ADM 1340 Lecture Notes - Lecture 4: Trial Balance, Retained Earnings, Financial Statement

• School: University of Ottawa
• Department: Administration
• Course: ADM 1340
• Professor: Lamia Chourou

Document Summary

Accrual recognizes what is going to be received and has accounts receivable. Cash basis only realizes cash once it is actually received. Events are recognized in the period that cash is paid or received. Revenue is recorded only when cash is received. Expenses are recorded only when cash is paid. Transactions are recorded in the periods in which the events occur. Revenue is recorded when earned, rather than when cash is received. Expenses are recorded when goods or services are consumed or used, rather than when cash is paid. Cash basis accounting can lead to misleading information for decision- making: Revenue and expenses can be manipulated by timing the receipt and payment of cash. Accrual basis of accounting is central to all accounting standards. Revenue is recorded when earned expenses are recorded when goods or services are consumed or used. Need some standards that define when we should recognize revenues and expenses.