Financial Accounting Exam 2

Revenue is earned and recognized upon product delivery or service completion, no matter when cash is received.

The recognition of expenses is related to net changes in assets and earning revenues.

Expenses that have been incurred but not recorded in the accounts.

Revenues earned but not yet received in cash or recorded

Entries made at the end of an accoutning period to ensure that the revenue recognition and matching principles are followed

A decrease in value due to physical deterioration, functional or economic obsolescence.

A temporary account used in closing revenue and expense accounts

The cost of a fixed asset less accumulated depreciation.

COGS: All money spent to purchase or make the products or services the company plans to sell to its customers.

An account that is offset against a revenue account on the income statement

(finance) the net sales minus the cost of goods and services sold

NI / Sales

Inventory costing method that uses the weighted-average unit cost to allocate to ending inventory and cost of goods sold the cost of goods available for sale.

Each item sold & purchased is individually identified; Required for goods that are not ordinarily interchangeable; & that are produced & segregated for specific projects.

Goods held for sale by one party although ownership of the goods is retained by another party.

Situation in which the buyer takes ownership (title) at the delivery destination point and the seller pays the freight

Situation in which the buyer takes ownership (title) to the goods at the shipping point and the buyer pays the freight

adjusting journal entry

Journal entries automatically generated by the computer that close all temporary income statement accounts to the income summary account, close the income summary account to the capital account, and close the drawing account to the capital account.

Analyze Business transactions

Journalize the transactions

Post to ledger accounts

Prepare a Trial Balance

Journalize and post adjusting entries: Deferrals/Accruals

Prepare an adjusted trial balance

Prepare financial Statements

Journalize and post closing entires

Prepare a post-closing trial balance

Accounting basis in which a company records revenue only when it receives cash, and an expense only when it pays cash. Prohibited under GAAP

Accounting that records the impact of a business event as it occurs, regardless of whether the transaction affected cash.

adjusting entries for either prepaid expenses (Expenses paid in cash and recorded as assets before they are used or consumed)
or unearned revenues (Cash received and reported as liabilities before revenue is earned)

adjusting entires for accrued revenues (Revenues earned but not yet received in cash or recorded)
or accrued expenses (Expenses incurred but not yet paid in cash or recorded)

Assets Overstated
Expenses Understated

Dr. Expenses
Cr. Assets

Liabilities overstated
Revenues understated
Dr. Liabilities
Cr. Revenues

Assets understated
Revenues understated
Dr. Assets
Cr.Revenues

Expenses understated
Liabilities understated
Dr. Expenses
Cr. Liabilities