ECON 20 Lecture Notes - Lecture 2: Accrual, Matching Principle, Trial Balance

• School: Irvine Valley College
• Department: Economics
• Course: ECON 20
• Professor: Mcneil

Document Summary

We do not worry about the cash. Revenues are recognized when cash is received. Expenses matched with revenues in the period when efforts are expended to generate revenues. We try to match expenses with revenues in the same. Every adjusting entries is to update a balance sheet and update the income statement. Adjusting entries are made to ensure that expenses are recognized in the period in which they are incurred. Revenues are recorded in the period in which they are earned. Leads to income statement, retained earnings statement, and balance sheet. Determine the cost of goods sold for the periodic. Determine the cost of goods sold for the period. Method that company picks will affect the cost of goods sold and the balance on balance sheet. Fifo in a period of inflation will have the highest net income. In a period of inflation lifo has lowest income. Companies can not switch between fifo and lifo.