Acct 2101 1st Edition Exam 2 Study Guide Lectures 11 18 Lecture 11 12 13 February 11 13 16 Accrual Accounting Recognizing a transaction when it occurs weather or not cash is received before cash exchange Accrual Describes a revenue or an expense event that is recognized before cash is exchanged Recognition formally reporting an economic item or event in the financial statement Realization refers to collecting money generally from the sale of products and services Deferral describes revenue or an expense event that is recognized after cash has been exchanged the most convenient time to record expenses is when it is paid ex Salary Asset source transaction the issue of stock for cash Accounts receivable the specific asset that increases amount of cash the company expects to collect in the future Asset exchange transaction the collection of an account receivable Asset use transaction cash payment for salary expanse Lecture 14 16 February 16 20 Accrued expense expenses that are recognized before cash Adjusting event the entry to recognize the accrued salary expense Salaries payable the adjusting entry decreases stockholders equity and increases a liability account In class example2 1 Show how receivables affect financial statements In class example 2 8 Shows the relationship between financial statements Trace amount of net income to the statement of changes in the Stock holders Equity Trace ending balance of common stock and retained earnings Confirm that cash is reported The revenue and expense items appear in the Retained Earnings column Close out to zero out Accounts closed temporary accounts not on balance sheet FYI advertising is not an asset its not expense Lecture 17 18 Febuary 23 25 if not revenue expense or dividend on the balance sheet then it is permanent account Deferred expenses are called prepaid items Liability is unearned revenue Cash receipt is an asset source transaction Providing service on an account is an asset source transaction Recognizing expenses are claims exchange transactions Land is asset exchange transaction Cash payment is asset use transaction Issuing common stock is asset source transaction Period cost are the expenses matched with the period in which they are incurred Matching Concept a primary goal of accrual accounting is to appropriately match expense with revenue Conservation principal guides accountants to select the alternative that produces the lowest amount of net income