Chapter 6 & 7 - income and expenses (not done) Flashcards
Definition of revenue recognition theory (How is revenue recognised/recorded) (Applies to Sales revenue/ Service fee revenue and other income)
Revenue is recorded/earned when goods have been delivered or services have been provided
Definition of matching theory (How is expenses recognised/recorded)
Expenses Incurred must be matched against income earned in the same period to determine the profit for that period.
Definition of accrual basis of accounting theory- applies for income
-Income is recorded/ earned when goods/services have been provided, regardless of whether money has been received.
Definition of accrual basis of accounting theory- applies for expenses
Expenses is recorded/incurred when goods/services have been used, regardless of whether money has been paid.
Definition of service fee revenue received in advance
Money received for service fee revenue in this financial year but services will only be provided in the next financial year.
Definition of income received in advance
Money received for other income in this financial year but services will only be provided in the next financial year.
Definition of prepaid expenses
Money paid in this financial year but goods and services will only be used/incurred in the next financial year.
Definition of income receivables
Services provided in this financial year but money have not been received.
Definition of expenses payable
Goods/services used/incurred in this financial year but money have not been paid.
JE to record Prepaid expenses
Dr: Prepaid expenses (current asset)
Cr: Expenses (used next year so cannot be recognised as expense for this year)
JE to record Expenses payable
Dr Expenses (used this year, so must be included as expenses this year)
Cr Expenses payable (money have not been paid, so owing, current liabilities)
JE to record Income received in advance
Dr: Income (services provided next year so cannot be recorded as income this year hence deduct it out)
Cr: Income received in advance
JE to record Income receivables
Dr: Income receivables (money have not been received, current assets)
Cr: Income (services provided this year so must recognise as income, add to income)
RCAT for expense
-Reverse prepaid / expense payable (date: beginning of the year)
-Cash at bank / cash in hand (Dr Expenses Cr Cash at bank)
-Adjust prepaid expense / expense payable (date: year end)
-Transfer the expense incurred for the financial period to income summary (Dr Income summary Cr Expenses)
RCAT for income
-Reverse Income receivables/Income received in advance (date: beginning of the year)
-Cash at bank / cash in hand (Dr Cash at bank Cr Income)
-Adjust Income receivables/Income received in advance (date: year end)
-Transfer the income earned for the financial period to income summary (Dr Income Cr Income summary)
