Lecture 4 Flashcards
the only way to know a company’s worth is to …?
liquidate
(sell all assets & pay off all liabilities)
what acts as a company’s progress reports?
financial statements
time-period concept = ?
accounting information is reported at regular intervals
how does accrual accounting work?
records transactions as they’re earned/incurred
how does cash accounting work?
records transactions as cash changes hands
which is GAAP, accrual or cash accounting?
accrual accounting is GAAP
cash accounting is not
what are the three types of adjusting journal entries?
deferrals, accruals, depreciation
what is the purpose of adjusting entries?
to update some accounts for the passage of time
deferrals = ?
an adjustment for the payment of an item where the payment precedes the provision
prepaid expenses, unearned revenue, supplies
accruals = ?
an adjustment for the payment of an item where the provision precedes the payment
accrued revenue, accrued expenses, accumulated depreciation
depreciation = ?
allocation of the cost of a long-term asset over its useful life
depreciation expense, accumulated depreciation
prepaid expenses = ?
payment of an expense, typically rent or insurance, in advance
an asset
what are two important dates for recording prepaid expenses?
expense payment date (debit prepaid expense, credit cash)
adjusting date (debit expense, credit prepaid expense)
prepaid expenses = ?
what has already been paid for in the previous tax year
accrued expenses = ?
what hasn’t been paid off in the previous tax year and has been carried over
steps for recording prepaid expenses?
- take total payment & divide it by the number of months covered by the payment (e.g., rent covering 12 months)
- multiply the monthly expense by the number of months that have passed
prepaid expense balance = total payment - the final expense balance
adjusting entries for supplies = ?
debit supplies, credit cash
debit supplies expense, credit supplies (once it’s been used up)
unearned revenue = ?
cash received in advance of provision
liability
how is unearned revenue recorded?
debit cash, credit unearned revenue
debit unearned revenue, credit revenue (once provision has been carried out)
what are the two important dates for accrued expenses?
the period ending date
the payment date
accrued expenses = ?
receive benefit & pay later
liability
two important dates for accrued expenses = ?
the period ending date
the payment date
accrued revenue = ?
revenue earned before cash received
asset
basically accounts receivable
