Mastering Adjusting Entries

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Author:
akoskey
ID:
102111
Filename:
Mastering Adjusting Entries
Updated:
2011-09-16 13:40:25
Tags:
bookkeeping
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  1. Cash Basis Accounting
    payments recieved are income, payments made are expenses.
  2. Accrual basis accouning
    GAAP accepted. record an incoming payment only if earned, earned revenue must be recognized.
  3. examples of accrued revenue
    • commissions earned but not yet recieved
    • interest earned on bonds or notes not yet recieved
    • space leased but rent uncollected
  4. failure to accrue revennue results in:
    • assets understated on BS
    • revenues understated on BS
    • net income understated on IS
  5. accrued expenses
    expenses that have been incured but not yet paid for
  6. examples of accrued expenses
    • interest owed
    • rent owed
    • commisons owed
    • utilities owed
    • salaries/wages owed
    • taxes owed
  7. failure to accrue expenses results in:
    • liabilities will be understated on the BS
    • expenses will be undestated on the BS
    • net income will be overstated on the IS
  8. unearned revenue
    (deferred) reciept of payment for services not yet performed.
  9. examples of unearned revenue:
    • advances on legal/accounting/programing/etc. services
    • commisions recieved in advance
    • interest revenue recieved in advance
  10. failure to record unearned revenue results in:
    • liabilities overstated on BS
    • revenues understated on IS
    • net income understated on IS
  11. failure to record unearned revenue if originally revenue results in:
    • liabilities understated on BS
    • revenues overstated in IS
    • net income overstated on IS
  12. prepaid expenses
    (deferred) paid before the expense is incurred; prepayment cannot be recognized as an expense.
  13. examples of prepaid expenses:
    • prepaid insurance
    • supplies on hand
    • rent expense
    • legal expense
    • advanced payments for services
  14. failure to record to a prepaid account for prepaid expenses results in:
    • assets will be overstated on the BS
    • expenses will be understated on the IS
    • net ioncome will be overstated on the IS
  15. failure to record a expense account for prepaid expenses results in:
    • assets will be inderstated on the BS
    • expenses will be overstated in the IS
    • net income will be inderstated on the IS
  16. depreciable base
    original cost
  17. residual value
    value asset will have when no longer useful
  18. operational assets
    assets that can be depreciated
  19. to be depreciable, assets must :
    • be tangible property; building, equipment, furniture (not land)
    • cannot be held for resale (inventory)
    • cannot be held for investment purposes (stock)
    • have useful life of more than one year when acquired
  20. bad debt expense
    estimate of the portion of credit sales or a/r that the company does nto expect to collect.
  21. bad debt expense for tax purposes
    direct right-off method, irs and income tax purposes
  22. bad debt expense for book purposes
    the allowance method, GAAP, estimate bad debt as precentage of credit sales or estimate percentage of a/r that will not be collected
  23. allowance for doubtful accounts appears on the balance sheet as:
    part of total accounts recievable, difference is net realizable value (amount expected to be collected). AfDA reduuces book value of A/R
  24. asset account #
    100-199
  25. liability account #
    200-299
  26. owner's equity account #
    300-399
  27. income account #
    400-499
  28. expense account #
    500-599
  29. adjusting journal entries are usually recorded in the general journal
    after the are recorded on the worksheet

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