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14 Cards in this Set

  • Front
  • Back
Revenue Recognition Principle
companies recognize revenue in the accounting period in which it is earned
Matching Principle
expenses are matched with revenues in the period when efforts are expended to generates
Accrual-basis Accounting
transactions that change a company's financial statements are recorded in the periods in which the events occur
Cash-basis accounting
companies record revenue only when cash is received and record expense when cash is spent
this is in violation of the revenue recognition principle
Adjusting entries
ensure revenue recognition and matching principle are followed
Deferrals: Prepaid Expenses
expenses paid in cash and recorded as assets before they are used or consumed
Deferrals: Unearned revenue
Cash received and recorded as liabilities before revenue is earned
Accruals: Accrued revenues
revenues earned but not yet received in cash or recorded
Accruals: Accrued expenses
expenses incurred but not yet paid in cash or recorded
How to Adjust entry for prepaid expenses
increase(debit) to an expense account and decrease(credit) to an asset account
How to Adjust entry for unearned revenue
decrease(debit) liability account and increase(credit) a revenue account
How to Adjust entry for accrued revenues
increase(debit) asset account and increase(credit) to a revenue account
How to Adjust entry for accrued expenses
increase(debit) to an expense account and increase(credit) to a liability account
Summary of Basic adusting entry relationships
see illustration 4-23 on page 179 in textbook...memorize this