Adjusting the accounts, preparing the statements, and completing the accounting cycle

explain its meaning.
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3.1 Time Period Principle and
the Need for Adjustments
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The life of a business is divided into different periods, called accounting periods, for the purpose of the measurement of income and reporting on financial position. Financial statements are prepared at the end of each period. As a result, the time period principle has important implications in the practice of accounting.
The revenue recognition principle The matching principle

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Period 1
Period 2
Period 3
Order Taken
Services Performed
Cash Collected
Which period the revenue Should be recognized, or be record on the accounts?
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Recognizing Revenues and Expenses
Revenue Recognition Principle
We have delivered the product to our customer, so now we should record the revenue earned.
Prepaid Expenses
depreciation
Unearned Revenues
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The revenue recognition principle

requires that revenue be assigned to the accounting period in which it is earned. This may or may not be in the same period in which cash is collected. requires that expenses be matched. All expenses incurred in earning revenues must be deducted from the revenues in determining net income to the period the revenue was earned.
We’ve recognized the revenue, now let’s see what expenses we incurred to generate that revenue.
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The accrual basis of accounting recognizes the effect of transactions and events in the period in which the transaction and events occur, regardless of whether there has been a receipt or payment of cash or its equivalent.
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Adjusting Accounts
An adjusting entry is recorded to bring an asset or liability account balance to its proper amount.
Framework for Adjustments
Adjustments
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Adjustments are required to match:
Associated revenues with their related costs Revenues and expenses to their appropriate time periods.

The adjustment process is based on two principles:
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Need for Adjustments at the End of Period
Adjustments are necessary to record internal economic events. These internal transactions are typically not evidenced by source documents. Note that adjustments are not corrections of errors. The purpose of making adjustments is to ensure that the information on the accounting statements is comparable from period to period.
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3.2 Adjusting the Accounts
Five types of adjustments are presented in the text. Each adjustment affects prepaid expenses both the balance sheet and depreciation income statement. unearned revenues accrued expenses accrued revenues
Lesson 3
Adjusting the accounts, preparing the statements, and completing the accounting cycle
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Learning objectives
Explain the need for financial statements and account adjustment at the end of regular accounting periods, and the purpose of the accrual basis of accounting. Prepare adjusting entries for prepaid expenses, amortization, unearned revenues, accrued expenses, and accrued revenues. Prepare an adjusted trial balance, and use it to prepare financial statements.
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Prepare entries to record cash receipts and cash disbursements related to accrued assets and liabilities. Prepare adjusting entries when prepaid and unearned items are recorded in income statement accounts. Prepare financial statements for a service business from the information in worksheet. Prepare closing entries and a post-closing trial balance for a service business.
The accrual basis is generally accepted for external reporting because it produces more useful information. For example 3.1 & 3.2 on the page 5 of lesson 3.
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Review the steps in the accounting cycle. Prepare reversing entries and explain their use. Prepare a classified balance sheet. Calculate the current ratio and
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Time Period Principle
According to the time period principle (sometimes called the time period assumption or periodicity assumption). The life of a business is divisible into time periods of equal length. Financial reports are prepared at the end of each fiscal period (one year). Interim financial reports are prepared monthly or quarterly.
The matching principle

According the two principle above, how to answer the question just now?
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Accrual and Cash Basis of Accounting
When the adjusting process assigns revenues to the periods in which they are earned and matches expenses with the revenues, the company is using accrual basis accounting. The accrual basis of accounting matches revenues earned with expenses incurred. Cash basis matches revenues received with expenses paid.
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Need for Adjustments at the End of Period
Due to the balances of some accounts appearing on the unadjusted trial balance are not up-to-date and therefore do not provide a fair presentation of the accounts for the financial statements. Adjustments at the end of each period are necessary to update some of the asset, liability, expense, and revenue accounts and to show the effects of previously unrecorded internal economic events of the business.
Transport firm
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Recognizing Revenues and Expenses
Matching Principle
Summary of Expenses
Rent Gasoline Advertising Salaries Utilities and . . . . $1,000 500 2,000 3,000 450 ....