ACCT-2010 Exam 2 Study Guide Chapters 3 and 4
ACCT-2010 Exam 2 Study Guide Chapters 3 and 4 ACCT 2010
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This 3 page Study Guide was uploaded by Erica Reynolds on Wednesday September 28, 2016. The Study Guide belongs to ACCT 2010 at East Tennessee State University taught by Ashley Bentley in Fall 2016. Since its upload, it has received 20 views. For similar materials see Principles of Accounting 1 in Accounting at East Tennessee State University.
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Date Created: 09/28/16
ACCT2010003 Exam 2 Study Guide Chapters 3 and 4 Adjustments Cash Basis: revenue recognized when cash is received; expenses recognized when paid Used for personal accounts (NOT GAAP) Accrual Basis: revenue recognized when earned; expenses recognized when incurred Used by businesses (GAAP) *ignores cash aspect Time period concept: can prepare financial statements for specific time periods Revenue Recognition Principle: recognized only when earned (services provided) Matching Principle: expenses recognized when incurred (shows profitability) Categories of Adjusting Entries 1. Prepaids a. Prepaid Expenses: Cash paid first—expense recognized later when asset is used b. Unearned Revenue: cash received first—revenue recognized later when earned 2. Accruals or Deferrals a. Accrued Expenses; expense incurred now (recognize now)—pay cash later (payable) b. Accrued Revenue: revenue is earned now (recognize)—receive cash later (receivable) Depreciation *Prepaid Expense: spread the cost of assets out over time used Straight Line Depreciation Cost – Salvage Value / Estimated Useful Life Contra Asset Asset section of balance sheet Opposite normal balance: credit (decreases asset) Example: Accumulated Depreciation Interest = Principal x Annual Rate x Time (years) *Accrued Expense Classified Balance Sheet Current: used or due within next 12 months o Assets: Cash, Accounts Receivable, Prepaid Assets, etc. o Liabilities: Accounts Payable, Unearned Revenue, Salaries Payable, etc. o Shown in order of liquidity: how quickly it can be turned into cash Noncurrent: used or due in more than 1 year o Assets: PPE (buildings, land, Equipment, etc.) o Liabilities: Note Payable (due in more than 1 year) Closing Accounts: zeroing out accounts to prepare for next period Temporary Accounts (Closed) 1. Revenue 2. Expenses 3. Dividends Closing Trial Balance: reflects changes in retained earnings and expenses, dividends, and revenue are zeroed out Current Ratio= Current Assets / Current Liabilites *Shows company’s ability to pay its debts (above 1 is good)
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