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Week 4 · Module overview

Week 4 — Accrual Accounting and Adjusting Entries

Financial Accounting Free sample edition

Why this matters

Whether you run a gym that sells memberships a year ahead, keep the books for a repair shop at a busy month's end, or work at a software firm that pays for cloud service in advance, each dollar has to land in the month it belongs to.

In plain language

A business does not earn money on the day cash shows up, and it does not use things up on the day it pays for them. This week you learn the accrual basis (recording revenue when it is earned and expenses when they are incurred, whatever day the cash moves). You will follow the FASB's five steps for revenue recognition (deciding when a business has earned its revenue). At the end of each month, a business makes adjusting entries (small corrections that put each revenue and expense in the month it belongs to). You will make six of them for the bicycle shop and check that its books still balance.

  • Already covered: Week 3's journal, ledger, and trial balance.
  • This week: the accrual basis, revenue recognition, and six adjustments.
  • How they connect: each adjustment is a balanced journal entry.
  • Where we're going next: Week 5, Completing the Accounting Cycle.

Focus

When has a business really earned its revenue and used up its costs, and how do month-end adjustments put each one in the right month?

By the end of this module, you should be able to:

  • [ ] tell the cash basis from the accrual basis
  • [ ] apply the five steps of revenue recognition
  • [ ] sort an adjustment as a deferral or an accrual
  • [ ] prepare the shop's six adjustments and its adjusted trial balance

To-do

Plan your week

  1. Read Chapter 4 (~35–45 minutes), then the lecture and slides.
  2. Work the lecture tutorial (60–90 minutes).
  3. Do the practice set (15–25 minutes).
  4. Do the Accounting Workshop (about 90 minutes), the discussion, and the assignment.
  5. Take the quiz.

This week's checkpoint: write the bicycle shop's six adjusting entries, none touching Cash, and foot its adjusted trial balance.

You've got this

Take it in order, and ask your instructor if a step snags.

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