FAR 1 - Chapter 5 The Adjustment Process (copy)

Mixed Account

is an account that combines the features of a real account and nominal account.

Real account

another term for financial position accounts

Nominal account

another term for income statement accounts

Adjusting Entries

Entries made at the end of the accounting period to update or correct the accounts in order to portray realistic financial statements

Adjusting Entries

They have at least one statement of financial position account entry and at least one income statement account entry

Adjusting Entries

They are needed when deferrals and accruals exist

Adjusting Entries

An entry that splits the nominal and real accounts from a mixed account.

Deferrals

is the postponement of the recognition of an expense already paid or of a revenue already received.

Accruals

is the recognition of an expense that has been incurred but not yet paid or revenue that has been earned but not yet collected.

Prepaid Expense

are expenses paid in advance

Deferred Expense

an expense that is already paid but not yet incurred

Depreciation Expense

is the portion of the cost of a fixed asset that is charged or allocated as expense for the period

Depreciation Expense

It is the allocation of the cost of the asset over its estimated useful life

Accumulated Depreciation

a contra-asset account used to accumulate the total past depreciation on a specific long-lived asset

Net book value

The remaining value of the asset after deducting the depreciation

Net book value

The difference between the cost of fixed assets and the related accumulated depreciation

Deferred Revenue

Payment for revenue in advance.

Deferred Revenue

An income that is already received but not yet earned

Accrued Revenues

are revenues for which the services have been performed or the goods delivered but no payment has been received yet

Accrued Revenues

An income that is already earned but not yet received or collected

Accrued Expenses

an expense that is already incurred but not yet paid

Doubtful accounts

Uncollected accounts

Bad debt expense

doubtful account recorded in the journal

Bad debt expense

Reduces the amount of accounts receivable but instead of crediting accounts receivable, another account is used

Net Realizable value

the difference between the accounts receivable amount and the allowance for bad debts