Acct 2121 CHPT 4 Flashcards
What are Adjusting Entries?
A journal entry that occurs at the end of an accounting period to record any unrecognized income or expense, may be done monthly or annually depending on the company
What are the types of Adjusting entries?
Prepaid expenses, Accruals
Why Prepaid expenses?
Have we used any of the prepayments up
Why Accruals?
Are there any other expenses or revenues that we still need to record
What are Accrual accounting?
requires that revenues and expenses be recorded when a transaction occurs rathe than when money is exchanged, adjusting entries are required
What is Cash Basis accounting?
Revenues are recorded when cash is received and expenses are recorded when they are actually paid, method can lead to timing differences and misinformation, Not permitted for use under IFRS or ASPE
2 new GAAP Principles?
Revenue Recognition Principle, Matching Principle for expenses
What is Revenue Recognition?
Revenue must be recognized in the accounting period in which it is earned, Revenue is recognized in a merchandising company when merchandise is sold and delivered, and in a service company when service is performed
What is Expense Recognition?
Expenses are recognized when a decrease in economic resources occurs ( Assets have decreased or liabilities are increased), often coincides with revenue recognition, sometimes known as matching
What are Prepaid Expenses?
Cash payments of expenses that will benefit more than one accounting period are recorded as assets, expire with the passage of time or through use, recorded when statements are prepared
What are two types of accruals?
Accrued expenses, Accrued revenues
What are Accrued expenses?
expenses that have been incurred but not yet paid or recorded
What are Accrued revenues?
Revenues that have been earned but not yet received in Cash
What is the Adjusted Trial Balance?
is prepared after All adjusting entries have been posted (Total debit balances= Total credit Balances), the main source for preparation of financial statements
what order are Financial Statements prepared in?
Statement of income, Statement of changes in equity, Statement of financial position
What are closing Entries?
Journal entries performed at the end of the period to shift data from temporary accounts to permanent balance sheet accounts
What are the two types of accounts?
Temporary Accounts, permanent Accounts
What are in temporary Accounts?
All revenue accounts, All expenses accounts, Dividends declared
What are in permanent Accounts?
All assets accounts, All liability Accounts, Shareholders’ equity accounts
Why use closing entries?
Allows us to transfer “Net Income” to retained Earnings, Temporary account balances are transferred to Retained Earnings, Produces a zero balance in the temporary accounts to prepare them for the next period’s activity
What is The Closing process?
- Close revenue accounts, 2. Close expense accounts, 3. Close income summary, 4. close dividends Declared account
What is close revenue accounts?
Debit each revenue account for its balance and credit Income Summary for total revenue amount
What is close expense accounts?
Debit Income Summary for the total expense amount and credit each expense account for its balance
what is Close Income Summary?
Debit(or credit) Income Summary for the balance in the account and credit (debit) Retained Earnings
what are close Dividends Declared account?
Debit Retained Earnings and credit Dividends Declared account for the balance
What is Post-Closing Trial Balance?
Lists all permanent accounts and their balances after all closing entries are journalized and posted, proves the the total credit and debit balances are equal after the closing entries have been made
