Define: Generally Accepted Accounting Principles and Accrual Basis
A system of accounting based on the accrual principal, under which revenue is recognized when earned, and expenses are recognized when incurred.
Totals of revenues and expenses are shown in the financial statements (prepared at the end of an accounting period), whether or not cash was received or paid out in that period. Accruals basis accounting conforms to the provisions of GAAP in preparing financial statements for external users, and is employed by most companies except the very small ones (which use cash basis accounting). (200 words)
Why are adjusting entries necessary? Surely they cause too much delay in preparing financial statements, and the financial effect of any entries made is immaterial in the long run.’ Respond to this criticism.
Adjusting entries are journal entries usually made at the end of an accounting period to allocate income and expenditure to the period in which they actually occurred or Adjusting entries are accounting journal entries that convert a company 's accounting records to the accrual basis of accounting. An adjusting journal entry is typically made just prior to issuing a company 's financial statements.
Based on the matching principle of accrual accounting, revenues and
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