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Acct. Adj. Entries
Accounting Ch. 3 - Adjusting Accounts for Financial Statements
Term | Definition |
---|---|
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 |