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Accounts Adjustments
Financial Accounts and Adjustments
| Term | Definition |
|---|---|
| Time Period | Assumption that states that the economic life of a business can be divided into artificial time periods |
| Accrual | Basis of accounting that is in accord with the GAAP, and states that the economic events of a company should be recorded in periods in which they occurred. Also Revenue is recognized in the period in which the service was performed. |
| Expense Recognition | Principle or assumption dictating that efforts (expenses) be matched with accomplishments (revenues). |
| Adjusting entries are made to ensure that: | 1. Expenses are recognized in the time period in which they are incurred. 2. Revenues are recorded in the period in which services are provided. 3.The Balance Sheet & Income Statement accounts have a correct balance at the end of the period. |
| Prepaid Expense | Assets paid in cash and recovered before a company use them. |
| Unearned Revenues | Cash received before a company earns revenues and recorded as a liability until earned. |
| Accrued Expense | Expenses incurred but not yet paid in cash or recorded. |
| Accrued Revenues | Revenues earned but not yet received in cash or recorded. Prepaid Expense |
| Revenues earned but not yet received in cash or recorded. Prepaid Expense | Before the adjustment, this transaction has: Overstated ASSETS & Understated EXPENSES |
| Unearned Revenues | Before the adjustment, this transaction has: Overstated LIABILITIES & Understated REVENUES |
| Accrued Expense | Before the adjustment, this transaction has: Understated LIABILITIES & Understated EXPENSE |
| Accrued Revenues | Before the adjustment, this transaction has: Understated ASSETS & Understated REVENUES |
| Prepaid Expense | To adjust this entry we must: Debit: EXPENSES (increase) Credit: ASSETS (decrease) |
| Unearned Revenues | To adjust this entry we must: Debit: LIABILITIES (decrease) Credit: REVENUES (increase) |
| Accrued Expense | To adjust this entry we must: Debit: EXPENSES Credit: LIABILITIES |
| Accrued Revenues | To adjust this entry we must: Debit: ASSETS Credit: REVENUES |
| What is debited and credited to adjust the following: Pegasus borrowed R20,000 from a local bank on a 10-year note. The annual interest rate is 9% | Interest expense, interest payable |
| What is debited and credited to adjust the following: Pegasus owed employees R1,300 in salaries that the company will pay in August. | salaries and wages expense, salaries and wages payable |
| What is debited and credited to adjust the following: Salaries earned by employees of R900 have not been recorded | salaries and wages expense, salaries and wages payable |
| What is debited and credited to adjust the following: Interest on notes payable of R360 is accrued. | interest expense, interest payable |
| What is debited and credited to adjust the following: Services provided but not recorded total R1,750. | accounts receivable, service revenue |
| What is debited and credited to adjust the following: The equipment depreciates R200 per month. | Depreciation expense, accumulated depreciation |
| What is debited and credited to adjust the following: 2/5 of the unearned service revenue was recognized in March. | unearned service revenue, service revenue |
Created by:
10153990670042949
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