The Accrual basis of accounting and the reasons for adjusting entries.

CHAPTER
3
Adjusting the Accounts
Overview
In Chapter 1, you learned a neat little formula: Net income 5 Revenues 2
Expenses. In Chapter 2, you learned some rules for recording revenue and expense transactions. Guess
what? Things are not really that nice and neat. In fact, it is often diffi cult for companies to determine
in what time period they should report some revenues and expenses. In other words, in measuring net
income, timing is everything.

Learning Objectives 1st
Explain the accrual basis of accounting
and the reasons for adjusting entries
Topic involved
Fiscal and Calendar Years
Accrual- versus Cash-Basis Accounting
Recognizing Revenues and Expenses
The Need for Adjusting Entries
Types of Adjusting Entries