1. Adjustments are based on three generally accepted accounting principles: Timeliness principle. Revenue recognition principle. Matching principle. GAAP and the Adjusting Process LO 2 1 © 2013 McGraw-Hill Ryerson Limited.

2. Timeliness Principle Assumes that the organization’s activities can be divided into specific time periods such as: Months Quarters Years Requires that financial statements be presented at least annually. Accounting Principles LO 2 2 © 2013 McGraw-Hill Ryerson Limited.

3. Revenue Recognition Principle Revenue is recognized (reported) in the time period when it is earned regardless when the cash is received. Matching Principle Expenses are to be matched in the same accounting period as the revenues they helped to earn. Accounting Principles 3 LO 2 © 2013 McGraw-Hill Ryerson Limited.