This chapter explains the timing of reports and the need to adjust accounts. Adjusting accounts is important for recognizing revenues and expenses in the proper period. We describe the adjusted trial balance and how it is used to prepare financial statements.

Conceptual

Explain the importance of periodic reporting and the time period principle.

Explain accrual accounting and how it improves financial statements.

Identify the types of adjustments and their purpose.

Analytical

Explain how accounting adjustments link to financial statements.

Compute profit margin and describe its use in analyzing company performance.

Procedural

Prepare and explain adjusting entries.

Explain and prepare an adjusted trial balance.

Prepare financial statements from an adjusted trial balance.

Appendix 3A-Explain the alternatives in accounting for prepaids.