Working With Financial Statements : Accounting Principles

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Working with Financial Statements Accounting principles are like the Ten Commandments to a CPA. The principles are recommendation or instructions on what an account should follow when logging and informing on all accounting transactions. Businesses rely on their account every month to maintain the financials records of the company. At the end of each month, it is important for every transaction to be documented and posted as a financial entry in the monthly trail balance. An account needs to ensure all journaling is correct; an account must know the importance of how to record prepaid expenses, unearned revenues, accrued expenses, and accrued revenues. Revenue Recognition Principle The Revenue Recognition Principle relates to the…show more content…
R& D is necessary to detail the scope of the project, electricity is an expected expense during the time of the project and then you have the salaries of the staff that will be paid. Expense Revenue relates to the accrual basis of accounting which means that revenues are recognized when earned and expenses when consumed. Prepaid expenses A prepaid expense, also known as a prepayment, is and expense that is paid in cash before services are performed or merchandise is received. The company with the prepaid expense will pay for a service, and it will be recorded as a debit to prepaid expenses (such as insurance, supplies, etc.) and a credit to cash. The following is an example of a prepaid expense and how to record it: Sanders Auto has an insurance policy with Love’s Insurance Company. To make the bookkeeping easier, Sanders Auto pays their insurance six months at a time at $250 a month. Sander Auto has written a check to Love’s Insurance Company for $1500. Sanders Auto will record the transaction in the following way: Account Title Debit Credit Prepaid Insurance $1500 Cash $1500 Each month, Sanders will use a portion of this prepaid expense. This use will have to be recorded, and will be done as follows: Account Title Debit Credit Insurance Expense $250 Prepaid Insurance $250 Unearned revenues Unearned (or deferred) revenues are an important part of accounting and are
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