Accounting Chapter 3

assets=liabilites+stockholder's equity

-expenses or revenues that are recognized at a date later than the point when cash was originally exchanged -1. Prepaid expenses: Expenses paid in cash before they are used or consumed. -2. Unearned revenues: Cash received before services are performed.

-1. Accrued revenues: Revenues for services performed but not yet received in cash or recorded. -2. Accrued expenses: Expenses incurred but not yet paid in cash or recorded.

1. Collect data about economic events. 2. Analyze data about economic events. 3. Record economic events in a journal. 4. Post from journal to ledger accounts. 5. Prepare an unadjusted trial balance. 6. Prepare adjusting entries. 7. Prepare an adjusted trial balance. 8. Prepare the financial statements. 9. Record and post all closing entries. 10. Prepare a post-closing trial balance. 11. Record and post reversing entries (optional).

recognizes revenue at the time cash is actually received and recognizes expenses at the time cash is actually paid out

revenues are recognized when they have been earned (rather than when the cash is received) and expenses are recognized when they have been incurred (rather than when the cash is paid out).

REVENUES Cash receipts from customers - Beginning accounts receivable + Ending accounts receivable + Beginning unearned revenue - Ending unearned revenue = Accrual basis revenues EXPENSES Cash payments for operating expenses + Beginning prepaid expenses - Ending prepaid expenses - Beginning accrued liabilities + Ending accrued liabilities = Accrual basis operating expenses

1. All accruals should be reversed. 2. All deferrals for which a company debited or credited the original cash transaction to an expense or revenue account should be reversed. 3. Adjusting entries for depreciation and bad debts are not reversed.

-nature of the business. -size of the firm. -volume of data to be handled.

posting

the right side of an account. an increase. a decrease. *None of these answer choices are correct*

-proves that debits and credits are equal in the ledger. -supplies a listing of open accounts and their balances that are used in preparing financial statements. -is normally prepared three times in the accounting cycle.

Both Goodwill and Accounts Receivable

Salaries and Wages Expense

temporary accounts

The dual effect of each transaction is recorded with a debit and a credit.

they will debit notes payable and interest expense

cash receipts

before an entry is recorded in a journal.

throughout each step in the accounting cycle

the accounting cycle represents the steps taken to accomplish the accounting process.

a post-closing trial balance

-The event or item can be measured objectively in financial terms. -The event or item is relevant and reliable. -The event or item is an element.

Payment of monthly payroll.

Dividend declaration and subsequent payment

using buildings and machinery in operations

-an amount could be entered in the wrong account. -a transaction could have been entered twice. - a transaction could have been omitted.

chronologically lists transactions and other events, expressed in terms of debits and credits

debit to Accounts Receivable

debit to Accounts Payable

credit to Unearned Revenue.

Listing the balance of an account with a debit balance in the credit column of the trial balance

It proves that debits and credits were properly entered in the ledger accounts.

a debit to an expense account and a credit to a revenue account

Property taxes incurred during the year, to be paid in the first quarter of the subsequent year

Revenues are recognized in the period the performance obligation is satisfied, regardless of the time period the cash is received

expense account and a credit to a liability account

understatement of expenses and an understatement of liabilities

Cash is received before revenue is recognized

understatement of revenues and an understatement of assets.

overstatement of assets and an overstatement of owners' equity

after the balance sheet date, but dated as of the balance sheet date

it debits an asset account to show the service or benefit it will receive in the future

rent with the passage of time supplies through use and consumption

a prepaid expense

a prepaid expense on the books of the company that made the advance payment.

numerator length of time note has been outstanding denominator 12 months

-obtain a proper matching of revenue and expense. -achieve an accurate statement of assets and equities.

To match the costs of production with revenues as recognized

prepaid expense

not paid and currently matched with earnings.

a liability account and an expense account.

A debit to an asset and a credit to a liability

-Expiration of prepaid insurance -Depreciation of fixed assets - Use of supplies

paid and not currently matched with revenues

not collected and currently matched with expenses

collected and not currently matched with expenses

proves the equality of the debit balances and credit balances of ledger accounts after all adjustments have been made.

Revenue

To reduce the balances of revenue and expense accounts to zero so that they may be used to accumulate the revenues and expenses of the next period

cash collections during the year are less than the amount of revenue recognized.

when they are realized.

Add ending accounts receivable

Subtract ending prepaid expense.

useful in simplifying the recording of transactions in the next accounting period

create an asset or a liability account and were originally entered in a revenue or expense account.

-all accrued revenues. -all accrued expenses. -those that debit an asset or credit a liability.

adjusts expired costs from an asset account to an expense account.

net loss for the period.

Dr. Expenses (increase) Cr. Assets (decrease)

DR Liability (decrease) CR Revenue (increase)

DR Asset (increase) CR Revenue (increase)

DR Expense (increase) CR Liability (increase)