Chapter 4 Flashcards
What is the periodicity assumption
Accountants divide the economic life of a business into artificial time periods
Revenue Recognition Principle
Recognize revenue in the accounting period in which the performance obligation is satisfied
Expense recognition principle
Companies recognize expense in the period in which they make efforts to generate revenue
Cash basis accounting
Revenues and expenses are recognized when cash is received/paid
Adjustments include…
One income statement account and one balance sheet account (need to make sure they have the right balances)
Two types of adjustments
Deferrals and accruals
Deferral adjustments
Cost recognized at a later date than the point when cash is exchanged
Prepaid expenses and unearned revenues
Accrual adjustments
Accrued revenues and accrued expenses
Accrued revenues
Revenues for services performed but not yet received in cash
Accrued expenses
Expenses incurred but not yet paid in cash or recorded
As prepaid expense are used over time, what is the change in accounts
Decrease in asset
Increase in expenses
Depreciation
Process of allocating the cost of an asset to expense over its useful life
Accumulated depreciation is __ account
Contra asset
Book value
Difference between the cost of any depreciable asset and its accumulated depreciation
What accounts change when recording the earning of unearned revenues
Decrease in liabilities
Increase in revenues
