Time Period Principle
assumes that an organizations activites can be dived into specific time periods such as a quarter or a year.
Fiscal year
may represent any 12 month period. A company will typicaly choose to end its accounting year when business is slower
Cash basis
we record tranactions only when they infovolve cash. Buinesses however may not use the cash basies
Accurual basis
this method records the occurrence of tranactions whther cash was invovled or not
revenue recognition principle
requires revenue to be recorded when earned, not before and not after
the expense recognition (matching) principle
requires expenses to be recorded in the same period that these expenses generated revenue
What are the three steps to adjust an account balance
1. determine the current account balance
2. determine what the current account balance should be
3. Record adjusting entry to get from step 1 to step 2
Every adjusting entry affects ________ and an ________
balance sheet account and an income statement account
Does cash appear in an adjusting entry
NO
Adjusting entry
brings an asset or liability account ablance to its proper amount. This entry also updates the realted expense or revenue account
Cash may be recieved or paid in the first year but the related revenue or expense might take place in the second year is a
defferal
the revenue or expense might occur in the first year but the related cash is recieved (paid) in the second year
accrual
Prepiad
if cash is paid before the expense takes place (ie before receiving the benefits)
a prepaid payment is an
asset
when we receive the beenfits of a prepaid these assets then become
expenses
if cash is receieved before the revenue takes places (ie before it is earned) this is called _____________
unearned
unearned cash creates a _____
liability
after we provide the services the liabilities become ______
revenues
adjusting entries for unearned requires _______ revenues and _______ liabilities
increasing (crediting) revenues and decreasing (debiting ) liabilities
the income statement is prepared by
subtracting adjusted expenses from adjusted revenues
the statement of retained earnings is prepared by
adding net income and subtracting dividends from beginning retained earnings to arrive at ending retained earnings
the balance sheet is prepared by
including all of the adjusted balances for assets, laibilities, and common stock
Closing
prepares accounts to begin recording the tranaction and the events of the next period
Temporary accounts
accounts that start fresh the following period
what are the three types of temporary accounts
revenues, expenses, and dividends
what type of account is a balance sheet. temp or permanant?
permanant
temporary accounts
accumulaate data related to one accounting period and are closed to zero before beginning the next period
is cash closed or not closed
not closed
is salares expense closed or not closed
closed/temp
is accounts payable closed or not closed
not closed
is equipment closed or not
not closed
is common stock closed or not clsoed
not closed
is fees revenue closed or not closed
closed
is dividends closed or not closed
closed
are service revenues closed or not closed
closed
are unearned fees closed or not closed
not closed since thye are a liability
are supplies closed or not closed
not closed
are retained earnings lcosed or not closed
not closed
are prepaid insurance closed or not clsoed
not closed since they are an asset
are supplies expense closed or not closed
closed
Return on sales
also known as the profit margin is a useful measure of a comapnys operating results. it reflects the net income earned for each dollar of sales
how to calcululate return on sales/ profit margin
net income/net sales
current ratio equation is
current assets/ current laibilities