MUHASEBE I

In cash basis accounting, companies record revenues when they receive the cash and they record expenses when the cash is paid.

The time-period concept assumes that unlimited economic life of a company will be divided into regular intervals and that financial statements will be prepared for specific periods such as a month, quarter, or year.

Matching Principle (Expense recognition principle) means that you will record the expenses at the same time with the revenues related with these expenses are recorded.

In deferral adjustments the cash payment occurs before an expense is incurred. Deferred expenses are advance payments of future expenses. Deferred expenses are also called as prepaid expenses. As mentioned before, deferred expenses are the ones that are firstly paid and reported as an asset but will not be recorded as an expense until a future accounting period. In other words, cash is paid before the expense is recognized.

Rent, interest, insurance, etc. are the examples of prepaid expenses.

Depreciable amount is the cost of an asset, or other amount substituted for cost, less than its residual value.

Residual value as land has an indefinite useful life, it is not subject to depreciation.

800,000 - 80,000=720,000/40= 18,000

300,000-20,000= 280,000 / 40 = 7,000

500,000 - 60,000 = 440,000 / 40 = 11,000 depreciation of each year

As of December 31, 2019 = 4 x11,000 =44,000

Accounting is based on either the cash basis or the accrual basis.

The time-period concept assumes that unlimited economic life of a company will be divided into regular intervals and that financial statements will be prepared for specific periods such as a month, quarter, or year.

Expense is the cost of assets consumed or services used during the revenue earning process.

Revenue recognition principle dictates that revenue is recognized when it is earned not the cash is received.

In deferred revenue, revenue is recognized after the cash is received.

In accrued expense, expense is recognized before the cash is paid.

The process of analysing and updating of accounts at the end of the period before the financial statements are prepared is called the adjusting process.

Depreciable amount is the cost of an asset, or other amount substituted for cost, less than its residual value.

The straight-line method allocates an equal amount of depreciation for each period.

An adjusted trial balance is a list of all the accounts with their adjusted balances. The purpose is to ensure that total debit balances are equal to total credit balances in the ledger after all adjustments.