Chapter 4 Flashcards
What is the accounting cycle?
Daily
1) analyze transactions
2) make journal entries
Monthly
3) post to t-accounts
4) unadjusted trial balance
5) make adjusted journal entries
6) post t-accounts
7) adjusted trial balance
8) make financial statements
Yearly
9) closing journal entries
10) t-accounts
11) post-closing trial balance
start over
What is a trial balance?
a sheet that lays out all of the t-accounts into debit and credit columns
How does unadjusted trial balances help us with adjusted journal entries?
Can help us see what will need to change once the period ends.
What is an adjusted trial balance?
checks that the accounting records are still in balance
When are adjusted journal entries?
when a company has generated revenues or incurred expenses in the current period but has not yet recorded it
Why are adjusted journal entries needed?
To allocate revenues and expenses to their proper periods.
What is periodicity?
breaking up financial statements in time
What is timeliness?
how quickly information is given to people who want it
How do we know how to allocate revenues and expenses?
Revenue and expense recognition principles
What else do you adjust when adjusting revenues and expenses?
Assests and liabilities
TRUE OR FALSE
Adjusting journal entries DO NOT involve cash
TRUE
What are the two basic types of adjusting journal entries?
Deferral and Accrual
What are deferral adjustments?
when the cash comes in or out first, and the accounting recognition of a revenue or expense comes second
What are accrual adjustments?
When the accounting recognition comes first and the cash comes second
What is an example of deferred a revenue and expense?
Revenue: adjusting the deferred revenue to recognize the amount that has been earned
Expense: adjusting the prepaid asset to recognize any amount used up
