Adjusting Entries
This type of entry is made at the end of an accounting period to update accounts before financial statements are prepared.
Adjusting entry
This term describes the systematic allocation of the cost of a tangible asset over its useful life.
Depreciation
Adjusting entries for deferred revenue reduce this liability account and increase this income statement account.
This accounting principle states that expenses should be recognized in the same period as the revenues they help to generate.
Expense Recognition (Matching) Principle
In this basis of accounting, revenues are recorded when cash is received, and expenses are recorded when cash is paid.
Cash basis of accounting
This type of adjusting entry is made when expenses have been incurred but not yet paid by the end of the period.
Accrued expense
This common method of depreciation allocates an equal amount of depreciation expense to each year of the asset's useful life.
Straight-line depreciation
Accrued expenses increase liabilities on the balance sheet and increase this on the income statement.
Expenses
This type of liability occurs when a company has received payment but has not yet provided the goods or services.
Unearned Revenue
This basis of accounting records revenues when they are earned and expenses when they are incurred, regardless of when cash is exchanged.
Accrual basis of accounting
Adjusting entries ensure adherence to this accounting principle, which states that revenue should be recognized when earned, not when cash is received.
Revenue Recognition Principle
Depreciation is recorded on this financial statement as an expense.
Income Statement
Failing to make an adjusting entry for accrued revenue will result in an understatement of these two financial statement elements.
Assets and revenues
This term refers to the expected selling price of an asset at the end of its useful life.
Residual (salvage) value
Under this basis of accounting, if you perform a service in December but don't get paid until January, the revenue is recorded in January.
Cash basis of accounting
This type of adjusting entry is made when a business has collected cash but has not earned the revenue.
Deferred (unearned) Revenue
The formula for calculating straight-line depreciation requires three inputs: asset cost, ________, and useful life of the asset.
Salvage value
An adjusting entry for depreciation increases depreciation expense on the income statement and reduces the carrying value of assets on this statement.
Balance Sheet
This financial statement shows a company’s financial position by listing its assets, liabilities, and shareholders’ equity.
Balance Sheet
Under the cash basis, a company performed services in December but got paid in January. In which month should the revenue be recognized?
January
This adjusting entry reduces a prepaid expense account and increases an expense account as the prepaid service is consumed over time.
Deferred expense adjusting entry
This account accumulates the total amount of depreciation taken on an asset and is reported on the balance sheet as a contra-asset.
Accumulated depreciation
If prepaid expenses are not adjusted, this financial statement will overstate assets and understate expenses.
Balance Sheet
This ratio shows the percent of profit in each dollar of sales.
Profit margin (return on sales)
A business using the cash basis receives $5,000 in advance for services to be performed over the next 6 months. Under the cash basis method of accounting, how much is recognized in the month it is received?
$5,000