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UW-Milwaukee ART 100 - Mesoamerica and Southwestern America

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Bus Adm. 201 Notes Lecture 6Outline of Last Lecture I. Debits and CreditsII. VocabularyOutline of Current Lecture II. reporting Revenue AccuratelyIII. Cashing in on Accrual AccountingCurrent LectureAccountants divide the economic life of a business into reporting periods (periodically Assumption)- Reports made every month, quarter or year- GAAP allows end of year to be: -December 31 (calendar year-end company) or-Other month and (fiscal year-end company)Accounting Method…- Determines which time period revenues and expenses are recordedExample: suppose that chucks painting co. paints a large building in 2013. It bills the customer $80000, but does not receive payment until 2014.What year would you record the revenue?Suppose that in 2013 chuck pays $50000 cash for paint and supplies. Half of these were used on the job above.- Two general methods exist:-cash basis-Accrual BasisCash Basics method- Defined: 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)Accrual MethodThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- Defined: Recorded Revenues when earned (when goods are sold or services performed) called revenue recognition principle. Recorded expenses when incurred. (when they were used up to produce revenue) called matching principle.- GAAP – we will concentrate on in class- Requires adjustments and adjustments and additional accounts.Accrual Accounting ConceptsTiming Issues:- Revenue Recognition Principle- Expense Recognition Principle- Accrual verses cash basis accountingThe basics of adjusting entries:- Types of adjusting entries- Adjusting entries for deferrals- Adjusting entries for accruals- Summary of basic relationshipsThe adjusted Trial Balance and Financial Statements- Preparing the adjusted trial balance - Preparing financial statements - Quality of earningsClosing the Books- Preparing closing entries- Preparing a post-closing trial balance- Summary of the accounting


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