Month end / year end normal journal entries etc Flashcards
what are end of period adjustments
journal entries made to the accounts of a business prior to the preparation and distribution of F.S for a given accounting period
what principle is used
matching principle
what are the two methods
Cash accounting and accrual accounting
describe cash accounting
recognize when the cash is received or paid out
revenue is recorded when cash Is received
expense is recorded when cash paid out
describe accrual accounting
record revenue when a legal obligation on the customer is created
record expenses when the business incurs a legal liability to pay , regardless of when the cash is actually exchanged
what does accrual account require
requires that adjusting entries are made to the accounts to ensure that all the revenue earned in an accounting period together with all the expenses incurred in earning that revenue are recorded and reported in the same accounting period
What is an accrual
end of period adjustments made under the matching principle that recognizes those revenues earned and expenses incurred in the current period but have not yet been recorded in the books
what is a deferral
end of period adjustments made under the matching principle that transfer to future accounting periods those revenues and expenses recorded in the current period but in fact belonging to these future periods
what is accrued revenue
adding transactions for revenue that has not yet be invoiced (ie partially completed work) ie 6 month contract
What is accrued expenses
adding transactions for expenses that have not yet been recognized. ie electricity bill (not been billed by the supplier yet)
also deprecation expense
what is deferred revenue
unearned revenue (liability until it is earned)
what is a deferred expense
prepaid expense (ie prepaid insurance)
What are some asset adjustments
- A/R - bad debts and Doubtful accounts
- Fixed assets - depreciation
3, Inventory - damage, stolen, etc differences
