Unit 3 Flashcards
(22 cards)
operating cycle
the cash to cash sequence. cash is on hand; assets and expenses paid for needed to create revenue; services performed that will generate revenue; accounts receivable; cash payed by customer
GAAP rules for recognition
economic activity should be recorded when 1) the future economic benefit will probably flow into business 2) when activity has a value that can be measured reliably
unadjusted trial balance
a trial balance where accounts have not yet been adjusted
accrued revenue
revenue that has been earned but not yet collected or recorded
accrued expenses
expenses that have been incurred but not yet paid for or recorded
mixed account
asset and liability accounts are mixed accounts because they contain a Income Statement and Balance Sheet component
long-lived assets
Assets that generate revenue over many accounting periods
depreciation
the act of spreading the cost of a long-lived asset of many accounting periods
(cost-residual value)/useful life
useful life
how long the asset will be used by the company
residual value
the value of the long-lived asset at the end of it’s useful life
depreciable cost
cost - estimated residual value
contra account
an account associated to another account, that usually has an offsetting affect
how to calculate interest
Principle x Annual Rate = yearly interest
5 different types of adjustments
1) adjust of prepaid assets; 2) adjust Plant and Equipment Assets; 3) adjust unearned liabilities; 4) adjust accrued expenses; 5) adjust accrued revenues
adjusted trial balance
a trial balance containing adjustments
permanent account
retained earnings
temporary accounts
dividends, revenues, expenses
closing entries
entries that transfer all revenue, expense, dividend accounts into retained earnings at the end of the fiscal year. Done after financial statements have been made
note needed in journal if there is a net loss after closing entries
To close the net loss, a debit balance in the income summary, to retained earnings.
post-closing trial balance
trial balance performed after closing entries to validated that total debits match total credits.
post-closing trial balance
trial balance performed after closing entries to validated that total debits match total credits. shows only remained permanent accounts
Adjusting Entries
- Verifies that the balances in the IS and BS matches the balance in the accounts for the accounting periods
- allocates expenses and revenues to the periods they occurred in, not nec. To when cash passes hands
- GAAP matching and recognition
