Adjusting Entries and Accounting Principles Flashcards

Flashcards on adjusting entries, cash vs accrual basis, periodicity concept, accruals and deferrals, and seven categories of adjusting entries.

Cash Basis

Recognizes revenue when cash is received and expenses when cash is paid.

Accrual Basis

Recognizes revenues when sales are made or services are performed, regardless of when cash is received, and recognizes expenses as incurred, whether or not cash is paid out.

Revenue Principle

Revenues are recognized when sales are made or services are performed, regardless of when cash is received.

Matching Principle

Expenses are recognized as incurred, whether or not cash is paid out.

Adjusting Entries

Journal entries recorded in the General Journal, usually prepared at the end of an accounting period.

Calendar Year

One year period between January 1 and December 31.

Fiscal Year

Starts and ends at any point during the year, as long as it is within 12 months.

Accruals

Cash flows after the revenue is earned or expense is incurred.

Deferrals

Cash flows before the revenue is earned or expense is incurred.

Accrued Expenses

Expenses that have been incurred but not yet paid in cash.

Accrued Revenue

Revenues that have been earned but not yet received in cash.

Prepaid Expenses

Expenses that have been paid but will typically expire or get used up in the near future.

Unearned Revenues

Revenues collected in advance from customers but the corresponding service or product is to be provided in the future.

Asset Method

An asset account is debited upon payment of the prepaid expense.

Expense Method

An expense account is debited upon payment of the prepaid expense.

Liability Method

A liability account is credited upon collection or receipt of cash.

Income Method

An income account is credited upon collection or receipt of cash.

Depreciation

Allocation of the cost of a tangible asset over its useful life.

Bad Debts/Uncollectible/Doubtful Accounts

An estimate of the portion of accounts receivable that a company does not expect to collect