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14 Cards in this Set
- Front
- Back
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Revenue Recognition Principle
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companies recognize revenue in the accounting period in which it is earned
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Matching Principle
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expenses are matched with revenues in the period when efforts are expended to generates
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Accrual-basis Accounting
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transactions that change a company's financial statements are recorded in the periods in which the events occur
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Cash-basis accounting
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companies record revenue only when cash is received and record expense when cash is spent
this is in violation of the revenue recognition principle |
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Adjusting entries
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ensure revenue recognition and matching principle are followed
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Deferrals: Prepaid Expenses
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expenses paid in cash and recorded as assets before they are used or consumed
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Deferrals: Unearned revenue
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Cash received and recorded as liabilities before revenue is earned
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Accruals: Accrued revenues
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revenues earned but not yet received in cash or recorded
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Accruals: Accrued expenses
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expenses incurred but not yet paid in cash or recorded
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How to Adjust entry for prepaid expenses
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increase(debit) to an expense account and decrease(credit) to an asset account
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How to Adjust entry for unearned revenue
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decrease(debit) liability account and increase(credit) a revenue account
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How to Adjust entry for accrued revenues
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increase(debit) asset account and increase(credit) to a revenue account
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How to Adjust entry for accrued expenses
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increase(debit) to an expense account and increase(credit) to a liability account
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Summary of Basic adusting entry relationships
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see illustration 4-23 on page 179 in textbook...memorize this
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