BA 211 Chapter Notes - Chapter 3: Deferral, Market Liquidity, Accrual

• School: Oregon State University
• Department: Business Administration
• Course: BA 211
• Professor: Amy Bourne

Document Summary

Cash-basis accounting records only cash transactions cash receipts (revenues) and cash payments (expenses) Collecting cash later merely swaps the receivable for cash no revenue is created by this transaction. Cash-basis accounting creates incomplete statements by waiting to record transactions until money changes hands: people make decisions based off of incomplete information. The balance sheet reports no account receivable if we fail to record a sale on account. The revenue principle deals with two issues: when to record (recognize) revenue and what amount of revenue to record. The trial balance completed at the end of the period is unadjusted because the accounts are not yet ready for the financial statements. Which accounts need to be updated (adjusted): accounts such as cash, land, equipment, accounts payable, common stock, and dividends are up-to-date and need no adjustment because the day-to-day transactions provide all the data for these accounts.