Ch2. Accrual accounting: Record impact of transactions when they occur; Required by Generally Accepted Accounting Principles (GAAP); Record: Revenue when earned, Expenses when incurred. Cash accounting: Record only cash transactions; Cash receipts, Cash payments; Ignore important information; Result in incomplete financial statements; Only used by the smallest businesses. Revenues record principles: When good or service has been delivered to customer. expenses record principles: 1, identify all the expenses incurred during the accounting period. 2, measure the expenses, and recognize them In the same period in which any related revenues are earned. Accumulated depreciation: a kind of contra-assets. Deferrals: prepaid expenses(Recorded as an asset when purchased; Expensed when used or expired); Unearned revenues(Recorded as a liability when payment is received; Recorded as revenue when earned). Accruals: Accrued expense(Record expense before paying cash; Salaries, interest, and income taxes); accrued revenue(Record revenue before collecting cash; Earned and will collect next period). The process of transferring the debit and credit information from the journal to individual accounts in the general ledger is called posting. A T-account is a simplified form of a general ledger account with space at the top for the account title and two sides for recording debits and credits. Trial balance: A list of all accounts and their balances at a particular date, showing that total debits equal total credits. Categories of Adjustments: Depreciation: Allocate costs of plant assets to expense over useful lives. Deferrals: Business has paid or received cash in