Lecture 5 - IS Concepts, Adjusting Entries Flashcards
Adjusting entries
aka passive journal entries
generated @ END of period
accounts for change due to passage of time
Adjusting process
- identify type of adjustment
unearned rev? pre-paid expense? - identify amount of adjustment
how much unearned rev should be recognized? etc - record entry to correct accounts
Accrual
revenues earned/expenses incurred, but NO CASH has been exchanged
(ex. interest earned, wages earned)
Deferral
CASH has been RECEIVED, but has not been earned yet
ex. rent received in advance, insurance paid in advance
Unearned revenues
previously recorded liabilities that must be adjusted to reflect revenue earned
(ex. rent received in advance, goods paid for but not yet delivered to customer)
cash received b4 revenue earned
what type of account is unearned revenue?
a liability account
Accrued Revenue
previously unrecorded revenues that need to be adjusted to reflect amount earned and related receivable account
(ex. interest earned, increases in accounts receivable)
revenue earned b4 cash is collected
the interest earned account is called
interest revenue
Prepaid expenses
previously acquired assets that need to be adjusted to reflect expense incurred in using the asset to generate rev
(ex. prepaid rent, prepaid utilities, prepaid adv)
cash paid b4 exp is incurred
Prepaid anything is what type of account?
an asset account
Accrued Expenses
previously unrecorded expenses that need to be adjusted to reflect amount incurred and related payable account
(ex. accrued rent, accrued interest, accrued wages)
expense incurred b4 cash is paid
Plant assets are…….
fixed assets; long lived tangible assets (PPE)
Depreciation
process of allocating cost of the fixed/plant assets to expense
Depreciation is reported on….(which financial statement?)
the income statement as an expense
Depreciation equation
= (acquisition cost - salvage value) / (years of useful life)
