Week 5 - Trial Balances and Balance Day Adjustments Flashcards
What is a trial balance?
o capital contributions, drawings, sales made from previous periods, COGS, paying interest on a loan
How are the accounts listed in a trial balance?
o List of all accounts in: Order (ALORE); as they appear in the general ledger and their closing balances at a given time
What are the steps in order to prepare a trial balance?
o List all accounts including names, balances; on the debit or credit side
o Total debit and credits columns
o Verify that debits EQUAL the credits column.
What is the necessity of balance day adjustments
o Revenues are recorded when earned
o They are then matched against expenses that have been incurred in the accounting period
What do balance day adjustments ensure?
o Balance day adjustments ensure that the financial statements portray a correct picture of the firm’s financial performance and financial position
o Prevents overstating or understating profits/loses
What happens if you don’t do a balance day adjusment
o Revenue (income); and/or Expenses may be understated or overstated
o Assets and/or liabilities of the firm being overstated or understated
o Will have wrong numbers on financial statement
Are prepaid expenses an asset or liability
Asset
What are prepaid expenses
o These are expenses that have been paid in advance of being incurred
What are accrued revenued
o Expenses that have been incurred but not yet paid in cash
Is prepaid/unearned revenue a liability or an asset
o Liability
What is prepaid/unearned revenue?
o Cash that is received before revenue is earned i.e interest at a bank
Is accrued revenue an asset or a libility
Asset
What is accrued revenue
o Revenue that has been earned but not yet received in cash e.g accrued wages
What is depreciation?
o Depreciation allocates the cost of a non-current asset over its useful life.
o Converts an asset into an expense
What is used to calculate depreciation?
o A straight-line method is used to calculate depreciation
Is accumulative deprecative credited or debited
o Accumulative depreciation is credited
Is the depreciation expense debited or credited?
the depreciation expense of the asset is debited.
What is the adjusted trial balance?
o An adjusted trial balance is a listing of all company accounts that will appear on the financial statements after adjusting journal entries have been made.
Prepaid Revenue
Initial Entry:
Adjusting Entry
- Cash is debited and unearned revenue is credited
- Unearned revenue is debited and revenue is credited
Prepaid Expenses
Initial Entry:
Adjusting Entry:
- Cash is credited and prepaid …. is debited
- Prepaid rent used is credited and rent expense is debited
Accurual Revenue
Adjusting Entry
Revenue e.g interest revenue is credited and asseet (e.g interest receievable) is debited
Accural Expenses
Expenses are debited and liabilites are credited
