ACG 2021Chapter 3Summary

Two methods of Accounting

•Cash•Accrual

▫Time-Period Concept Revenue Recognition Principle Matching Concept

Two types of Accrual Accounting•Accruals

▫Transactions recorded before Cash exchanged

•Deferrals▫Transactions recorded before

Revenue/Expense is Earned/Incurred

Deferrals• Initial Transaction

▫We Receive Cash in Advance Cash xxxx

Unearned Service Revenue xxxx▫We pay Cash in Advance

Ppd Asset xxxx Cash xxxxx

• Subsequent(Adjusting) Transaction▫Provide Service or Goods (Earn Revenue)

Unearned Revenue xxxx Service Revenue xxxxx

▫Use up Prepaid Asset Expense xxxxx

Ppd Asset xxxxx

Balance Sheet Accounts

Balance Sheet and IncomeStatement

Revenue Recognition

Matching Concept

Revenue Recognition

Matching Concept

Accruals• Initial Transaction

▫ Incurred an Expense before paying for it Expense xxxxx

Payable xxxxx▫We earn Revenue before receiving cash

Receivable xxxxx Revenue xxxxx

• Subsequent(Adjusting) Transaction• Pay for Expense previously incurred

▫Payable xxxx Cash xxxx

▫Receive Cash Owed to us Cash xxxxx

Receivable xxxxx

B/S & I/S

B/S only

Closing The Accounts

•Permanent Accounts▫B/S

•Temporary Accounts▫Income Statement

Revenues closed to Retained Earnings Revenue xxxx

▫Retained Earnings xxxx Expenses closed to Retained Earnings

▫Retained Earnings xxxx▫Expenses xxxx

Ratios

•Current▫Current Assets / Current Liabilities

•Debt▫Total Liabilities / Total Assets