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23 Cards in this Set

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  • Back
ACCRUAL CONCEPT
Transactions
Are recorded as they occur
Are recorded even if cash not received or paid
Affect accounting equation (A = L + E)
It is designed to reflect a company's financial performance during a period and avoid misleading results that could arise from the timing of cash receipts and payments.
ACCRUAL
Revenue recognized (recorded) when earned
Liabilities recognized when obligation incurred
MATCHING PRINCIPLE
Expenses recognized, recorded in same period as related revenue
MATCHING MEANS
When revenue is recorded
Expenses incurred in generating revenues are
Identified
Recorded
Matching subtracts expenses from revenue to determine net income or loss
ADJUSTMENT PROCESS
Applies Matching Concept
Completes information necessary for balance sheet, income statement presentation
DEFERRALS
Cash paid before expense incurred or cash received before revenue recognized
Examples:
Prepaid expenses (insurance)
Unearned revenues
ACCRUALS
Recognize expense before cash is paid or recognize revenue before cash is received Examples:
Accrued expenses (interest expense)
Accrued revenues (for services provided but not billed)
INTEGRATED FINANCIAL STATEMENTS
Statement of cash flows linked to cash on balance sheet
Net income from income statement linked to retained earnings statement
Retained earnings linked to balance sheet in stockholders’ equity
ACCRUAL ACCOUNTING
Accrual accounting enhances interpretation
By following a standard set of rules (GAAP) for
Recording
Reporting
Is a better predictor of long-term profitability
DEPRECIATION
the reduction in the ability of a fixed asset to provide service
BOOK VALUE/ CARRYING VALUE
the cost of the fixed asset less the balance of its accumulated depreciation
UNEARNED REVENUE
revenue that has been paid in cash, but not yet earned
PREPAID OR DEFERRED EXPENSES
When a coverage such as insurance is expired with passage of time. At the end of the period the asset will have been used up and the policy will be completely expired
ACCOUNTS PAYABLE
liabilities that are incurred in the normal operations of the business
ACCOUNTS RECIEVABLES
revenue that is to be collected in the future and that arise from the normal operations of a business
DEFERRED REVENUE
items that initially have been recorded as liabilities but are expected to become revenues over time or through the normal operations of the business
ACCRUED EXPENSES or ACCRUED LIABILITES
are expenses that have been incurred but have not been recorded in the accounts
ACCRUED REVENUES or ACCRUED ASSETS
are revenues that have been earned but have not been recorded in the account
CURRENT ASSETS
cash and other assets that are expected to be converted to cash or sold or used up within 1 yr or less, through the normal operations of the business
NOTE RECEIVABLE
are written claims against debtors who promise to pay the amount of the note payable transaction
LIABILITIES
are amounts owed to outsiders(creditors). Its often associated with the word payable
CURRENT LIABILITES
liabilities that will be due within a short time, less than a yr usually and that to be paid out to current assets
ex. notes payable or accounts payable
LONG-TERM LIABILITIES
liabilities that will not be due for a long time, usually more than 1 yr.