Chapter 3- Adjusting the Accounts Flashcards
Revenue must be recorded during the period in which it is earned. When the services provided or the good is sold
Revenue recognition principle
The assumption that the company will continue in operation for the for seeable future
Going concern assumption
A list of accounts and their balances after the company has made all adjustments
Adjusted trial balance
In accounting. That extends from January 1 to December 31
Calendar year
Adjusting entries for either prepaid expenses or unearned revenues
Deferrals
Recording revenues when Cash is received and recording expenses when Cash is paid regardless of when the event occurred. GAAP does not allow this type of accounting
Cash-basis Accounting
In accounting principles that dictates that companies disclose circumstances and events that make a difference to financial statement users
Full disclosure principle
Entries made at the end of an accounting. To ensure that companies follow the revenue recognition and expense recognition principles
Adjusting entries
Future expenses paid in cash before they are used or consumed
Prepaid expenses
Use of the same accounting principles on methods from year to year within a company
Consistency
An assumption that accountants can divide the economic life of a business into artificial time periods
Time perriod assumption
An account offset against an asset account on the balance sheet
Contra asset account
In accounting period that is one year and land
Fiscal year
Describes information that occurs when independent observers, using the same methods, obtain similar results
Verifiable
The difference between the cost of the depreciable assets and it’s related accumulated depreciation
Book value
Describes information that is available to decision-makers before it loses its capacity to influence decisions
Timely
A company specific aspect of relevant. An item is material when it’s size makes it likely to influence the decision of an investor or creditor
Materiality
Recording transactions in the period in which the events occur. Recording revenues when earned and expenses when incurred regardless of when Cash is received or paid. This is required by GAAP
Accrual-basis accounting
Monthly or quarterly accounting time periods
Interim periods
The process of allocating the cost of an asset to expense over its useful life
Depreciation
A liability recorded for cash received before services are performed
Unearned revenues
Ability to compare their accounting information of different companies because they use the same accounting principles
Comparability
Constraint that weighs the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the information available
Cost constraint
Expenses incurred but not yet paid in cash or recorded at the statement date.Common examples include interest, taxes in salaries. An adjusting entry would include a debit to expense and a credit to liability
Accrued expenses
Describes information that is presented in a clear and concise fashion so that users can interpret it and comprehend it’s meaning
Understandability
Revenues earned but not yet recorded at the end of the period. And adjusting entry with debit a receivable and credit a revenue
Accrued revenues
The length of service of a long lived asset
Useful life
Expenses should be recorded during the period they were incurred in order to match the expenses with the revenues
Expense recognition principle
Two types of adjusting entries
Accruals and deferrals
When Cash is exchanged before revenues earned or expenses incurred. Prepaid expenses and unearned revenues
Deferrals
When revenue is earned or expenses incurred before cash exchange. Accrued revenue and accrued expenses
Accruals
Contra asset account which offsets the fixed asset account it’s depreciating. It’s balance represents the total cumulative depreciation recorded since the asset was acquired. This is an asset account with a normal credit balance, meaning it increases with a credit and decreases with a debit
Accumulated depreciation
