Balance Day Adjustment Flashcards
What is prepaid expense?
Expense that the business has already paid but not used yet.
What is a accrued expense?
Expense that the business has already used but not paid yet
What is unearned revenue?
Revenue that the business has received but not earned yet
What is accrued revenue?
Revenue that the business has earned but not received yet.
Classify the prepaid expense.
Prepaid expense = Current asset
What is accrual basis assumption?
The assumption that recognise the revenue when it’s earned, and the expense when it’s incurred. Therefore, it defines profit as earned revenue less incurred expense during a reporting period.
What is the intention of balance day adjustment?
Balance day adjustment is made to equal the revenue earned and expense incurred at the end of a period in order to find an accurate profit.
Classify the accrued expense.
Accrued expense = Current liability
Classify the unearned revenue.
Unearned revenue = Current liability
Classify the accrued revenue.
Accrued revenue = Current asset
