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chapter three is the adjusting process starting off with some definitions the accrual basis of accounting is when revenues in their related expenses are reported on the income statement in the period in which a service has been performed or a product has been delivered and that is the matching principle that we talked about back in chapter one so under the accrual basis of accounting expenses are recorded when they are incurred not necessarily when cash is paid same with revenue revenue is reported when it is earned not necessarily when cash is received and this is required by gaap the cash basis of accounting on the other hand is when revenues and expenses are reported on the income statement and the period in which cash is received or paid so clearly the accrual basis of accounting and the cash basis of accounting are quite different and that is why we need uh to make adjusting entries okay the adjusting process the adjusting process is an analysis and updating of accounts at the end
