Untitled Flashcard Set

Deferrals

Transactions where cash is paid or received before revenue is earned or an expense is incurred.

Prepaid Expenses

Cash payments made for benefits or services that will be received in the future, initially recorded as assets.

Unearned Revenues

Cash received before earning revenue, initially recorded as liabilities.

Adjusting Entries

Entries made at the end of accounting periods to properly match revenues and expenses.

Cash Basis Accounting

An accounting method where revenues and expenses are recognized only when cash is exchanged.

Accrual Accounting

An accounting method where revenues and expenses are recorded when earned or incurred, regardless of cash flow.

Deferred Revenue Liability

Liability created when cash is received before services are performed.

Deferred Expense Asset

Asset created when cash is paid before benefits are received.

Supplies Expense

Expense recognized when supplies purchased are used.

Insurance Expense

Expense recognized for the cost of insurance coverage consumed.

Accumulated Depreciation

A contra-asset account that records total depreciation expense for an asset over its life.

Book Value

The value of an asset after accounting for depreciation.

Depreciation Expense

The periodic expense recognized for the reduction in value of a tangible asset.

Prepaid Insurance

Insurance payment made in advance, recorded as an asset.

Contra-Asset Account

An account that offsets an asset account, reducing its balance.

Breakage Revenue

Revenue recognized from unused gift card balances.

Gift Card Accounting

Accounting treatment for the sale and redemption of gift cards.

Revenue Recognition

The accounting principle determining when revenue is recognized.

Timing Difference

The discrepancy between cash transactions and when revenue or expenses are recognized.

Supplies

Items that a company uses in its operations, recorded as assets when purchased.

Rent Revenue

Income earned from renting property, recognized when the rental period occurs.

Legal Compliance

Adhering to laws regarding unredeemed balances in gift cards.

Expense Recognition Principle

The guideline that expenses must be matched with revenues in the correct period.

Assets Adjustments

Changes in asset accounts that reflect the consumption or expiration of prepaid benefits.

Liabilities Adjustments

Changes in liability accounts that reflect revenue earned from previously unearned amounts.

Sales Revenue

Income recognized when services are delivered or products are sold.

Prepaid Rent

Rent payment made in advance, recorded as an asset until earned.

Effective Accounting Systems

Systems necessary for managing accounting processes accurately and efficiently.

Economic Benefits

Future advantages that result from paying for goods or services upfront.

Cash Flow

Movement of cash in and out of a business.

Adjustment Process for Prepaid Expenses

Identify used amounts, debit expense account, and credit asset account.

Payment in Advance

Cash exchanged before receiving goods or services, leading to deferral entries.

Revenue Impact

The effect on financial statements when revenue is recognized.

Historical Data

Data used to estimate future liabilities or revenues, especially concerning breakage.

Tracking Balances

Monitoring remaining amounts on gift cards to ensure accurate revenue recognition.

Monthly Adjustments

Regular modifications to accounts based on the passage of time and consumption.

Accounting Treatment for Unearned Revenue

Revenue is recognized only when the service is performed or product delivered.

Importance of Asset Book Value

Indicates the remaining worth of an asset by subtracting accumulated depreciation.

Revenue Understatement

When revenues are inaccurately reported as lower than they are.

Asset Recognition

The process of recording an asset on financial statements at a given value.

Liability Overstatement

When liabilities are inaccurately reported as higher than they actually are.

Adjustment Examples

Specific instances illustrating the adjustment process for both prepaid expenses and unearned revenues.

Systematic Allocation of Cost

The process of distributing the cost of an asset over its useful life.

Compliance with Escheat Laws

Following legal requirements regarding unredeemed gift card balances.

Cash Recognition Principle

Revenues are only recognized when cash is received.

Payment Recording Practices

How payments are documented within accounting systems to accurately reflect cash flow.

Accurate Financial Reporting

Ensuring that financial statements truly represent a company's current economic status.

Outstanding Balances

Unused funds remaining on gift cards or prepaid expenses that have not yet been recognized as revenue.

Income Statement Impact

How adjusting entries affect the reported income of a business.

Balance Sheet Reflection

The representation of various accounts as assets and liabilities on financial statements.