Unit 2 extension Flashcards
Balance day
Is the final day in the reporting period
Prepaid expenses
Expenses that are paid in advance, before they are used or consumed
Prepaid expense examples
Prepaid rent
prepaid advertising
prepaid insurance
Types of Balance Day Adjustments
Inventory loss or gain
Depreciation
Prepaid expenses
Accrued expenses
Effect on accounting equation of purchase of prepaid expense
A: Prepaid increases
Bank decreases
L: GST payable decreases
OE: no effect
Effect on accounting equation of consumption of prepaid expense
A: Prepaid decreases
L: no effect
OE: Expenses increase
Net profit decreases
Accrued expense
An expense that has been incurred/consumed but not yet paid
Accrued expense examples
Wages owing to an employee for work already completed
Electricity that has been consumed but the bill will not be received until the next month
Effect on the accounting equation of recognising accrued wages
A: No effect
L: Accured wages increase
OE: Expense increase
Net profit decreased
Effect on the accounting equation of paying accrued wages and normal wages
A: Bank decrease
L: Accrued wages decrease
OE: Wages expense increase
Net profit decreased
