Fundamental Accounting Principles CH3 Flashcards
Time Period Assumptions
presumes that an organization’s activities can be divided into specific time periods such as a month, quarter, semiannually, or annually
Time Periods
Weekly - 52 periods in a year Monthly - 12 periods in a year Quarterly - 4 periods in a year (3 months in each period) Semiannually - 2 periods in a year Annually - 1 period in a year
Accrual basis accounting
records revenues when services and products are delivered and records expenses when incurred (matched with revenues)
Cash basis accounting
records revenues when cash is received and records expenses when cash is paid. cash basis income is cash receipts minus cash payments
Revenue recognition principle
requires that revenue be recorded when goods or services are provided to customers and at an amount expected to be received from customers.
Expense recognition principle
also known as: Matching principle.
requires that expenses be recorded in the same accounting period as the revenues that are recognized as a result of those expenses.
Adjusting entry
made at the end of an accounting period reflects a transaction or event that is not yet recorded.
Prepaid expenses
aka deferred expenses
assets paid for in advance of receiving their benefits.
*when they are sued the advance payments become expenses.
Plant Assets
long term tangible assets used to produce and sell products and services
- useful for longer tan one period
- cost of plant assets are gradually reported as expenses(depreciation)
Accumulated Depreciation
a separate contra account.
*contra account is an account linked to another account, it has an opposite normal balance, and it is reported as a subtraction from other account’s balance
Unearned revenue
cash received in advance of providing products and services.
deferred revenues are liabilities.
Accrued expenses
costs that are incurred in a period that are both unpaid and unrecorded. reported on the income statement or the period when incurred.
Accrued Revenues
revenues earned in a period that are both unrecorded and not yet received in cash (or other assets)
Unadjusted trial balance
a list of accounts and balances before adjustments are recorded.
Adjusted trial balance
a list of accounts and balances after adjusting entries have bee recorded and posted to the ledger.
