Flashcards in Unit 11-13 Deck (21)
what are adjustments?
counting changes that are recorded to ensure that all account balances are correct
why are the books adjusted?
The books are adjusted to make sure the financial statements are accurate
what are prepaid expenses?
payments that are made in advance that are used up in operating the business
ex. prepaid rent
what is depreciation?
The amount in which an asset loses value during its lifetime
depreciation is an expense and appears on the income statement
what is a contra account?
A contra count reduces the value of another account
example accumulated depreciation
Book value versus market value
Book value is the cost of an asset minus the accumulated depreciation
market value is what the item would sell for
what is the straight-line method of depreciation?
The same amount of depreciation is divided over each for fiscal period
cost divided by lifetime
what is the declining balance method of depreciation?
a fixed percentage is given to each asset and that is subtracted each fiscal period
The principle of materiality
information that could affect the decisions of the users of financial statement be included when the financial statements are prepared
principle of conservatism
when there are acceptable alternative accounting treatments for an item accountants much choose the one that will result in lower net income and net assets
what titles are included in the 8 column worksheet?
trial balance, adjustments, income statement, balance sheet
what titles are included in the 10 column worksheet?
trial balance, adjustments, adjusted trial balance, income statement, balance sheet
what is closing the books?
the process by which revenue and expense accounts are reduced to zero at the end of the fiscal period
what are temporary accounts?
accounts reduced to 0 at the end of each accounting period, they do not carry their balance forward
what are permanent accounts?
asset, liability, and owners capital accounts, their balances are carried forward
what are the steps to closing the books?
close revenue accounts
close expense accounts
close income summary account
close the drawings account
what are the 2 purposes behind closing the books?
1. Revenue and expense accounts are ready for the next accounting period
2. The capital account is updated
what is the post-closing trial balance?
a trial balance prepared after the closing entries have been posted. It contains only asset, liability and owners capital accounts
what is the accounting cycle for a service business?
closing entries journalized
closing entries posted
post closing trial balance
what are the steps in producing the 8 column worksheet?
1. write the heading
2. complete the trial balance
3. collect the necessary data for adjustments
4. complete the adjustments
5. transfer items to the income and balance sheets
6. total the income and balance sheet items and determine the net income
7. transfer the net income/loss to the balance sheet
8. balance and rule the worksheet