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Adjusting Accounts & Preparing Financial Statements Flashcards

Adjusting Accounts & Preparing Financial Statements Flashcards
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Permanent Accounts
Always part of balance
Got it
Adjusted Trial Balance
Trial balance after adjustments are made
Got it
Trial Balance
Shows all accounts/balances a company has
Got it
Post-closing trial balance
Tells all accounts and balances after all closings are finished.
Got it
Reason for periodic reporting
Offers the ability to predict future financial information (e.g. sales, expenses, and staffing information)
Got it
Periodic reporting
Finances must be reported in distinct time periods
Got it
Time period principle
Business activities can be segmented into short, specific time frames
Got it
Process for closing income summary account

Debit income summary account

Credit retained earnings account in same amount

Got it
Order of accounts in a closing process

REID

Revenue, Expense, Income summary, Dividend

Got it
Income summary account

Shows all revenue and expenses

Only used in account closing process.

Got it
When payroll processing extends over a financial period

Accrued expense

Salaries payable

Got it

Identify each type of revenue or expense:

1. Invoicing client to be paid later

2. Credit purchase; pay next month

3. Pay for year's mag.sub.

4. Being paid up front for year's service

1. accrued revenue

2. accrued expense

3. deferred expense

4. deferred revenue

Got it
Deferred Expense
When you pay expenses in advance (like paying for newspaper delivery a year in advance).
Got it
Accrued Revenue
When payment for a service is received in a later period than it was earned.
Got it
Accrued Expense
Expenses that do not occur and get paid in the same period.
Got it
31 cards in set

Flashcard Content Overview

This flashcard set offers a series of cards to help the student test their understanding of the different types of accounts and balance sheets. From revenue to trial balance sheets, students will review adjusting accounts and preparing financial statements. Sample scenarios are included to test students real-world understanding and application of definitions learned. Enjoy reviewing these concepts related to Adjusting Accounts & Preparing Financial Statements.

Front
Back
Accrued Expense
Expenses that do not occur and get paid in the same period.
Accrued Revenue
When payment for a service is received in a later period than it was earned.
Deferred Expense
When you pay expenses in advance (like paying for newspaper delivery a year in advance).

Identify each type of revenue or expense:

1. Invoicing client to be paid later

2. Credit purchase; pay next month

3. Pay for year's mag.sub.

4. Being paid up front for year's service

1. accrued revenue

2. accrued expense

3. deferred expense

4. deferred revenue

When payroll processing extends over a financial period

Accrued expense

Salaries payable

Income summary account

Shows all revenue and expenses

Only used in account closing process.

Order of accounts in a closing process

REID

Revenue, Expense, Income summary, Dividend

Process for closing income summary account

Debit income summary account

Credit retained earnings account in same amount

Time period principle
Business activities can be segmented into short, specific time frames
Periodic reporting
Finances must be reported in distinct time periods
Reason for periodic reporting
Offers the ability to predict future financial information (e.g. sales, expenses, and staffing information)
Post-closing trial balance
Tells all accounts and balances after all closings are finished.
Trial Balance
Shows all accounts/balances a company has
Adjusted Trial Balance
Trial balance after adjustments are made
Permanent Accounts
Always part of balance
Temporary Accounts

Accounts that are zeroed out each accounting period (not permanent)

(revenue accounts, expense accounts, owner's drawing account)

Process for retained earnings statements
Subtract dividends from net income resulting in current retained earnings
Dividends
amount to be paid to investors
Statement showing most accurate balances
adjusted trial balance
Accounts included in balance sheet

Permanent accounts

(remember expense accounts are considered temporary)

Real Accounts

Permanent

Exists from first day of company

Shows assets, liabilities, and owner's equity

Nominal Accounts

Used to show cash flow during an accounting period

Reported on income statement

Zeroed out at end of accounting period

Major characteristics of real vs. nominal accounts

Real accounts - permanent, accrue over time

Nominal accounts - temporary, zeroed out each period

Accrual Basis Accounting

Revenue recognized when earned

Expenses recognized when received

Matches revenue/exp well; tracks cash poorly

Cash-Basis Accounting

Revenue recognized when cash in

Expenses recognized when cash out

Tracks cash excellently; matches revenue/exp poorly

This basis method of accounting gives the truest picture of a company's finances

Accrual basis of accounting

(revenue and expenses are recorded when they occur and accrue over time)

Identify basis method of accounting:

Joe records an expense when he receives the bill (before paying it).

Mary records expenses only at the time of paying.

Joe - Accrual basis accounting

Mary - Cash basis accounting

Deferred Revenue
Payment given upfront for services to come later.
Revenue Accounts
Record of income.
Expense Accounts
Records all expenses.
Dividend Accounts
Record of the distribution of company income to stockholders.

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