Study Guide CH 3 Flashcards
When is revenue and expenses recognized under the CASH BASIS of accounting?
Cash changes hands, when we recognize revenues and cash is received
Expenses when we pay the cash
When is revenue and expenses recognized under the ACCRUAL BASIS of accounting?
Revenues and expenses are reported in the income statement in the period in which they are earned
Revenue recognition concept?
Recognize revenues when earned
Matching concept?
Match expenses to revenues
Accounting period concept
Revenues and expenses are recorded in the proper period
Who/what requires the accrual basis of accounting?
GAAP
When are ACCRUALS needed?
When unrecorded revenue has been earned and when an unrecorded expense has been incurred (uppkommit)
Why are ADJUSTING entries needed?
To bring accounts up to date and match revenues and expenses
Adjusting entries affect which financial statements?
Income statement and Balance sheet
Prepaid expenses sit on the balance sheet as an …………….. & will eventually become an ……………. .
asset, expense
Unearned revenue sits on the balance sheet as a …………… & will eventually become …………… .
liability, revenue
What entry would you make to adjust for supplies used during month?
Debit - Supplies Expense
Credit - Supplies
What entry would you make to record the depreciation of equipment for the year?
Debit - Depreciation Expense
Credit - Accumulated Depreciation
What account is Depreciation Expense classified as?
Expense account
What account is Accumulated Depreciation classified as?
Contra asset account
Give me an expel of a prepaid expense:
supplies, prepaid rent, prepaid insurance
Accrued expenses are ordinarily reported on the balance sheet as …………….. ?
liability
When is the adjusting trail balance prepared?
After adjustment are posted
What is the purpose of the adjusted trial balance?
To verify debit and credit are equal
What is the account type of a prepaid expense?
asset
What is the normal balance of a prepaid expense?
Debit
