Accrual basis accounting and cash basis accounting

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Reference no: EM133415812

The existence of financial statements is one of the primary reasons accountants do what they do. Before financial statements can be prepared, certain adjustments to account balances must be made. Knowing why adjustments are made allows you to consider what adjustments must be made.

It is the end of the quarter for your business, and you and your business partner would like to prepare financial statements. Before creating the statements, you need to make some adjustments for some transactions that have started but are not yet finished.

Each adjusting entry affects a balance sheet account and an income statement account. For example, Adjusting Entries for Prepaid Assets or Fixed Assets involve decreasing the asset account and increasing the expense account. Adjusting entries are made in order properly follow GAAP.

What are some examples of transactions that mayhave started during the period but have not finished by the end of the period?In other words, describe an adjusting journal entry that is needed at the endof an accounting period.
As the manager of a business, why is it important to make sure that adjusting entries are made? What would be the effect on the financial statements if adjusting entries were not made? How do they contribute to accurate financial reporting?
Accrual accounting is required under U.S. GAAP. One of the main principles of accrual accounting is the Matching Principle, also known as the Revenue Recognition Principle and the Expense Recognition Principle. Consult a reliable resource online and in your own words, explain the difference between accrual basis accounting and cash basis accounting. How do adjusting entries contribute to accurate financial statements under U.S. GAAP related to the Matching Principle?

Reference no: EM133415812

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