Ch 4+6

Adjusting Entries (AJE)

Entries made at the end of the period to properly report earnings, expenses, assets, and liabilities.

Expense Symbols

Expenses increase (+E), Stockholder’s equity decreases (-SE).

Book Value

Carrying value, amount that an asset or liability is reported in financial statements.

PP&E

Property, Plant, and Equipment.

Depreciation

Process of allocating costs to PP&E to prior periods.

Accumulated Depreciation

T-account that records this period and prior periods’ depreciation expenses.

Contra Asset Account

An account that offsets another account. Accumulated depreciation is one example.

Contra Asset Account Symbol

+xA, -A.

Deferred Revenue

A liability to work or return the cash.

Adjusted Trial Balance

A list of accounts after adjustments where Debits = Credits—Always.

Permanent Accounts

Accounts where the carrying ending value is the starting value in the next period (balance sheet accounts).

Temporary Accounts

Accounts where the balance is zeroed out at the end of the period (Revenues, Expenses, Dividends declared).

Closing Entries

Entries that close out temporary accounts to Retained Earnings.

Adjusting Entries Never

Involve cash.

Adjusting Entries Always

Are recorded at the end of the period and include one balance sheet and one income statement account.

Dividends

Not an expense; reduction to Retained Earnings.

Service Company

Sells services, not physical goods.

Merchandising Company

Sells goods that have been obtained from a supplier.

Inventory

Assets acquired for resale to customers.

Periodic System

Updates inventory records at the end of the period using a physical count.

Perpetual System

Continuously tracks inventory records; requires two journal entries (sales and cost) and still requires a physical count.

Goods Available for Sale (GAS)

Beginning Inventory + Purchases for the Period.

Cost of Goods Sold (CGS)

BI + P – EI = CGS or BI + P – CGS = EI.

Shrinkage

Inventory lost due to theft, fraud, or error.

FOB Shipping Point

Goods owned by the buyer when they leave the seller’s premises.

FOB Destination Point

Goods owned by the buyer when delivered to the buyer.

2/10, n/30

2% discount if paid in 10 days, or full amount due in 30 days.

Gross Profit

Difference between sales price and cost; calculated as Net Sales minus CGS.

Sales Returns & Allowances

+xR, contra revenue account, -R, -SE. Refunds and price reductions given to customers after goods are sold and found unsatisfactory.

Sales Discount

+xR, contra revenue account, -R, -SE. A price reduction given to a customer for prompt payment of their account (typically 2/10, n/30).

Purchases

Affect the balance sheet only.

Sales

Affect both the balance sheet and income statement.

Inventory Valuation

Actual cost plus all costs necessary to get inventory into condition and location for sale.