Chapter 4

The amount of cash, or its equivalent, that could be received by selling an asset currently.

A system of accounting in which revenues are recognized when earned and expenses when incurred.

Inflows of assets or settlements of liabilites from delivering or producing goods, rendering services, or conducting other activities.`

The association of revenue of a period with all of the costs necessary to generate that revenue.

Outflows of assets or incurrences of liabilities resulting from delivering goods, rendering services, or carrying out other activities.

Journal entries made at the end of a period by a company using the accrual basis of accounting.

Deferred Expense: Cash paid before expense is incurred. (Ex. prepaid rent, prepaid insurance, office supplies, property and equipment.)

Deferred Revenue: Cash received before revenue is earned. (Ex. Insurance collected in advance, Subscriptions collected in advance, Gift certificates.)

Accrued Liability: Expense incurred before cash is paid. (Ex. Payroll, Taxes, Interest.)

Accrued Asset: Revenue earned before cash is received. (Ex. Rent, Interest).

1. Collect and analyze info
2. Journalize transactions
3. Post transactions to general ledger
4. Prepare work sheet
5. Prepare financial statements
6. Record and post adjusting entries
7. Close the accounts

A device used at the end of the period to gather the information needed to prepare financial statements without actually recording and posting adjusting entries.

Serve two purposes:
1. to return the balances in all temporary or nominal accounts to zero to start the next accounting period.
2. to transfer the net income(or net loss) and the dividends of the period to the Retained Earnings account.

Prepay rent on office space for one year on September 1.

Initial Journal Entry:
9/1 Prepaid Rent 2,400
Cash 2,400

Monthly Adjusting Journal Entry:
9/30 Rent Expense 200
Prepaid Rent 200

Received $2,400 for an insurance policy in advance on September 1.

Initial journal entry:
9/1 Cash 2,400
Insurance Collected in Advance 2,400

Monthly adjusting Journal Entry:
9/30 Insurance Collected in Advance 200
Insurance Revenue 200

Pay Biweekly wages of $28,000.

At end of month, between pay periods:
Wages Expense 4,000
Wages Payable 4,000

Next payday:
Wages Payable 4,000
Wages Expense 24,000
Cash 28,000

Rent Payment of $2,500 due within first 10 days of month.

First day of the month:
Rent Receivable 2,500
Rent Revenue 2,500

Upon receipt of cash:
Cash 2,500
Rent Receivable 2,500

An account related to another account opposite or offsetting the balance.

NEVER!!!!