11.2 - Accrued Accounts

Question 1

Accrued Expenses

Answer 1

expenses that have been incurred but not yet recorded

–> eg. Accrued Interest; Accrued Salaries

Question 2

Accrued Interest

accrued expense

Answer 2

interest part on the bank loan which is paid at a later date

Question 3

Accrued Salaries

accrued expense

Answer 3

salaries earned (by employees) but not yet paid

Examples:
* commissions
* when financial period end does not match a pay day

Question 4

Accrued Revenue

Answer 4

revenue that has been earned but not journalized or posted to the general ledger

eg. interest earned from gic or savings account
–> if it is interest earned accross multiple fiscal periods, you need to record how much was earned each fiscal period to follow matching principle

Question 5

Unearned Revenue

Answer 5

revenue that has been received but not yet earned

CURRENT LIABILITY

customer pays (in advance), but you haven’t provided them the service; therefore, you owe them service…

Question 6

Consequences of not recording…

Accrued Revenue

Answer 6

• Revenue: understated
• Net Income: understated
• Assets: understated
• Owner’s Equity: understated

Question 7

Consequences of not recording…

Accrued Expense

Answer 7

• Revenue: overstated
• Net Income: overstated
• Liabilities: understated
• Owner’s Equity: overstated

liabilities –> think bank loan + interest example
- you wouldn’t record your interest owed (interest payable)
therefore, liabilities understated

Question 8

Consequences of not recording…

Unearned Revenue

Answer 8

• Revenue: overstated
• Net Income: overstated
• Liabilities: understated
• Owner’s Equity: overstated

L –> understated b/c Unearned Revenue is a Current Liability
R –> overstated b/c pretending we recorded amount as only Revenue