1000: Adjusting Entries Flashcards
When are accrual basis accounting transactions recognised?
When they occur- not when the cash is received/paid
What is cash-basis accounting?
This is when transactions are recorded only at the time of receipt/payment of cash, ie no payables or recievables
When are accrual-based accounting adjustments made?
They are made on the last day of the accounting period to correctly recognise expenses and income not reflected in cash receipts or payments
What account should never be adjusted in accrual-based accounting?
The cash account
What are the two sub-categories of deferrals (prepayments) when adjusting entries?
Prepaid expenses and unearned revenue
A prepaid expense is when cash is paid _ benefits are consumed/expired
before
A prepaid expense is initially recorded as a _
asset
When benefits of a prepaid expense are consumed/expired, what is it recorded as?
An expense
When should cash be recorded in a prepaid expense- in the initial entry or adjusting entry?
Initial entry
What are the three main types of adjusting entries?
Accruals, deferrals, and non-cash expenses
A deferral unearned revenue is when cash is received _
in advance
Unearned revenue is initially recorded as a _
liability
What is unearned revenue recognised as when earned?
revenue
