Chapter 3 Adjusting the Accounts

Image via Wikipedia What is the Accounting Period concept? The Accounting Period concept says that accountants assume that the economic life of a business may be divided into time periods that are more convenient than the calendar year. What is the Accrual Basis? A system in which revenues are recorded when they ere earned, and expenses when they are incurred, not just when cash is received or paid out. What is the Matching Principle? The Matching Principle is the accounting principle that supports reporting revenues and related expenses in the same accounting period. What are the Four Major categories of Adjusting Entries? (1) Deferred expenses or prepaid expenses (2) Deferred revenues or unearned revenues (3) Accrued expenses or accrued liabilities (4) Accrued revenues or accrued assets. What is Depreciation? Depreciation is the allocation of the cost of a long-lived asset to expense over its useful life in a rational and systematic manner. How do we find Book Value? We find book value by subtracting the accumulated depreciation from the cost of an asset. What are other names for Book Value? Book value is also called Carrying Value and Unexpired Cost. What is a Contra Account? A Contra-Account is an account that is matched or paired to a related account and subtracted from it. Therefore, its normal balance is the opposite of the related account. When you accrue a Revenue what do you need? When we accrue a revenue (by crediting the revenue account) we need a receivable as a debit. What you accrue an Expense what do you need? When we accrue an expense (by debiting the expense account) we need a payable as a credit. What is an Adjusted Trial Balance? A trial balance prepared to verify the equality of the total debit and credit balances before we prepare the financial statements. What are Unearned Revenues? Unearned revenues are liabilities that are expected to become revenues over time or through the normal operations of the business. What are Adjusting Entries? Adjusting entries are journal entries that bring the accounts up to date at the end of the accounting period. The General rule for adjusting entries is: All adjusting entries affect at least one income statement account and one balance sheet account. What are Prepaid Expenses? Prepaid expenses are accounts that have been initially recorded as assets but are expected to become expenses over time or though the normal operations of the business. Examples: supplies, prepaid insurance, and building. What are Accrued Expenses? Accrued expenses are expenses that have been committed or incurred (not yet paid) but not yet recorded in the accounts. What are Accrued Revenues? Accrued revenues are revenues that have been earned but have not been recorded in the accounts. What is PP&E? PP&E stands for Property, Plant, and Equipment. Other names used are: Long-lived assets, Fixed assets, or simply Plant Assets. What are the three Principles and three Assumptions we have studied so far? What the Titles of the three chapters we have studied so far? Ch1 Accounting in Action Ch2 Recording Process Ch3 Adjusting the Accounts Ch4 Completing the Accounting Cycle Ch5 Merchandising Operations Ch6 Inventories Ch7 Accounting Information Systems Ch8 Internal Control and Cash Ch9 Accounting for Receivables Ch10 PP&E, Natural Resources, and Intangible Assets Ch11 Current Liabilities and Payroll Ch12 Partnerships Ch13 Corporations Ch14 Corporations:Dividends, RE Ch15 Long Term Liabilities Ch16 Investment Ch17 Statement of Cash Flows Ch18 Financial Statement Analysis Plato and Accounting Price/Earnings Ratio Plant Assets Luca Pacioli and DaVinci The secrets of 'no-doze' prose: Mary Duffy's Sentence Openers Image via Wikipedia Lindsey Vonn

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