Accounting Process: Chapter 7 Flashcards
It is an accounting period (12 months) ending on December 31.
Calendar Accounting Period
It is an accounting period (12 months) ending on any month other than December 31.
Fiscal Accounting Period
Adjusting Entry: income that is already earned but not yet collected
Accrued Income
Adjusting Entry: expenses that are already incurred but not yet paid
Accrued Expense
Adjusting Entry: advance collection
Deferrals (Unearned Income)
Adjusting Entry: advance payment for services to be received
Prepayments (Prepaid Expense)
Adjusting Entry: client accounts that may not be collected anymore or are doubtful of collection
Bad Debts
Adjusting Entry: transfer of asset cost to expense based on its declining utility value
Depreciation
These are entries prepared at the end of the accounting period to update some accounts and ensure their accuracy before preparing the financial statements.
Adjusting Entries
Under the ___________, income is recognized as earned at the time service is rendered regardless of cash is collected.
Accrual Principle (Revenue Recognition Principle)
Under the ___________, expense is recognized as incurred at the time service is received or used up regardless of cash is paid.
Accrual Principle (Expense Recognition Principle)
Prepayment: the entry will be a debit to prepaid expense.
Asset Method
Prepayment: the entry will be a debit to an expense account.
Expense Method
Deferrals: the entry will be a credit to a liability account.
Liability Method
Deferrals: the entry will be a credit to an income account.
Income Method
Bad Debts: recognizes bad debts expense only when it is certain that the company will not be able to collect the account anymore.
Direct Write-Off Method
Bad Debts: provides for bad debts or doubtful accounts during the period the sale of service is recorded.
Allowance Method
It is the difference between the accounts receivable and the allowance for doubtful accounts.
Net Realizable Value
It is the realizable value if the asset is to be sold.
Market Value
It is the difference between the cost and the accumulated depreciation.
Book Value
It represents the unexpired cost or the net utility value of the asset.
Book Value
It is a columnar paper used as a preliminary step in the preparation of financial statements.
Worksheet
