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FIU / Accounting / ACG 3024 / What is done in actual basis accounting?

What is done in actual basis accounting?

What is done in actual basis accounting?

Description

School: Florida International University
Department: Accounting
Course: Accounting for Managers
Term: Spring 2019
Tags: terms and definitions, Math, ACCOUNITNG, financial accounting, financial, and financial statements
Cost: 50
Name: ACG3024 Accounting for Managers
Description: Chapter 3 and 4 quiz
Uploaded: 01/18/2019
48 Pages 40 Views 1 Unlocks
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Adjusting Process

Cash Basis Accounting

Accounting method that records revenues only when cash is received and expenses only when cash is paid.

Accrual Basis AccountingIf you want to learn more check out What is shared by two atoms?

Accounting method that records revenues when earned and expenses when incurred.Don't forget about the age old question of Discuss the four principles of natural selection.

Example:

Smart Touch Learning paid $1,200 for insurance for the next six months ($200 per month). Insurance coverage for May through October. Under cash basis method STL would record Insurance Expense of $1,200 on May 1. That's because the cash basis method records on expense when cash is paid Accrual basis accounting requires the company. 10. -prorate the expense. STL would record a $200 expense every month from May through October.

Cash basis                                                           Accrual basisIf you want to learn more check out What is the influence of renaissance humanism in education?

Cash Payment Made                           May 1:  $1,200                                     May 1:                  $1,200  

Expense Recorded                           May 1:  $1,200                                    May 31                  $200If you want to learn more check out What are the factors affecting physical states of matter?

June 30                  200

July 31                    200Don't forget about the age old question of What causes vascular spasm?

August 31               200

September 30    200Don't forget about the age old question of What is stated in the evolutionary species concept?

October 31             200

Total Expense Recorded                   $ 1.200                                                                     $1,200

 

Time Period Concept

Time period concept

Assumes that a business's activities can be sliced into small time segments and that financial statements can be prepared for specific periods, such as month, quarter, or year.

Fiscal Year

An accounting year of any 12-consecutive year of any 12 consecutive months that may or may not coincide with the calendar year.

 

Revenue Recognition Principle

Requires companies to record revenue when (or as the entity satisfies each performance obligation.

Matching Principle

Guides accounting for expenses, ensures that all expenses are recorded when they are incurred during the period, and matches those expenses against the revenues of the period.

Adjusting entry

An entry made at the end of the accounting period that is used to record revenues to the period in which they are earned and expenses to the period in which they occur.

Two categories of adjusting entries:

Deferrals

Cash payment ours before an expense is incurred or the cash receipt occurs before the revenue is earned.

Accrual

Records an expense before the cash is paid, or its records the revenue before the cash is received

Deferred expenses

An asset created when a business makes advance payments of future expenses.

Property, Plant, and Equipment

Long-lived, tangible assets, such as land, buildings, and equipment, used in the operation of a business.

Depreciation

The process by which businesses spread the allocation of a plant asset's cost over its useful life.

 

Chapter 4

Completing the Accounting Cycle

Classified Balance sheet

A balance sheet that places each asset and each liability into a specific category.

Liquidity

A measure of how quickly an item can be converted to cash

 

Current Asset

An asset that is expected to be converted to cash sold or used up during the next 12 months or within the business's normal operating cycle if the cycle is longer than a year.

Operating Cycle

The time span during which cash is paid for goods and services, which are then sold to customers whom the business collects cash

Long term asset

An asset that will not be converted to cash or used up within the business's operating cycle or one year, whichever is greater.

Long-term Investment

Investments in bonds (debt securities) or stocks (equity securities) in which the company intends to hold the investment for longer than one year

Property Plant, and Equipment

Long-lived, tangible assets, such as land, buildings, and equipment, used in the operation of a business.

Intangible Asset

An asset with no physical form that is valuable alone because of the special rights it carries.

Current Liability

A liability that must be paid with cash or with goods and services within one year or within the entity's operating cycle if the cycle is longer than a year

Long-term Liability

A liability that does not need to be paid within one year or within the entity's operating cycle, whichever is longer.

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