Accrual Accounting Concepts

Flashcards for reviewing key concepts of accrual accounting.

In __ accounting, revenues are recorded only when cash is received.

Cash Basis

Under __ accounting, revenues are recorded when earned, regardless of cash receipt.

Accrual Basis

The __ Principle states that revenues should be recognized in the period earned.

Revenue Recognition

According to the __ Principle, expenses are recorded in the period incurred.

Matching

Adjusting entries are made to ensure compliance with revenue recognition and __ principles.

matching

Adjusting entries include __ assets such as prepaid insurance and supplies.

prepaid

__ revenue is recorded when cash is received before it is earned.

Unearned

Accrued __ refers to revenues that have been earned but not yet billed or recorded.

revenues

Expenses incurred but not yet paid are recorded as __ expenses.

accrued

Interest Expense formula: Principal of Note x Annual Interest Rate x __.

number of months

Closing entries are used to transfer RED (Revenues, Expenses, Dividends) to __.

Retained Earnings

To ensure a zero balance in RED accounts at the beginning of the new year, closing entries must be made for __ accounts.

temporary

In depreciation, the __ value is the estimated value of an asset at the end of its useful life.

salvage

Using the __ method, depreciation Expense is calculated by dividing the depreciable base by the useful life.

Straight-Line

If an adjusting entry for depreciation is not recorded, it will lead to an overstatement of __ .

assets

The principal amount of the note is known as its __ value.

face