Adjustments Flashcards
What does Adjusting the Books Mean?
Making changes to ensure all account balances are correct before financial statements are prepared
What are prepaid expenses?
Considered to be assets until they are used up. Once they are, they are considered expenses. We do this because of Matching Principale
Why do we adjust?
To record the expense for the period AND decreases the prepaid account so that its new balance reflects what is unused
What do adjustments affect in financial statements, and which account is never affected?
Adjustments affect one income statement account and one balance sheet account.
CASH is NEVER affected.
Which people would be interested in studying your financial statements
- Owners
- Your boss
- The Bank
What type of Account is Prepaid Insurance?
Current Asset
Why is the Supplies Account Allowed to be Incorrect?
Because it’s hard to keep track of the amount of supplies you use and record it on a financial statement
What type of Account is Prepaid Expenses?
Current Asset
What is Depreciation?
When value of assets gets allocated to an expense; also called amortization
What is Book Value?
The value of an asset after accumelated depreciation
What is a Write off?
Total amount of asset that will be depreciated
over its estimated useful life
What is Salvage Value?
Amount that the asset will sell for after it’s useful life
What is a Contra Account?
Decreases the value of an account (i.e: Accumlated Depreciation)
