2.2 Adjusting Entries Flashcards
Adjusting Entries (2)?
1) Deferred Revenues & Expenses: updates EXISTING account balances to reflect CURRENT accounting values
2) Accrued Revenues & Expenses:
Creates NEW account balances to show UNRECORDED asset/liability
Adjusting Entry
Internal Transactions that update account balances accordance w/ accrual accounting before preparing financial statements.
- No cash in/out: accounts closed.
- Only internal transactions & no outside business
Differed Revenues & Expenses happens when & recorded when?
Happens when there’s cash flow in past,
Need to record revenue/expense now.
Accrued Revenues & Expenses happens when & recorded when?
Happens when cash flow in future, haven’t paid good/service yet. Record rev/exp now.
Question when finding Deferred Expenses?
Any assets “used up” this period & should be expensed?0
Deferred Expenses Accounts (3)
- Prepaid Assets (insurance, rent)
- Depreciation
- Amortization
Deferred Expense Journal Entry?
Dr. Expense
Cr. Prepaid Asset
Question when finding Deferred Revenue?
Any liabilities fulfilled by delivery of goods/services that should be recognized as revenue?
Deferred Revenue Accounts (2)
- Unearned Revenue
- Deferred Revenue
Receive cash before delivering goods/services & earn revenue over time
Deferred Revenue Journal Entry?
Dr. Unearned Revenue Liability (reduces obligation of good/service)
Cr. Revenue
Straight Line Depreciation equation?
Depreciation Expense = original cost- salvage value/ useful life
Salvage Value
Projected Value asset when done using it.
Useful Life
periods spent using asset.
Who chooses salvage value & useful life? & how?
Managers choose based on how long asset used (depreciation assumption)
Question when finding accrued Expenses?
Have any expenses accumulated during period that’s not yet recorded?
Accrued Expense Accounts (1)
Payable Liabilities: ex. Income Taxes Payable, Interest Payable, Salaries & Wages Payable
Accrued Expense journal entry?
Dr. Expense
Cr. Payable Liability
Question when finding Accrued Revenues?
Have any revenues accumulated during period that’s not been recorded?
Accrued Revenue Accounts (1)
Receivable Assets: ex. Interest Receivable, Rent Receivable
Accrued Revenue Journal Entry?
Dr. Receivable Asset
Cr. Revenue
Depreciation & Amortization are (/4 choices)____ _____ & their goal?
Deferred Expenses.
Goal: allocate original cost of long-lived asset over its useful life
Depreciation & Amortization matches?
Total cost of asset to revenue it generates over its period of use.
D & P: tangible assets?
Physical assets that require depreciation
D & A: Intangible Assets?
Abstract assets that require amortization
Amortization?
Gradually write off/reduce initial cost asset.
Depreciation deducted from & not from?
Deducted from (recorded in) a Contra Asset Account (XA) that’s called Accumulated Depreciation & not from Tangible Asset.
- Has credit balance
- subtracted from PP&E on balance sheet to get “Net Book Value”
Contra Asset Account
Accounts that record accumulative depreciation of assets.
Contra Asset Account debit/credit balance?
Has credit balance, but like expense (contra SE account) on asset side of equation.
Contra?
Against, opposite
Amortization often, but not always deducted directly from?
Intangible asset account
Why don’t you put depreciation in regular asset account?
Want to show original cost asset that’s separated from depreciation value.
