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Types Of Periodic Adjustments
Types of Periodic Adjustments
•Expense or Revenue beforeCash
•Expense incurred today, but cash paid tomorrow.
Salary earned by employees but not paid at the end of accounting period.
Employees earn salary when they perform their duties, not when they receive payment.
Unpaid salary is a Salary Payable liability
•Revenue earnedtoday, but cash received tomorrow
Interest earned today, but cash received tomorrow.
Interest is a reward for lending money, so it is earned with passage of time
Interest receivable asset
•Cash beforeaccruing Revenue or Expense (Cost Expirations or Revenue Expirations)
•Cash paid yesterday, Expense incurredtoday.
1998 rent paid in advance in 1997
Rent paid in advance asset
•Cash received yesterday, revenue earned today
Cash advance from customer for services not yet performed
Cash advance is Unearned Revenue liability
•Matchingis the guiding principle in periodic adjustments.
•Objective: To match the revenue earned in a period (whether received in that period in cash or not) with all the expenses incurred to earn that revenue (whether paid in that period in cash or not).
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