-
Cash Basis Accounting
payments recieved are income, payments made are expenses.
-
Accrual basis accouning
GAAP accepted. record an incoming payment only if earned, earned revenue must be recognized.
-
examples of accrued revenue
- commissions earned but not yet recieved
- interest earned on bonds or notes not yet recieved
- space leased but rent uncollected
-
failure to accrue revennue results in:
- assets understated on BS
- revenues understated on BS
- net income understated on IS
-
accrued expenses
expenses that have been incured but not yet paid for
-
examples of accrued expenses
- interest owed
- rent owed
- commisons owed
- utilities owed
- salaries/wages owed
- taxes owed
-
failure to accrue expenses results in:
- liabilities will be understated on the BS
- expenses will be undestated on the BS
- net income will be overstated on the IS
-
unearned revenue
(deferred) reciept of payment for services not yet performed.
-
examples of unearned revenue:
- advances on legal/accounting/programing/etc. services
- commisions recieved in advance
- interest revenue recieved in advance
-
failure to record unearned revenue results in:
- liabilities overstated on BS
- revenues understated on IS
- net income understated on IS
-
failure to record unearned revenue if originally revenue results in:
- liabilities understated on BS
- revenues overstated in IS
- net income overstated on IS
-
prepaid expenses
(deferred) paid before the expense is incurred; prepayment cannot be recognized as an expense.
-
examples of prepaid expenses:
- prepaid insurance
- supplies on hand
- rent expense
- legal expense
- advanced payments for services
-
failure to record to a prepaid account for prepaid expenses results in:
- assets will be overstated on the BS
- expenses will be understated on the IS
- net ioncome will be overstated on the IS
-
failure to record a expense account for prepaid expenses results in:
- assets will be inderstated on the BS
- expenses will be overstated in the IS
- net income will be inderstated on the IS
-
depreciable base
original cost
-
residual value
value asset will have when no longer useful
-
operational assets
assets that can be depreciated
-
to be depreciable, assets must :
- be tangible property; building, equipment, furniture (not land)
- cannot be held for resale (inventory)
- cannot be held for investment purposes (stock)
- have useful life of more than one year when acquired
-
bad debt expense
estimate of the portion of credit sales or a/r that the company does nto expect to collect.
-
bad debt expense for tax purposes
direct right-off method, irs and income tax purposes
-
bad debt expense for book purposes
the allowance method, GAAP, estimate bad debt as precentage of credit sales or estimate percentage of a/r that will not be collected
-
allowance for doubtful accounts appears on the balance sheet as:
part of total accounts recievable, difference is net realizable value (amount expected to be collected). AfDA reduuces book value of A/R
-
-
liability account #
200-299
-
owner's equity account #
300-399
-
-
expense account #
500-599
-
adjusting journal entries are usually recorded in the general journal
after the are recorded on the worksheet
-
|
|
