Chapter 4 - Accrual Accounting Concepts Flashcards
Prepare adjusting entries for deferrals.
Deferrals are either prepaid expenses or unearned revenues. Companies make adjusting entries for deferrals at the statement date to record the portion of the deferred item that represents the expense incurred or the revenue for services performed in the current accounting period.
Prepare adjusting entries for accruals.
Accruals are either accrued revenues or accrued expenses. Adjusting entries for accruals record revenues for services performed and expenses incurred in the current accounting period that have not been recognized through daily entries.
Accrued revenues
Revenues for services performed but not yet received in cash or recorded
Adjusted trial balance
A list of accounts and their balances after all adjustments have been made.
Periodicity assumption
An assumption that the economic life of a business can be divided into artificial time periods
Temporary Accounts
Revenue, expense, and dividend accounts whose balances a company transfers to Retained Earnings at the end of an accounting period.
revenue recognition principle
recognizing revenue in the accounting period in which the performance obligation is satisfied
Expense recognition principle
recognize expense in the period which they made the efforts to generate revenue. “Let the expenses follow the revenue”
Accurual basis accounting
Transactions recorded in periods in which the events occur! Companies recognize revenues when they perform services and recognize expenses when they are incurred.
Incurred means
Paid
Cash basis accounting means
Revenues recognized when cash is received and expense recognized when cash is paid.
prepaid expense
payments of expenses that are recorded as assets to show what they company will receive cash in the future
Permenant accounts
Are NOT CLOSED
- All assets accounts
- all liability accounts
- stockholder’s equity account
