Text 3 Measuring Business Income: the Adjusting Process

　　Distinguish accrual basis accounting from cash-basis accounting. In accrual-basis accounting, business events are recorded as they affect the entity. In cash-basis accounting, only those events that affect cash are recorded. The cash basis omits important events such as purchases and sales of assets on account. It also distorts the financial statements by labeling as expenses those cash payments that have long-term effects, such as the purchases of buildings and equipment. Some small organizations, use cash-basis accounting, but the generally accepted method is the accrual basis.

　　Apply the revenue and matching principles. Businesses divide time into definite periods——such as a month, a quarter, and a year——to report the entity's financial statements. The year is the basic accounting period, but companies prepare financial statements as often as they need the in- formation. Accountants have developed the revenue principle to determine when to record revenue and the amount of revenue to record. The matching principle guides the accounting for expenses.

　　Make adjusting entries at the end of the accounting period. Adjusting entries are a result of the accrual basis of accounting. These entries, made at the end of the period, update the accounts for preparation of the financial statements. One of the most important pieces of business information is net income or net loss, and the adjusting entries help to measure the net income of the period. Adjusting entries can be divided into five categories: prepaid expenses, depreciation, accrued expenses, accrued revenues, and unearned revenues.

　　Prepare an adjusted trial balance. To prepare the adjusted trial balance, enter the adjusting entries .next to the unadjusted trial balance and compute each account's balance.

　　Prepare the financial statements from the adjusted trial balance .The adjusted trial balance can be used to prepare the financial statements. The there financial statements are related as follows: Income, shown on the income statement, increases the owner's capital, which also appears on the statement of owner' s equity. The ending balance of capital is the last amount reported on the balance sheet.

　　New Words

　　accrual n. 自然增长,自然增长额

　　accrual-basis accounting 权责发生制

　　cash-basis accounting 现金收付制

　　omit vt. 省略，删

　　distort vt. 曲解

　　label vt. 把……列为

　　definite adj. 明确的,确切的

　　accounting period 结算期

　　revenue principle 收益原则

　　matching principle 配比原则

　　adjusting entries 调整分录

　　update vt . 使现代化

　　net income 纯收入

　　prepaid expenses 待摊费用

　　depreciation n.贬值

　　accrued expense 应计费用

　　accrued revenues 应计收入

　　unaccrued revenues 未实现收入

　　adjusted trial balance 经调整过的试算表

　　unadjusted trial balance 未经调整过的试算表