Which accounts are classified under accrued expenses? accrued revenues? deferred expenses? and deferred revenues? Why is it important to note which accounts fall under each?

Step 1: Describe the Accounting period. How might it be different than a calendar year?

(1) Any time frame checked for financial reporting is an accounting period. Transactions within a given accounting period are part of the statements or reports for that date range. Often, an accounting period, or reporting period, is 12 months. Various business tasks may have different accounting periods. (2) Accounting periods don't have to start in January. Accounting periods don't have to start on the first of the month. (3) An entity aggregates accounting records from the first day of January to the last day of December in a calendar year regarding accounting periods. This annual accounting period imitates a basic 12-month calendar period.

Step 2: Compare accrual and cash basis accounting. Accrual basis of accounting is preferable to cash-based accounting. Income, expenses, assets & liabilities are recorded as & when they are incurred or earned under this. It's more prudent-based.

Incomes and expenses are only recorded under cash-based accounting when they are earned or incurred.

Indicate which uses adjusting entries and why? The accrual basis of accounting uses adjusting entries & not cash-based accounting. Expenses and incomes are recorded as and when they are incurred or earned on an accrual basis. Adjustments may be required for prepaid expenses, outstanding expenses, advances received, and outstanding income. Define the Revenue Recognition Principle and Expense Recognition Principle under the accrual basis of accounting. An accrual basis is the correct basis of accounting. Expenses are recognized as they are incurred, and incomes are recognized as they are earned.

Step 3: Identify at least two different adjusting entries. Why do they need to be done?

Entries that require adjustments are, 1) Prepaid Expenses 2) Outstanding Expenses/Expenses payable 3) Advances received 4) Outstanding Receivables Adjustment needs to be done, so that appropriate items are accounted for in the appropriate accounting period.