ch 3 Flashcards
Adjusting accounts (25 cards)
What account does unearned revenue fall under
liability
Interim periods
less than one year periods
fiscal periods
year long periods
Accrual basic accounting
transactions/events are recorded in the period when they occur, and not when the cash is paid or received
Cash basis accounting
Revenue is recorded when cash is received, and expenses are recorded when cash is paid
the two approaches to revenue recognition
Contract based approach (IFRS) and earnings approach (ASPE)
Contract based approach
Revenue recognized when the performance obligation is satisfied. recognizes and measures revenue based on changes in assets and liabilities.
Variable consideration
any amount that may change what the seller receives when the performance obligation is complete
stand alone value
amount the goods or services would sell for individually
earnings approach
recognizes and measures revenue based on whether it has been earned.
stakeholder
an individual or a group of individuals with an interest, often financial, in the success of a business
adjusting entries
recorded at end of period, makes sure that revenue is recorded when services are performed or goods are provided, and expenses are recorded as incurred and that the correct amounts for assets, liabilities, and OE are reported on the balance sheet
what does every adjusting entry include
an income statement and a balance sheet
useful life
length of service
depreciation
the process of allocating the cost of a long lived asset over its useful life is called depreciation
straight line depreciation method
calculating the depreciation expense by diving the cost of the asset by its useful life
is depreciation an estimate or factual measurement
estimate
accumalated depreciation
total sum of the depreciation expense since the asset was purchased
contra asset account
has the opposite (credit) balance to its related asset (debit)
normal balance of a contra asset account
credit, against related asset account
carrying amount
difference between the cost of any depreciable asset and its accumulated depreciation
accrued expenses
expenses incurred but not yet paid or recorded at the statement date
interest formula
principal amount x annual interest rate x time in terms of one year = interest
principal amount
amount borrows or the amount still owed on a loan, separate from interest
