Chapter #3 Flashcards
when do timing differences occur
when revenue is earned in one period and collected in a different one; same with expenses
what are the two simple ways of timing in accounting
accrual
deferral
accrual
revenue earned, or expense incurred, but no cash has been exchanged
deferral
cash is exchanged before revenue has been earned or expense incurred
what do accruals and deferrals require in a financial statement
adjustments
amounts customers owe to a company
accounts receivable - asset
amounts anyone who is not a company owes to an organization
other receivables - asset
after leding money, an organization´s financial statement at the end of the year includes what
interest receivable -> amount lend * interest in decimal * time
interest revenue
as what account will the total repaid amount be noticed after a company lend money
entire amount (lend + interest) as increase in cash originally lend amount as decrease in other receivables interest as decrease in interest receivable
when a company borrows money from a bank what needs to be added into a financial statement in addition to the borrowed amount before cash is repaid
interest payable in the liabilities section
interest expense in retained earnings
what is important to know regarding interest rates
they always pertain for a year
what needs to be recorded in a financial statement loaned money gets repaid to the bank
a decrease of total amount (borrowed + interest) in cash
decrease of interest payable in liabilities
decrease in borrowed amount as notes payable in liabilites
no interest expense - action has already taken place
what are unearned revenues
money has been collected before firm earned revenue
where are unearned revenues recorded
in liabilities
same amount as an increase in cash
first step in a financial statement after a good or service was paid but not received yet
changes in assets
decrease in cash
increase in e.g. prepaid insurance or prepaid rent
