Transcription of CHAPTER 3 PREPARING FINANCIAL STATEMENTS
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CHAPTER 3 PREPARING FINANCIAL STATEMENTS
Revised Summer 2012 Page 1 of 27 CHAPTER 3 PREPARING FINANCIAL STATEMENTS Key Terms and Concepts to Know Accounting Period: Time Period Principle Calendar vs. Fiscal Year Accounting Cycle: Know the steps in order. Use the steps as a reference to insure that journal entries, trial balances and FINANCIAL STATEMENTS are prepared in the proper order. Accrual Basis Accounting: Accrual vs. Cash Basis Accounting Revenue Recognition Principle requires that revenues are reported in the period in which they are earned, regardless of when payment is received. Matching Principle requires that all expenses incurred (whether paid or not) are recorded in the same accounting period as the revenues earned as a result of these expenses.
After closing, only asset, liability and permanent stockholders’ equity accounts should have balances. The following closing entries are based on the previous worksheet. There are four closing entries that are numbered below. 1. Fees Revenue 190,150 Rent Revenue 2,000 Income Summary 192,150 2. Income Summary 201,620
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