Q. Learning objectives of trial balance?
- The cash basis of accounting know revenues when cash is received and recognizes expenses when cash is paid out.
- The accrual basis of accounting know revenues when sales are made or services are performed regardless of when cash is received expenses are recognized as incurred whether or not cash has been paid out.
- The accrual basis is more in general accepted than the cash basis because it provides a better matching of revenues and expenses.
- Adjusting entries convert the amounts that are essentially in the accounts to the amounts that should be in the accounts for proper periodic financial reporting.
- Adjusting entries replicate unrecorded economic activity that has taken place but hasn't yet been recorded.
- Deferred items consist of adjusting entries relating data previously recorded in accounts. Adjusting entries in this class usually involve moving data from asset and liability accounts to expense and revenue accounts. The two kinds of adjustments within this deferred items class are asset/expense adjustments and liability/revenue adjustments.
- Accrued items consist of adjusting entries relating to activity on which no data have been previously recorded in the accounts. These entries engross the initial recording of assets and liabilities and the related revenues and expenses. The two kinds of adjustments within this accrued items class are asset/revenue adjustments and liability/expense adjustments.
- This section illustrates entries for deferred items and accrued items.
- Breakdown to prepare adjusting entries causes net income and the balance sheet to be in error.
- For a particular item such like sales or net income select a base year and express all dollar amounts in other years as a percentage of the base year dollar amount.