Understanding the Accounting Cycle and Adjusting Entries

School: Kennesaw State University - Course: HIST 2206 - Subject: Accounting

Chapter 3. The Accounting Cycle: End of the Period The Accounting Cycle Transactions Elements Process When Account Record general journal During the year (unadjusted) Impact Post general ledger End of the year (adjusted) Amount Prepare trial balance After closing (post-closing) Financial Statement LO3-1 Understand when asset, liabilities, revenues, and expenses are recorded. LO3-2 Distinguish between accrual-basis and cash-basis accounting. Cash-basis: Record revenues when cash is received from customers Record expenses when cash is paid for cost of running the company Not part of generally accepted accounting principles (GAAP) ____________-basis: Record revenues when goods and services are provided to customers Record expenses in the period the cost is used to benefit the company Part of GAAP Revenue Cash-basis Accrual-basis Transaction Description Revenue recorded Revenue recorded (6) Dec. 12Provide soccer training to customers for cash, $43,000. (7) Dec. 17Provide soccer training to customers on account, $20,000. (8) Dec. 23Receive cash in advance for soccer training sessions to be given in the future, $6,000. Expense Cash-basis Accrual-basis Transaction Description Expense recorded Expense recorded (4) Dec. 1Pay one year of rent in advance, $60,000 ($5,000 per month). (5) Dec. 6Purchase supplies on account, $23,000. (9) Dec. 28Pay salaries to employees, $28,000.
Check your understanding: Year 1 Year2 Year3 When is the revenue recorded? Year 1, 2, or 3 When should the costs be expensed (appear in the income statement)? Year 1, 2, or 3

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