A must:

- Deferrals (In advance (‫( )مقدمة‬e.g. Prepaid Rent/insurance/Utilities,

Unearned revenues) involve recognizing revenue or expenses after the
cash transaction has occurred.

- Accruals (earned or incurred* ‫() مستحقة‬e.g. Accounts Payable, Accounts

Receivable) involve recognizing revenue or expenses before the cash
transaction occurs.

So it is all about the time of cash received/paid!

In other words:
- Paid or received cash in advance  deferrals
- Provided (earned)/received (incurred) serviced or goods but you have
not paid or received cash  accruals

*Earned revenues (specifically for accrued revenues), Incurred expenses

(specifically for accrued expenses)

Slide 6:

- Years only have either 365 (common year) or 366 days (leap year).
- The Gregorian calendar, which averages 365.25 days per year (the Earth
takes approximately 365.24 days to complete one orbit around the Sun)
- The concept of a 52/53-week fiscal year is a practice used by some
companies to align their accounting periods more closely with the weeks
of the calendar year.
- So, if companies keep using 52 weeks, they will be gradually move away
from the calendar year.
- The 52/53-week fiscal year system is a compromise that allows
companies to maintain weekly reporting consistency while still aligning
their reporting cycle closely with the solar calendar and regulatory
requirements. Adding an extra week every five to six years is a practical
solution to adjust for the accumulation of extra days, ensuring that the
fiscal year does not drift significantly from the calendar year.

But why do companies make sure they do not move away from calendar year
so they can still use 52 weeks only?
 1. Regulatory Compliance and Taxation: Companies must adhere to local,
state, and federal tax regulations, which often align with the calendar
year. Staying close to the calendar year simplifies tax reporting and
compliance.
2. Comparability: Financial statements are frequently compared on a year-
over-year basis, not only internally but also by investors, analysts, and
competitors. Aligning fiscal years closely with the calendar year ensures
that these comparisons are meaningful and consistent, as they account
for seasonal variations and economic cycles that affect business
performance.
3. Economic and Seasonal Cycles: Many businesses experience seasonal
trends that align with the calendar year. By keeping their fiscal year
close to the calendar year, companies ensure that their financial
reporting reflects these patterns accurately, aiding in planning,
forecasting, and performance assessment.
4. Stakeholder Communication: Investors, creditors, and other
stakeholders often rely on fiscal reports to make informed decisions. A
fiscal year that aligns closely with the calendar year facilitates clearer
communication and understanding of a company's financial position and
performance.

Example: Retailers: Many retail companies use the 52/53-week fiscal year to
better align their financial reporting with their operational cycle, which is often
tracked on a weekly basis. This method helps them compare sales and
performance metrics more consistently across years.

Slide 9:
In accrual accounting, the key point is whether the company has done what it
is supposed to do to earn the revenue, not when the cash is received.

The critical factor is that the revenue is recognized when the company has
done what it set out to do to earn that revenue, according to the terms of the
contract with the customer. This could be completing a service or delivering
goods, regardless of the actual timing of cash payments.

"incur" an expense means to have received or consumed goods or services

The matching principle is a fundamental accounting concept which states that
you should record the expenses that helped to generate that revenue in the
same period.

Slide 18:
Periodicity assumption: Allows for the regular and systematic reporting of
financial performance and position, facilitating analysis and decision-making.

Slide 23:
The slides discuss supplies in the context of adjusting entries, which are a key
part of the accounting cycle, not only for prepaid expenses but also for other
types of accounts that require updates/adjustments at the end of an
accounting period. Supplies is somewhat similar to pre-paid expenses in that
when supplies are purchased, they are recorded as assets because they will be
used over time. The adjusting entry for supplies is needed to ensure that the
expense is recognized in the period in which the supplies are actually
consumed, aligning with the matching principle. This principle dictates that
expenses should be recorded in the same period as the revenues they help to
generate, regardless of when cash is paid.

Slide 29:
Depreciation is the process of allocating the cost of a tangible asset over its
useful life rather than charging the entire cost to expense in the year of
purchase (to match part of the cost of the asset to the revenue it helps to
generate each year). This is in line with the matching principle, ensuring that
expenses are recognized in the same period as the associated revenues.

Allocation concept: that depreciation is the method used in accounting to

allocate the cost of a tangible asset over its useful life for the purpose of
matching expenses with the revenue they generate. It does not reflect or
attempt to assess the current market value of the asset (valuation concept).

Capitalization: When a tangible asset is purchased, its cost is capitalized,

meaning it is recorded on the balance sheet as an asset, not an expense. This
reflects that the asset will provide economic benefits to the company over
multiple periods.