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