Key Terms
COURSE
Principles of Financial Accounting MODULE: The Adjustment Process (Chapter 4)
Accrual basis accounting
Record revenues when earned and expenses when incurred; regardless of when cash changes hands. Required under both US GA
Cash basis accounting
Record revenues and expenses only when cash is received or paid. Simpler but less accurate for matching performance to t
Modified accrual accounting
Government accounting hybrid of cash and accrual.
Tax basis accounting
Determines tax liability; separate from GAAP reporting.
Accounting period
Time span used to report financial data; monthly, quarterly, half-year, or annual.
Calendar year
January 1 through December 31.
Fiscal year
Any 12-month reporting cycle; can begin in any month.
Interim period
Any reporting period shorter than a full year.
Two main categories
Deferrals and Accruals.
Definition
A list of all general ledger accounts with nonzero balances; including the effect of all adjusting entries. This is step
Common examples
Supplies, prepaid insurance, prepaid rent, depreciation.
Shows
Assets, liabilities, and stockholders' equity at a specific point in time. Represents the accounting equation: Assets =
Sources
All asset, liability, and equity accounts from the adjusted trial balance; plus ending retained earnings from the statem
Formula
Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends