Intermediate Accounting Rockhurst Chapter 2

Front 1

economic event

Back 1

Any event that directly affects financial position of the co.

Front 2

External events

Back 2

Exhcange between the co and a separate econ entity.

Front 3

Internal events

Back 3

directly affect the financial pos of a co. but don't involve and exchange with others such as depr. use of supplies.

Front 4

Accounting Equation

Back 4

Assets=Liabilities+Equity

Front 5

Retained Earnings

Back 5

Net income - distribution to share holders (dividends)

Front 6

Debits on the ? Credits on the ?

Back 6

Left, right

Front 7

Permanent accounts

Back 7

Assets, liabilities, and shareholders equity at a point in time.

Front 8

Temporary accounts

Back 8

Represent changes in retained earnings caused by expense, revenue, gain loss trans. would be too costly to separate them out.

Front 9

Transaction analysis

Back 9

Process of reviewing the source documents to determine the dual effect on accounting equation and the specific elements involved.

Front 10

Journal

Back 10

Chronological record of events affecting a firm.

Front 11

Posting

Back 11

Involves transferring debits and credits recorded in individual journal entries into the specific accounts affected.

Front 12

To record the reciept of rent in advance the journal entry is:

Back 12

Cash
Unearned rent revenue (liability)

Front 13

Unadjusted Trial balance

Back 13

a trial balance is a list of general ledger accounts along with their balances. Alloows us to check for completeness and prove the sum of the accounts debits equal credits.

Front 14

Prepayments

Back 14

Transactions in which they cash flow precedes expense or revenue recognition.

Front 15

Prepaid expenses

Back 15

represent assets recorded when a cash disbursement creates benefits beyond the current reporting period. The adjusting entry for this is a debit to an expense and a credit to an asset.

Front 16

Adjusting entry to record cost of supplies is

Back 16

Supplies expense
Supplies

Front 17

To record expired rent

Back 17

Rent expense
Prepaid Rent

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unearned revenue

Back 18

liability recorded when cash is received from customers in advance of providing a good or service. Adjusting entry required involves a debit to a liability and a credit to Revenue.

Front 19

To record previously unearned rent revenue journal entry

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Unearned Rent Revenue
Rent Revenue

Front 20

Alternative approach is to expense all cash such as
Rent Expense..................24000
Cash..................................24000
Then the entry at the end of the month requires you to record the prepaid rent and reduce pg. 69

Back 20

Pd 24,000 cash and expensed it all. The monthly cost is 2,000 so we debit prepaid rent for
Prepaid Rent..............22,000
Rent expense..................22,000

Front 21

Accruals

Back 21

involve transactions where the cash outflow or inflow takes place in a period subsequent to expense or revenue recognition. Adjusting entry is a debit to an expense and a credit to a liability

Front 22

To record accrual of salary Journal Entry

Back 22

Salaries expense..........5,500
Salaries Payabel...........5,500

Front 23

Journal Entry to accrue interest

Back 23

Interest Expense..........333
Interest payable.............333

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Failure to record an adjusting entry for an accrued liability will cause net income to be ? liabilitys will be?

Back 24

overstated, and liabilities understated.

Front 25

Accrued recievables

Back 25

involve situations when the revenue is earned in a period prior to cash receipt. Adjusting entry is to debit an asset, a recievable, and a credit to revenue.

Front 26

Journal entry to record interest revenue earned in Aug.

Back 26

Interest receivable............200
Interest REvenue..............200

Front 27

Estimates

Back 27

Accountants often must make estimates to comply with accrual model. one example will be depr and bad debt expense.

Front 28

Journal Entry to record bad debt expense

Back 28

Bad debt expense...........500
Allow for uncollectible........500
We don't reduce A/R directly instead we credit a contra account called allow for uncollectible to reduce it indirectly. Contra account is used to keep intact the A/R total amount of receivables outstanding.

Front 29

Adjusted Trial balance

Back 29

Adjusted entries are now posted to the accounts.

Front 30

The income statement

Back 30

A change statement that summarizes the profit generating transactions that cuased shareholder's equity (retained earnings) to change during the period. Shows revenues minus expenses.

Front 31

Balance Sheet

Back 31

position statement that presents an organized list of assets, liabilities, and equity at a particular point in time.

Front 32

Current assets and current liabilities

Back 32

Time period is if they are shorter than a year.

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Statement of Cash flows

Back 33

Purpose is to summarize transactions that caused cash to change during the period.

Front 34

Statement of Shareholder's equity

Back 34

Discloses the sources of changes in the permanent shareholders' equity accounts.

Front 35

Closing process

Back 35

Serves to 1. reduce accounts (revenues, expenses, gains, and losses) to zero balances ready to measure activity in the upcoming period. and 2. the temp balances are closed to retained earnings to reflecct the changes that have occurred in that account during the period.