Chapter 3 Flashcards
Accrual basis
Revenues are recorded when products or services are delivered, and records expenses when incurred
Cash basis
Revenues are recorded when cash is received and expenses are recorded when cash is paid
Recognizing revenue principle
Requires the revenue be recorded when the goods or services are provided to the customer
Matching of expenses
Expenses be recorded in the same accounting period as the revenues that are recognized as a result of those expenses.
3 steps to adjusting entries
Determine what the current account balance equals
Determine what the current account balance should equal
Record an adjusting entry to get from step 1 to 2
4 types of adjustments
Deferral of expenses
Deferral of revenue
Accrued expenses
Acarver revenue
Types of deferral of expenses
Prepaid
Supplies
Depreciation
Deferral prepaid entry
D expense
C prepaid
Deferral supplies entry
D supplies exp
C supplies
Deferral depreciation entry
D expense
C accumulated depreciation
Straight line depreciation exp.
Asset cost - salvage value/ useful life
Useful value
Time an asset is considered useful
Salvage value definition
Expected selling price of asset out ent of its lifetime
Contra Accounts
Accumulated depreciation
Allowance for doubtful accounts
Deferral of revenue entry
D cash
C unearned revenue
