Adjusting Entries and Worksheet Flashcards
changes occur that affect the business’s financial condition
end of period adjustments
requires the matching of revenues earned during an accounting period with the expenses incurred; provides best measure of net income; necessitates amounts to be brought up to date before financial statements are prepared
matching principle
12 month period of time used as an accounting period; does not need to be same as a calendar year; many business schedule their fiscal year to end when business is slow
fiscal year
period of time that an asset is expected to help produce revenues; expires as a result of wear and tear or because it no longer satisfies the needs of business
useful life
method of matching an assets original cost against the revenue produced over useful life; based on estimates of useful lives and salvage values
depreciation expense
expected market value/selling price of an asset at end of its useful life
salvage value
formula for depreciable cost
original cost - salvage value = depreciable cost
depreciation expense formula
depreciable cost / estimated useful life
is a contra-asset account; has a credit balance; is deducted from the related asset account on balance sheet
accumulated depreciation
value carried on the books/in accounting records; undepreciated cost
book value
book value formula
book value = cost of plant assets - accumulated depreciation
pulls together all information needed to enter adjusting entries, prepare financial statements; is not a financial statement; not a formal part of accounting system; commonly 10 column format; only accountant uses
worksheet
preparing worksheet 5 steps
- prepare trial balance
- prepare adjustments
- prepare adjusted trial balance
- extend adjusted balance to income statement and balance sheet columns
- complete worksheet
