MEASURING BUSINESS INCOME(With Adjusting & closing Entries)
ADJUSTING ENTRIES: End-of-periodentries that assign the financial effects of implicit transactions to the appropriatetime periods.
eatures of Adjusting Entries
1.Every adjusting entry affects both abalance sheet account (i.e. asset or liability) and an Income Statement (i.e.revenue or expense).2.Adjusting entries never affect the cashaccount since adjustments are neededwhen transactions affect the revenue or expenses of more than one accountingperiod.
Transactions result in Deferrals
Deferrals:It is a delay of the recognition of expenditure or revenue already received ±Concerned with past cash receipts andpayments.Expl: Prepaid Expenses & unearnedrevenue.