Module 5 Study Guide Flashcards
cash basis of accounting
recognizes revenues when cash is received and recognizes expenses when cash is paid out.
accrual basis of accounting
recognize revenues when the company makes a sale or performs a service, regardless of when the company receives the cash.
Accounting periods
time periods are usually equal in length and may be one month, one quarter, or one year.
accounting year
also called a fiscal year, is an accounting period of one year.
calendar year
ends on December 31.
matching principle
requires that expenses incurred in producing revenues be deducted from the revenues they generated during the accounting period.
Adjusting entries
journal entries made at the end of an accounting period or at any time financial statements are to be prepared to bring about a proper matching of revenues and expenses.
prepaid expense
an asset awaiting assignment to expense.
prepaid insurance
advance payment of insurance is an asset because the company will receive insurance coverage in the future.
depreciable asset
a manufactured asset such as a building, machine, vehicle, or piece of equipment that provides service to a business.
Depreciation expense
the amount of asset cost assigned as an expense to a particular period.
depreciation accounting
the process of recording depreciation expense.
Asset cost
the amount that a company paid to purchase the depreciable asset.
Estimated residual value
the estimated residual value (scrap value) is the amount that the company can probably sell the asset for at the end of its estimated useful life.
Estimated useful life
the estimated useful life of an asset is the estimated time that a company can use the asset.
Straight-line depreciation
assigns the same amount of depreciation expense to each accounting period over the life of the asset.
accumulated depreciation account
a contra asset account that shows the total of all depreciation recorded on the asset from the date of acquisition up through the balance sheet date.
contra asset account
a deduction from the asset to which it relates in the balance sheet.
Accrued assets
assets, such as interest receivable or accounts receivable, that have not been recorded by the end of an accounting period.
accrued revenues
assets, such as interest receivable or accounts receivable, that have not been recorded by the end of an accounting period.
deferred items
Deferred items consist of adjusting entries involving data previously recorded in accounts.
Deferred items consist of two types of adjusting entries: asset/expense adjustments and
liability/revenue adjustments. Examples include prepaid rent, prepaid insurance, and supplies
on hand
Accrued items
Accrued items consist of adjusting entries relating to activity on which no data have been
previously recorded in the accounts. Accrued items consist of two types of adjusting entries:
asset/revenue adjustments and liability/expense adjustments. Examples include salaries not yet
paid and services performed, but not yet billed.
