Key Terms
This basis of accounting is not accepted under GAAP.
What is the cash-basis of accounting?
This occurs when we pay cash in advance of the service being provided to us.
What is a prepaid expense?
These two terms describe times of less than and more than one year, respectively.
What are Current and Long-Term?
During the closing process, all temporary accounts are closed to this account.
Revenues and expenses are recorded (recognized) when cash is received and paid, respectively.
What is the cash basis?
This is what an adjusted trial balance is used for.
What is creating financial statements and verifying debits equal credits?
Adjusting for cash received from customers, without providing a service or earning revenue, falls under this category of adjusting entries.
What are Deferred Revenues?
This statement shows assets, liabilities, and equity, but presents the assets and liabilities in categories by time frame.
What is a classified balance sheet?
This is prepared after all closing entries are made.
What is the post-closing trial balance?
Cash Basis date to record revenue: Service performed on April 24, cash received from customers on May 2.
What is May 2?
These three types of accounts are temporary accounts.
What are Revenues, Expenses, and Dividends?
Paying for insurance for the next year, then recording the amount expired/used is an example of this type of adjusting entry.
What is a Prepaid Expense?
The income statement shows these three main items.
What are Revenues, Expenses, and Net Income?
The closing process happens at this time in the accounting period.
What is at the end of the period?
Accrual Basis date to record revenue: Performed a service on August 1, but didn't collect cash from the customer until August 13.
What is August 1?
These three types of accounts appear on the post-closing trial balance.
What are Assets, Liabilities, and Equity?
Adjusting for revenue earned, but without receiving cash from customers, is an example of this type of adjusting entry.
What are Accrued Revenues?
What is the statement of stockholders' equity?
The closing process requires this many journal entries.
What is three journal entries?
This is when we record revenues and expenses under the accrual basis of accounting.
What is when revenues are earned and expenses are incurred?
This is the definition for the revenue recognition principle.
What is recording revenues when they are earned, regardless of when cash is received?
Adjusting for salaries owed, but not yet paid, at the end of the period falls under this category of adjusting entries.
What are Accrued Expenses?
The balance of retained earnings on the adjusted trial balances matches this balance.
What is the beginning balance of retained earnings?
The balance of retained earnings on the post-closing trial balance matches this balance.
What is the ending balance (after closing entries) of retained earnings?
These are the four categories of adjusting entries.
What are 1) Prepaid Expenses, 2) Deferred Revenues, 3) Accrued Expenses, and 4) Accrued Revenues?