BUSI 1004 Chapter Notes - Chapter 3: Deferral, Retained Earnings, Accrual
Document Summary
Income and expense accounts are closed out to zero and the resulting debit or credit is either added or subtracted to an account called retained earnings. If revenues are greater than expenses, there is net income. It is improper not to recognize revenue for something we have not done but made the money for: we credit the cash received to a liability called unearned revenue, the revenue has not technically been earned yet. It is still a liability: expenses must match revenue generated, there are going to be expenses that have been paid but not yet incurred.
