2-4 Post Adjusting Journal Entries Flashcards
What are some examples of of changes in a company’s economic resources that occur continuously over time?
Interest Accrual
Lease Expense
Accrual-basis accounting (required under GAAP) demands the recording of ________ and _________ at the end of each accounting period using revenue and expense recognition principles.
Deferrals
Accruals
What is the 5th Step of the Accounting Cycle?
Identify, Record, and Post Adjusting Journal Entries
Adjusting Journal Entries
Used to record resource changes that span more than one time period to ensure the accuracy of financial statements
Adjusting journal entries generally involve both a…
Permanent and a temporary account
When are adjusting journal entries recorded and dated?
The last day of the accounting period
What is an account that is not typically affected by adjusting journal entries?
Cahs
Deferrals
Recognition of revenues and expenses is DELAYED to future periods, even though the cash flows occur now
How is the deferral of revenue is recorded?
A liability
How is the deferral of expense is recorded?
An asset
Accruals
Recognition of revenues and expenses occurs in the CURRENT accounting period while the cash flows occur in the future
How is the accrual of revenue recorded?
An asset
How is the accrual of an expense recorded?
A liability
Current Asset
Assets reasonably expected to be realized in cash or sold or consumed generally in one year or less
Depreciation
A systematic and rational allocation of plant asset cost over its estimated useful life
What is the most common way to estimate depreciation?
Straight Line Depreciation
(allocate the cost of an asset evenly over its expected useful life
Amortization
A systematic and rational allocation of the cost of an intangible asset over its useful life
Leases are assumed to be
Short term leases (payments are recognized as expense on a straight-line basis
Deferred Lease
Prepaid Lease Expense
current asset
Contract
A legally enforceable agreement between two entities
Contract Liability
When cash is received in exchange for a company’s obligation to transfer goods or services in the future under a revenue contract
Deferral of Revenue
Process of recognizing deferred revenue at the time of the cash inflow
When does a company recognize revenue?
At the point when the performance obligation is satisfied
Accrual of Expense
An expense is debited and a liability is credited at the end of the accounting period
What are examples of accrued expenses?
Interest, salaries, utilities, rent
Net Realizable Value
Amount that the company estimates it will ultimately collect on receivables
(Treated differently than other accrual expenses)
Allowance for Doubtful Accounts
Contra-Asset
We credit ADA instead of AR directly because the specific amount of uncollectible accounts is not yet known
Interest Calcualtion
Face Value of Note * Annual Interest Rate * Fraction of the Year
Accruals of Revenue examples
Unbilled services, commissions, interest
Why is revenue unbilled?
It is partially complete or the timing of the invoice process does not coincide with the end of the accounting period
