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Accounting And Finance > Week 5 > Flashcards

Week 5 Flashcards

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1
Q

would adjusting entries be needed if you could wait to prepare financial statements when the business ended operatios

A

no they would not be required

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2
Q

what is the time period assumption

A

dividing the life of a business into artifical time periods

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3
Q

what lengths are time periods

A

month, quarter, semi annual or yearly

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4
Q

what are interim time periods

A

monthly and quarterly periods

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5
Q

how are annual time periods measured

A

either the calendar or financial year (1 July to June 30)

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6
Q

how are revenue and expenses recognised

A

through the revenue and expense recognition principles

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7
Q

what is the revenue expense recognition principle

A

that revenue be recognised in the accounting period in which an increase in future economic benefits has occured

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8
Q

what is the expense recognition principle

A

dictates that expenses be recognised in the accounting period when a decrease in future economic benefits has occured. may or may not be same period in which expense is paid

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9
Q

when can the 2 assumptions be applied

A

when the life of the business has been split into time periods

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10
Q

why are adjusting entries recorded

A

to make sure the revenue and expense recognition principles are followed

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11
Q

what occurs if adjusting entries are not made

A

profit for period and value of assets and liabilites will be incorrect

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12
Q

why do adjusting entries need to take place (errors)

A

1: events not journalised because too time consuming
2: costs expire with passage of time rather then daily transactions
3: items may be unrecorded that are not recieved until next accounting period

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13
Q

what are the 2 types of adjusting entries

A

1: prepayments
2: accurals

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14
Q

what are the 2 types of prepayments

A

prepaid expenses

unearned revenue

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15
Q

what is a prepaid expense

A

expenses paid in cash and recorded as assets before they are used or consumed. Assets because they will provide future economic benefits

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16
Q

what is unearned revenue

A

cash recieved and recorded as liabilities before revenue is earned. Liability because business giving up economic benefits to earn revenue

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17
Q

what are the 2 types of accurals

A

accured revenue

accured expenses

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18
Q

what is an accrued revenue

A

revenue earned but not yet recieved in cash or recorded, recorded as assets. An asset because it will provide future economic benefit to business

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19
Q

what is accrued expenses

A

expenses incurred but not yet paid in cash or recorded. recorded as liability because business is sacrificing future economic benefits

20
Q

why are adjusted entries requried for prepayments

A

to record the portion of the prepayment that represents the expense or revenue earnt in the current accounting period

21
Q

what is the adjusting entry for a prepaid expense

A

DEBIT expense account

CREDIT asset account

22
Q

what is depreciation

A

is the allocation of the cost of an asset to expense over its useful life in a rational and systematic manner

23
Q

is depreciation an estimate or factual

A

an estimate

24
Q

what is the procedure for estimating depreciation

A

dividing cost of asset by useful life

25
Q

how is annual depreciation calculated

A

cost - residual value divided by useful life

26
Q

how is depreciation presented in the statement of financial position

A

it is a contra asset account placed after asset being depreciated with the carrying amount shown

27
Q

what is the carrying amount

A

original value - depreciation accured

28
Q

what is the adjusting entry for unearned revenue

A

DEBIT: liability
CREDIT: revenue

29
Q

why are there adjusting entries for accurals

A

required to record revenue earned and expenses incurred in the current accounting period

30
Q

what is the adjusting entry for accured revenue

A

DEBIT asset account

CREDIT revenue account

31
Q

what is the adjusting entry for accured expenses

A

DEBIT expense

CREDIT liability

32
Q

what is the formula for calculating accured interest

A

face value of loan X annual interest rate X time of terms in 12 months = interest

33
Q

what is the adjusted trial balance

A

trial balance done after all adjsuting entries complete

34
Q

what is a temporay account

A

relate only to a given accounting period

35
Q

what is a permanent account

A

related to future accounting period

36
Q

what accounts are closed in closing entries with 0 balance

A

temporary accounts

37
Q

what are temporary accounts

A

revenue
expenses
drawings

38
Q

what are permanent accounts

A

asset
liability
capital

39
Q

where are temporary accounts transferred via closing entries

A

owners equity account

40
Q

what account is revenue and expenses closed to before owners equity

A

profit and loss summary then loss or profit is transferedd to owners equity

41
Q

what is the 1st closing entry (revenue)

A

debit each revenue account and credit profit and loss summary

42
Q

what is the 2nd closing entry (expenses)

A

debit profit and loss summary for total expenses and credit each expense account

43
Q

what is the 3rd closing entry (P and L)

A

debit profit and loss summary and credit capital for profit. if a loss credit profit and loss summary and debit capital

44
Q

what is the 4th closing entry

A

debit capital for balance in drawings and credit drawings

45
Q

what is the post closing trial balance

A

trial balance done after all closing entries complete

46
Q

what is the accounting cycle

A

1: analyse business transactions
2: journalise transactions
3: post to ledger accounts
4: prepare trial balance
5: journalise and post adjusting entries
6: prepare an adjusted trial balance
7: prepare financial statements
8: journalise and post closing entries
9: prepare post closing trial balance

Accounting And Finance (8 decks)

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