Financial Accounts and Adjustments
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| Time Period | Assumption that states that the economic life of a business can be divided into artificial time periods
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| 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.
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| Expense Recognition | Principle or assumption dictating that efforts (expenses) be matched with accomplishments (revenues).
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| 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.
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| Prepaid Expense | Assets paid in cash and recovered before a company use them.
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| Unearned Revenues | Cash received before a company earns revenues and recorded as a liability until earned.
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| Accrued Expense | Expenses incurred but not yet paid in cash or recorded.
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| Accrued Revenues | Revenues earned but not yet received in cash or recorded.
Prepaid Expense
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| Revenues earned but not yet received in cash or recorded. Prepaid Expense | Before the adjustment, this transaction has:
Overstated ASSETS & Understated EXPENSES
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| Unearned Revenues | Before the adjustment, this transaction has:
Overstated LIABILITIES & Understated REVENUES
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| Accrued Expense | Before the adjustment, this transaction has:
Understated LIABILITIES & Understated EXPENSE
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| Accrued Revenues | Before the adjustment, this transaction has:
Understated ASSETS & Understated REVENUES
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| Prepaid Expense | To adjust this entry we must:
Debit: EXPENSES (increase)
Credit: ASSETS (decrease)
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| Unearned Revenues | To adjust this entry we must:
Debit: LIABILITIES (decrease)
Credit: REVENUES (increase)
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| Accrued Expense | To adjust this entry we must:
Debit: EXPENSES
Credit: LIABILITIES
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| Accrued Revenues | To adjust this entry we must:
Debit: ASSETS
Credit: REVENUES
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| 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
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| 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
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| 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
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| What is debited and credited to adjust the following: Interest on notes payable of R360 is accrued. | interest expense, interest payable
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| What is debited and credited to adjust the following: Services provided but not recorded total R1,750. | accounts receivable, service revenue
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| What is debited and credited to adjust the following: The equipment depreciates R200 per month. | Depreciation expense, accumulated depreciation
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| 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
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