Adjustment Terms
What is an accrued expense?
An expense that has been incurred but not yet paid.
Why are balance day adjustments completed?
To calculate an accurate profit for the current Period.
Which depreciation method records the same depreciation expense each year?
Straight-line depreciation.
Is the supplier's purchase price included in the cost of a non-current asset?
Yes.
When does a profit on disposal occur?
When the proceeds received are greater than the asset's carrying value.
What is a prepaid expense?
An expense that has been paid in advance but not yet incurred.
A business has used electricity but has not received or paid the bill. What adjustment is required?
Accrued expense.
Which depreciation method records more depreciation early in an asset's life?
Reducing balance depreciation.
Are delivery and installation included in the cost of a non-current asset?
Yes.
When does a loss on disposal occur?
When the proceeds received are less than the asset's carrying value.
What is accrued revenue?
Revenue that has been earned but the cash has not yet been received.
A business has $600 of unused insurance remaining at balance day. What type of item is the $600?
Prepaid expense.
What types of assets are suited to straight-line depreciation?
Assets that contribute evenly to revenue, such as office furniture and fixtures.
Are maintenance and registration fees included in the cost of a non-current asset?
No, they are expenses.
Which account is debited when the old asset is removed from the accounting records?
The Disposal of Asset account.
What is unearned revenue?
Cash received in advance for revenue that has not yet been earned.
A customer pays a $1,000 deposit for work that will be completed next Period. What type of item is the deposit?
Unearned revenue.
What types of assets are suited to reducing balance depreciation?
Assets that are more productive when new, such as vehicles, equipment and photocopiers.
What costs form part of the cost of a non-current asset?
Costs incurred to bring the asset into a location and condition ready for use.
Which account is credited when accumulated depreciation is removed?
The Disposal of Asset account.
Which two balance day adjustment items are classified as current assets?
Prepaid expenses and accrued revenue.
A business has completed $2,500 of work but will not receive payment until next Period. What adjustment is required?
Accrued revenue.
Why does depreciation expense decrease each year under the reducing balance method?
Because the asset contributes less to revenue as it ages.
Why are maintenance and registration fees treated as expenses?
Because they do not provide a benefit for the asset's entire life and must be paid repeatedly.
A vehicle has a carrying value of $18,000 and is traded in for $21,000. What is the result?
A $3,000 profit on disposal.