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7 Cards in this Set
- Front
- Back
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Cash Method of Accounting |
- Used by most small businesses - Income is recorded when cash is received and expenses are recorded when they are paid - When cash changes hands |
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Accrual Accounting Method |
- Revenue is recognized when it is earned through delivery of goods/services - Payment is assured - Expenses are recorded when they are incurred or when the business used some resource, even if expenses aren't paid yet. - Useful b/c it shows underlying business transactions NOT just those where cash changes hands. |
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Accounting Period |
Time frame for which results are being reported e.g. months, a quarter, or a year. |
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Deferred/unearned revenue |
- When a company receives cash before a good has been delievered or a service has been provided. - Known as a liability account |
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Realization Principle |
- Revenues are recognized when they are earned and realizable. - Does not necessarily have to be when cash changes hands |
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Matching Principle |
Expenses should be recognized in the period in which the revenues they helped generate are recognized. - Revenues are typically recognized when inventory is sold. - Expenses are generally recognized at the same time. |
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Prepaid Expense |
Businesses choosing to prepay for goods/services that will provide future benefits - Recongized as an asset the reduced to expenses over time |
