I have revised the PowerPoint for the Practical Accounting / QuickBooks Start-up Class.
New Slide – Accrual Accounting & Historical Costs
As the GAAP Rules suggests; Accrual Accounting & Historical Costs must be used to maintain consistency in transaction recording.
Accrual Accounting is a matching of revenues and expenses covered over a specific time frame. It consists of timely transactions that can be completed, even when no cash is required. A simple example of an Expense accrual is when utilities are used but not paid for in advance, resulting in an accounts payable due the utility company. A simple example of an Income accrual is when a sale is recorded through an Invoice establishing the Sale and Accounts Receivable.
Historical Costs is the actual value paid for an item that is entered through accounting entries when a transaction is completed.
A transaction records ‘Historical Costs’ on a companies’ books, and the values shown in accounts do not change when Market Values increase.