Amount earned by selling goods or service to customers during 2015
Revenue in the income statement for the year ended December 31, 2015 equals the
Accrual -Basis accounting
reporting revenues when they are earned and expenses in the period they are incurred to generate these revenues
Earned
consistent with the revenue recognition principle, revenue should be recognized when
$1,000 should be recorded in June
In may, sea the world curises, Inc. collected $1000 cash from a customer for services to be peformed in June. Which of the following is true assuming accrucial accounting
-debit to Accounts Receivable
-credit to Service Revenue
The journal entry a law firm records when it provides legal services for a client who will pay in a later period
$10,000
Monster Music Company provided music lessons to customers and earned $10,000, receiving six thousand in cash and the rest on accoun. What is Monster Music revenue under the accrual basis of accounting
Expenses
cost of operating a business that are incurred to generate revenues in the period covered by the income statement
Matching principle
under the accrual basis of accounting, it requires that expenses be recognized in the same period as the related revenues
-income tax expense
-sales revenue
-salaries expense
which of the following items appear in an income statement
Debit is to retained earnings
like credits is to expenses
-liability
-prepaid expense
if an adjusting entry's debit is to an expense account, then the credit must be to an
The company has $1400 in supplies remaining at the end of the period
if a company determines that it has $1400 of supplies on hand at the end of the period, which of the following statements is correct?
Cash basis accounting
reporting revenues only when cash is received and expenses only when cash is paid
as assets
Neuman Corporation purchases supplies that ill be used during the following quarter, At the time of purchase, the supplies should be recorded
Permanent
revenues,expenses, and dividends
temporary
assets, liability, equity
Depreciation
...
Prepaid
expenses require adjustment because the cash is paid in one period, but the resource is not completely used until a later period
The adjusting entry for a prepaid expense always includes a debit to an expense account (increase an expense and a credit to an asset account (decrease an asset)
Prepaid stuff
-will debit prepaid insurance for 1800 on sep 1
-will debit insurance Expense for 300 on sep 30
-will credit prepaid insurance for 300 on sept 30
Taggert Company paid $1800 for a 6 month insurance premium on September 1
Interest Expense
accumulates or accrues throughout the accounting period on notes payable
Steps in the adjustment process at the end of the accounting period
1. Using the unadjusted trial balance, determine the accounts requiring adjustment
2. Record the adjusting entries in the journal
3. Post the adjusting journal entries to the T-accounts
4. Prepare an adjusted trail balance to check the equality of the deb
T- accounts
adjusting entries are posted to update their balances
Closing entries
transfer the balance of all temporary accounts (revenues, expenses, dividend) to the balance of the Retained Earning account
A closing entry may include
credit to Wages Expense
- a company pays a 6 month insurance premium at the beginning of October
-a company pays for 4 months of advertising in the Wall Street Journal on Nov 1
transaction are examples of prepayment that will require an adjustment at the end of the accounting period on December 31
The adjusted trial balance should be prepared before the financial statement are prepared in order to prove the equality of the debits and credits
...
-debit to prepaid insurance
-Credit to cash
Book Palace prepaid 12 monts fire insurance with coverage starting the following month. The journal entry to recored this transaction includes
Interest
defined as the cost of borrowing money
expense account
an account represents all the costs incurred during the period on borrowed money
Revenues are earned but have not been collected or recorded at the end of the period
When will account receivable be involved in an adjusting entry?
Intangible assets
assets that lack physical substance but that have long term value to a company such as patents, copyrights, franchises and trademark
-matching
-revenue recognition
adjusting entries are a natural part of accrual basis accounting and support which principles?
entries needed for the closing process
-credit dividends declared and debit retained earnings
- debit each revenue, credit each expense, and record the difference in retained earnings
order in which assets accounts appear on company's balance sheet
1. Cash
2. Account Receivable
3 equipment
Adjustments are made at teh end of the accounting period because making them on a daily basis would be inefficient
How does the timing of adjusting entries differ from the accounting for the daily transaction
Debited
During the closing process the closing entry to reduce the sales revenues normal account balance to zero requires the revenue account to be
-even though the interest will not be paid until future period the expense was actually incurred during the current accounting period
-In order to accurately portray the liabilities of the company, all amount owed should be reported in the balance sheet
why is an adjustment necessary for interest incurred on a note payable at the end of the period if the interest will not be paid until the note payable is due?
Supplies should be decreased
Supplies Expense should be increased
a liability is increasing since cash will be paid in the future due to the expense incurred
In an accrual adjustment for expenses incurred but not yet paid
Accrual
occur when the cash flow occurs after either the expenses is incurred or the revenue is earned
transactions normally recorded as an asset when cash is paid
Rent Paid in advance
Retained Earnings
Amounts earned and kept by the company
-net income generated by the company through profitable operations that has not been distributed to its stockholders
Adjustment Process
1. Analyze the accounts to determine the amount of the adjustment
2. Record the adjusting entry in the journal
3. Summarize the adjusting entries in the account