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Acct. Adj. Entries

Accounting Ch. 3 - Adjusting Accounts for Financial Statements

accounting period an established range of time during which accounting functions are performed, aggregated, and analyzed
annual financial statements reports covering a one-year period
interim financial statements cover one, three, or six months of activity
fiscal year consists of ANY 12 consecutive months, or 52 weeks
natural business year when sales are at their lowest level for the year; companies that have seasonal variation in sales often use this accounting period for their financial statements
accrual basis accounting records revenues when services and products are delivered and records expenses when incurred (matches with revenues)
cash basis accounting records revenues when cash is RECEIVED and records expenses when cash is PAID. Cash basis income is cash receipts MINUS cash payments
adjusting entry made at the end of an accounting period and reflects a transaction or event that is NOT YET recorded
prepaid expenses deferred expenses; assets paid for in advance of receiving their benefits. when these assets are used, those advance payments become expenses. assets (insurance, rent, etc.)
plant assets also called Property, Plant & Equipment (PP&E); long-term tangible assets used to produce and sell products and services (buildings, machines, etc.)
depreciation the allocation of the costs of assets over their expected useful lives; doesn't necessarily measure decline in market value
straight-line depreciation allocated equal amounts of an asset's net cost of depreciation during its useful life
accumulated depreciation a separate contra account and has a normal credit balance
contra account an account linked with another account; has an OPPOSITE normal balance and is reported as a SUBTRACTION from that other account's balance
book value net amount; an asset's cost MINUS its accumulated depreciation;
unearned revenue deferred revenues; cash received in advance of providing products and services. liabilities
accrued expenses accrued liabilities; costs that are incurred in a period that are BOTH unpaid and unrecorded (rent, taxes, etc.)
formula for computed accrued interest principal amount owed * annual interest rate * fraction of year since last payment
accrued revenues accrued assets; revenues earned in a period that are BOTH unrecorded and not yet received in cash (or other assets) (interest, rent, etc.)
unadjusted trial balance list of accounts and balances BEFORE adjusting entries are recorded
adjusted trial balance list of accounts and balances AFTER adjustments entries have been recorded are posted to the ledger
Created by: Kendall Posey
Popular Accounting sets




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