Accrual: expense
Recognition of expense incurred but not paid
Accrual: revenue
Recognition of revenue earned but not received
Accrual
Accrual basis recognition proceeds (leads to) cash
receipt/expenditure
Deferral
Cash receipt/expenditure proceeds (leads to) accrual basis
Recognition
Deferral: revenue
Postponement of recognition of revenue
Cash is received but revenue is not earned
Deferral: expense
Postponement of recognition of expense
Cash is paid, but expense is not incurred
Deferral postpones recognition of revenue or expense by placing the amount in…
Liability or asset accounts
Two methods are possible for deferring revenues and expenses
Depending on whether…
Real or nominal accounts are originally used to record the
Cash transaction
Entries are reversed for book keeping…
Expediency
If accruals are reversed, the subsequent cash transaction is reflected in the…
2) if accruals are not reversed the subsequent cash transaction must be…
Associated nominal account
2) apportioned between a nominal and real account
2 book keeping methods for deferrals of expense
1 expense method
2 asset method
2 book keeping methods for deferrals of revenue
1 revenue method
2 liability method
For small companies that use cash basis method an accountant is often called upon to…
To convert cash basis accounting records to accrual basis
When making journal entries to adjust from the cash basis to the accrual basis, it is important to identify what 2 Types of amounts?
1 current balance
2 correct balance
Current balance
Cash basis amount In a given account
Correct balance
Accrual basis amount in a given Account
Journal entries must adjust account balances from current amounts to…
Correct amounts
When adjusting a balance sheet account from the cash basis to the accrual basis, the other half of the entry will generally be to the related…
Income statement account
When adjusting accounts receivable the related account is…
Sales
When adjusting accounts payable the related account is…
Purchases
When adjusting prepaid rent the related account is…
Rent expense