ACCOUNTING EXAM 1
What is an accounting adjustment?
the recognition of accounting amounts (Revenues, Expenses) that follows the application of the Accrual Principle
Prepaid Expense
(A) Cash paid before expenses incurred
Accrued Revenue
(A) Cash received after revenue earned
Accrued expenses
(L) Cash paid after expense incurred
Unearned Revenue
(L) Cash received before revenue earned
2/10, n/30 means
2% discount if paid within 10 days, otherwise net amount due within 30 days
Bad Debit
Account Receivable Customers who are expected to pay or pay less than what they should
Asset- Debit Credit Frameork
Assets Debit + increase account Credit - decrease account
Balance Sheet Equation
Assets = Liabilities + Stockholders' Equity
When is it adjusted / recognized
At the end of an accounting period
Shareholders Equity- Debit Credit Framework
Equities Debit - decreases account Credit + increases account
Expenses- Debit Credit Framework
Expenses Debit + Credit -
Matching principle
Expenses recognized when the corresponding revenues are recognized
Depriciation
Found in the Income statement Classified as an Expenses
Electricity Expense
Found in the Income statement Classified as an Expenses
Salary Expense
Found in the Income statement Classified as an Expenses
Shareholders or Stockholders
Founders and Investors of a company that receive shares
Where is Accural Accounting Prevalent
GAAP Generally Accepted Accounting Principle
Liabilities- Debit Credit Framework
Liabilities (like share holders equity) Debit - deacrese account Credit + increase account
Income Statement Equation
Net Income = Revenue - Expenses
Retained Earnings- Debit Credit Framework
Retained Earnings Debit - Decrease Credit + Increase
Revenue- Debit Credit Framework
Revenues Debit - decreases account Credit + increases account
Accrual Accounting
Revenues recognized when earned and Expenses when incurred
Credit Sale
Takes place with terms 2/10, N/30
Revenues recognized when
goods delivered Fixed price Evidence of payment Collection is assured
Retained Earnings
income company generated that hasn't been distributed to its shareholders.
Notes Payable
money owed to the bank
Accounts Receivable
money that a business is owed by its customers Money owed by customers
Accounts Payable
money that business owes to its suppliers or vendors Money owed to suppliers
Common Stock
ownership in a company that shareholders posses
Accrual basis of accounting
records revenue when earned and expenses when incurred, regardless of cash receipt or payments
Cash basis of accounting
records revenues when cash received and expenses when cash is paid
Write Offs
reduces the value of an asset while simultaneously debiting a liabilities account
Tax Payable
tax owed to gov
