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2: Accounting Cycle for the Service Business - Accrual Basis
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2.1: Accrual Basis of Accounting
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The accrual basis of accounting recognizes economic events when they take place, regardless of when the related cash transactions occur. Revenue is reported in the period in which you earn it, regardless of whether you received the cash for these services yet. Similarly, expenses are reported in the period in which you incur them to produce revenues, whether or not you have paid for these costs yet.
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2.2: Matching Principle
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The matching principle relates to income statement accounts. It states that expenses incurred during a period should relate to (or match up with) the revenues earned during the same period. This lets you know how much it cost you to produce the revenue you generated in a given period of time, such as a month.
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2.3: Adjusting Entries
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2.4: Adjusting Entries—Deferrals
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2.5: Adjusting Entries—Accruals
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