2. After studying this chapter, you should be able to: The Adjusting Process 3-2 1 Describe the nature of the adjusting process. 2 Journalize entries for accounts requiring adjustment. 3 Summarize the adjustment process. 4 Prepare an adjusted trial balance.
4. Under the cash basis of accounting , revenues and expenses are reported in the income statement in the period in which cash is received or paid. 1
5. Under the accrual basis of accounting , revenues are reported in the income statement in the period in which they are earned. Accrual account is required by GAAP . 1
6. The accounting concept supporting the reporting of revenues when they are earned regardless of when cash is received is called the revenue recognition concept . 1 Revenue Recognition Concept
7. The accounting concept supporting reporting revenues and related expenses in the same period is called the matching concept , or matching principle . 1 Matching Principle
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9. The analysis and updating of accounts at the end of the period before the financial statements are prepared is called the adjusting process . 1 The Adjusting Process
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11. Prepaid expenses are the advance payment of future expenses and are recorded as assets when cash is paid. 1 Types of Accounts Requiring Adjustment
12. Unearned revenues are the advance receipt of future revenues and are recorded as liabilities when cash is received. Types of Accounts Requiring Adjustment 1
13. Accrued revenues are unrecorded revenues that have been earned and for which cash has yet to be received. 1 Types of Accounts Requiring Adjustment
14. Accrued expenses are unrecorded expenses that have been incurred and for which cash has not been paid. 1 Types of Accounts Requiring Adjustment
