Chapter 3- Adjusting the Accounts Flashcards
What does the accrual basis of accounting involve?
revenues and expenses recorded when earned/incurred not when cash is paid/received
What are time periods called if they are less than one year?
Interim periods
What does the cash basis of accounting involve?
Revenue and expenses are recorded when cash is received or paid (not GAAP)
What are the 3 classifications of adjusting entries?
Prepayments (prepaid expenses or unearned revenue)
Accruals (Accrued revenues/expenses)
Estimates (Ammortization or A4DA)
What are prepaid expenses?
Expenses that are paid before they are due, become assets
What is unearned revenue?
Revenue received before it is due, becomes liability
What is accrued revenue?
Revenue that has been earned but not yet received in cash
What is an accrued expense?
An expense that is incurred but not yet paid
What is the journal entry when a prepaid expense is paid?
Dr: Prepaid Insurance
Cr: Cash
What is the journal entry to record the adjusting entry for a prepaid expense?
Dr: Insurance Expense
Cr: Prepaid Insurance
What is the journal entry to record accrued revenue when the revenue is earned?
Accounts Receivable
Fees Earned
What is the journal entry to record accrued revenue when cash is paid?
Cash
Accounts Receivable
What is the journal entry to record an accrued expense when the expense is incurred?
Interest Expense
Interest Payable
What is the journal entry to record accrued expenses when cash is paid?
Interest Payable
Cash
