1. Principles of Financial Accounting
Chapter 4

2. More GAAP Revenue Recognition Principle Matching Principle
Accrual basis – report revenues when they are earned.
Cash basis – report revenues when cash is received.
Matching Principle
Accrual basis – report expenses when they are incurred to generate revenues
Cash basis – report expenses when they are paid.

3. Accounting Cycle (cont)
Adjusting entries
Bring the accounts up to date before financial statements are prepared.
Always include one (or more) balance sheet accounts and one (or more) income statement accounts.
Never involve cash.

4. Types of Adjusting Entries
Prepaid items
Prepaid expenses
Prepaid revenues
Depreciation
Contra assets
Accrued items
Accrued revenues
Accrued expenses

5. Accounting cycle (cont)
Adjusted trial balance
Financial statements
Income statement
Statement of Retained Earnings
Balance Sheet
Statement of Cash Flows
Closing Entries
Temporary account balances are transferred to Retained Earnings.
Post closing trial balance

6. Assignment BE4-14 page 186 E4-2 page 186 E4-5 page 187 E4-6 page 188
BYP4-1 page 199
BYP4-9 page 202