Reference no: EM133369827

Case Study: introduces you to the adjusting process. The beginning of the chapter briefly describes the cash basis of accounting and includes examples of businesses that use it. The focus of the text is on the accrual basis of accounting. The basic idea of the expense recognition principle (matching principle) was presented in Chapter 1, where expenses incurred were matched against revenues. Now in Chapter 3, revenue and expense recognition is introduced formally and as a stand- alone concept. The matching principle is defined and discussed, and the chapter includes full coverage of the accrual basis. Of all the accounting concepts and principles introduced in the early chapters of the text, matching is the most important. The chapter's main emphasis is on the preparation of adjusting entries. Definitions, calculations where pertinent, and examples of the four basic types of deferrals and accruals are included. The chapter then covers the adjustment of fixed assets (depreciation). The chapter ends with an explanation and demonstration of analyzing financial statements using vertical analysis. Interpretation explains the value of examining relationships within financial statements. Let's start our discussion by responding to one of the following questions. (Response must be a minimum of 150 words)

Questions:

1. How are revenues and expenses reported on the income statement under (a) the cash basis of accounting and (b) the accrual basis of accounting?