Term
| Revenue recognition principle |
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Definition
| requires that companies recognize revenue in the accounting period in which the performance obligation is satisfied |
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Term
| expense recongition principle |
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Definition
dictates that expenses should be matched with revenue
"let expenses follow rev" |
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Term
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Definition
| transactions that change a company's financial statements are recorded IN THE PERIOD IN WHICH THEY OCCUR even if cash wasnt exchanged |
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Term
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Definition
companies record revenue when they recieve cash, record an expense when they pay out cash
NOT APPROVED BY GAAP
MISLEADING FINANCIAL STATEMENTS |
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Term
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Definition
| ensure that the revenue recognition and expense recognition principles are followed |
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Term
| why are adjusting entries necessary |
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Definition
the trial balance may not contain up to date/ complete data
a. events not recorded daily
b. some costs expire over time
c. unrecorded (bills not yet recieved) |
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Term
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Definition
| the first pulling together of info |
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Term
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Definition
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Term
| what will every adjusting entry include? |
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Definition
one income statement account
one balance sheet account |
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Term
| what are the 2 types of adjusting entries? |
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Definition
1. deferrals (costs/revenues that are recognized at a later date than point when cash was originally exchanged)
*to defer means to postpone or delay
2. accruals (service performed but not yet recieved cash/ expenses incurred but not yet paid,recorded) |
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Term
| what are the two types of deferrals? |
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Definition
1. prepaid expenses (costs than expire w time or use)
2. unearned revenue (performance obligation to transfer service to customers)
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Term
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Definition
unadjusted balance in supplies account - actual cost of supplies on hand
[*decreases stockholders equity by increasing expenses] |
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Term
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Definition
process of allocating an expense over the value of its useful life/ over the periods in which it is used
depreciation does not attempt to record the actual change in value |
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Term
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Definition
- accumulated dep - equip (ex)
- perferable bc shows original value
- offsets other asset accounts (normal balance is credit) |
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Term
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Definition
| face value of note x annual interest rate x time in terms of year (1/12) = interest |
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Term
| what is an adjusted trial balance |
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Definition
after journalized and posted all ae's
(PRIMARY BASIS FOR ALL FINANCIAL DOCS) |
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Term
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Definition
| planned timing of revenues, expenses, gains, losses, to smooth out bumps in net income |
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Term
| a company w high quality of earnings... |
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Definition
| provides transparent financial info |
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Term
| what is the danger of one time items? |
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Definition
| inflate revenue (improper ae) |
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Term
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Definition
bc revenues, expenses, and dividends only apply to a given accounting period
"temporary accts" |
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Term
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Definition
balance sheet accounts
they are carried forward |
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Term
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Definition
| transfer net income and dividends to retained earnings, so balance = retained earnings statement |
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Term
| how to get 0 balance in temp accts |
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Definition
| put rev/exp accts to "income summary" which is the net income for the year (this then goes to retained earnings) |
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Term
| post closing trial balance |
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Definition
proves equality of debit and credit balances of permnanent acct balances carried forward
these usually take place at end of acct period |
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Term
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Definition
1. analyze transactions
2. journalize trans
3. post to ledger accts
4. prepare trial balance
5. journalize/post AE's (deferrals and accruals)
6. prep adjusted trial balance
7. prep financial statements
8. journalize and post closing entries
9. prep post closing trial balance |
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Term
| when is cash basis acct acceptable |
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Definition
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