Cash & Accrual
Expenses incurred but not yet paid in cash or recorded.
Accrued Expenses
The process of allocating the cost of an asset to expense over its useful life.
Depreciation
Is Cash-basis accounting in accordance with GAAP?
No
What are the 4 types of Adjustment Entries?
1. Prepaid Expense
2. Unearned Revenue
3. Accrued Expense
4. Accrued Revenue
Which accounts are overstated and understated prior to a prepaid expense adjustment entry?
Assets are Overstated & Expenses are understated
Revenues for services performed but not yet received in cash or recorded.
Accrued Revenues
The difference between the cost of a depreciable asset and its related accumulated depreciation.
Book Value
Cash received and a liability recorded before services are performed.
Unearned Revenues
What are the 2 Deferral Adjusting Entries?
1. Prepaid expense
2. Unearned Revenue
Which accounts are over- and under stated for unearned revenues prior to adjustment?
Liabilities are overstated & Revenues are understated.
Accounting basis in which companies record, in the periods in which the events occur, transactions that change a company's financial statements, even if cash was not exchanged.
Accrual-basis Accoutning
An account that is offset against an asset account on the balance sheet.
Contra Asset Account
Expenses paid in cash before they are used or consumed.
Prepaid Expenses
What are the 2 Accrual Adjusting entries?
1. Accrued Revenues
2. Accrued Expenses
Which accounts are over- or under- stated for accrued revenues prior to adjustment?
Revenues & Assets are Understated.
Accounting basis in which a company records revenue only when it receives cash and an expense only when it pays cash.
Cash-basis Accouting
A belief that items should be reported on the balance sheet at the price that was paid to acquire the item.
Historical Cost Principle
The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied.
Revenue Recognition Principle
Entries made at the end of an accounting period to ensure that the revenue recognition and expense recognition principles are followed.
Adjusting Entries
Which accounts are over- or under- stated for accrued expenses prior to adjustment?
Expenses & Liabilities are Understated.
An assumption that the economic life of a business can be divided into artificial time periods.
Periodicity Assumption
What are the three temporary accounts?
RED (Revenue, Expense, & Dividends)
The principle that matches expenses with revenues in the period when the company makes efforts to generate those revenues.
Expense Recognition Principle (Matching Principle)
Entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders' equity account, Retained Earnings.
Closing Entries