1.Businesses typically use the accrual basis of measurement of revenues and expenses.
2.If a firm fails to record an accrued revenue, its net income and assets will be understated.
3.In accounting, the term recognition means “recorded in the accounting system.”
4.Revenues and expenses are recognized when resources are created and consumed by an organization.
5.If a fiscal period ends during the middle of a pay period, the amount earned by employees, but not yet paid to them by the company during the fiscal period should be recognized as an expense.
6.Prepaid insurance is considered a liability.
7.Accrued revenues and expenses occur when revenues and expenses are recognized before cash is received or paid.
8.The cost of plant equipment is normally charged to an expense in the year of purchase.
9.Accrued liabilities are costs directly associated with prepayment of expenses.
10.A ledger is a chronological record of an organization’s financial transactions.
11.Adjusting the books is the last step in the accounting cycle.
12.Adjusting entries are necessary to ensure the correct account balances are reported for a particular fiscal period.
13.Assets and liabilities accounts are considered permanent accounts.
14.The operating cycle is a repeating process used in accounting systems to record, summarize and report accounting information.