chapter 8 Flashcards
Adjustment process
A journal entry which assigns an amount of revenue and expense to the appropriate accounting period.
Prepaid expense
In advance= prepaid advertising=debit
bank=credit
throughout or at the end= advertising expense=debit prepaid advertising=credit
Unearned revenue
liability account In advance= bank=debit unearned revenue=credit
throughout or at the end= unearned revenue=debit fees earned=credit
Depreciation
decrease in value over time
Accumulated depreciation
contra asset account used to keep track of how much an asset has depreciated.
Net Book value
long term asset - accumulated depreciation
Original/historical cost
What you paid for asset when first purchased.
Salvage value
Estimate of what the asset could be sold for/or discarded at the end of its useful life.
Straight line method
(original/historical cost - salvage value)/years
Declining balance method
netbook value x percent
Why do we close accounts?
To have a fresh start and to clearly see the nominal accounts in the new fiscal year.
