Revenues are an increase in SEEpenses are a decrease in SEWhen expenses exceed revenues, net loss occurs Fiscal year a 12-month accounting period Interim periods accounting periods of less than a year The matching ruleMatching rule to measure the net income adequately, revenues and expenses must be assigned to the accounting period in which they occur regardless of when the cash is received or paidRevenues and expenses are recorded in the periods in which they occur rather than in the periods in which they are received or paid. The revenue and expense are recognized now even though they will be paid laterRecord revenues when earnedRecord expense when incurred Adjust accountsSo step one and two when contract is signedStep 3 when payment takes place This is important because of responsible spending? Adjusting entries when transactions span more than one accounting periodFour situation s in which they must be madeNever affects cash account because with cash everything is set immediatelyAlways includes one balance sheet account and one income statement accountAllocating recorded costsYou have an asset because you prepaidit for 2 monthsPrepaid rent, asset increases = debitCash decreases = creditWhen the month of renting expires the value of prepaid rent decreases by one month so half of the money decreases: per period Rent expense on debit is money per periodAdjusting entry involves asset account and expense account Recognizing unrecorded expensesDon’t pay every month but at one point you will have to pay everythingOn the date of payment wages payable is full moneyUntil there, per period you put in a part of the total amountAdjusting entry involves expense account and liability account Allocating recorded, unearned revenues between periodsPaid in advancefor whole year but company has not delivered service yetSo is unearned revenuesBegin of period you receive all cash: cash up on debit, unearned...