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7 Cards in this Set
- Front
- Back
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Balance day adjustment (BDA)
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A change made to a revenue or expense account on balance day so that revenue accounts show revenues earned and expense accounts show expenses incurred in a particular Reporting Period.
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Purpose of BDA
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Balance day adjustment ensures that profit can be accurately calculated by comparing revenues earned against expenses incurred in the current R.P.
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Accrual accounting
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The calculation of profit by comparing revenues earned against expenses incurred in a particular Reporting Period.
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Types of BDA
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•Stock losses and gains
•Prepaid expenses •Accrued expenses •Depreciation |
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Prepaid expense (Asset)
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An expense paid in advance but not yet to be consumed.
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Accrued expense (Liability)
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An expense that has been incurred but not yet paid.
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BDA effects
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-Each BDA for an expense increases the expense, thus decreasing profit and owner's equity
-Adjustments for prepaid expenses decrease assets -Adjustments for accrued expenses increase liabilities -BDA have no effect on cash, but will change Net Profit and items in Balance Sheet. |
