatwenty-fourmonthbusinessinsurancepolicy.Usingthecashbasis,theentire$2,400wouldberecognizedasinsuranceexpensein2013.Noinsuranceexpensefromthispolicywouldberecognizedin2014or2015,periodscoveredbythe
4、policy.C2AccrualBasisversusCashBasisOntheaccrualbasis,$100ofinsuranceexpenseisrecognizedin2013,$1,200in2014,and$1,100in2015.Theexpenseismatchedwiththeperiodsbenefitedbytheinsurancecoverage.C2Wehavedeliveredtheproducttoourcustomer,soIthinkweshouldrecordth
5、erevenueearned.RecognizingRevenuesandExpensesC2Therevenuerecognitionprinciplestatesthatwerecognizerevenuewhentheproductorserviceisdeliveredtoourcustomer.RecognizingRevenuesandExpensesTheexpenserecognition(ormatching)principleaimstorecordexpensesinthesame
6、accountingperiodastherevenuesthatareearnedasaresultofthoseexpenses.Thismatchingofexpenseswiththerevenuebenefitsisamajorpartoftheadjustingprocess.SummaryofExpensesRentGasolineAdvertisingSalariesUtilitiesand....$1,0005002,0003,000450....Nowthatwehaverecogn
7、izedtherevenue,let’sseewhatexpensesweincurredtogeneratethatrevenue.C2Anadjustingentryisrecordedtobringanassetorliabilityaccountbalancetoitsproperamount.FrameworkforAdjustmentsC3Hereisthecheckformy24-month insurancepolicy.Prepaid(Deferred)ExpensesResource
8、spaidforpriortoreceivingtheactualbenefits.P1PrepaidInsurance(a)On12/1/13,FastForwardpaid$2,400forinsurancefor2-years(24-months,December2013throughNovember2015).FastForwardrecordedtheexpenditureasPrepaidInsuranceon12/1/13.W
