Term
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Definition
Revenues are recognized when earned, even if cash was not recieved
Expenses are recognized when incurred, even if cash was not paid |
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Term
| Revenue recognition principle |
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Definition
| service compamies recognize when service is preformed. |
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Term
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Definition
| let the expenses follow the revenues |
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Term
| Expense recognition principle |
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Definition
| expenses matched with revenues in the period when efforts are expended to generate revenue |
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Term
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Definition
| the starting place for adjusting entries: each accoung is analyzed to determine wether it is complete and up to date. |
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Term
| Adjusting journal entries |
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Definition
revenues- recorded in the period in which they are earned
expenses- recognized in the period in which they are incurred |
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Term
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Definition
| prepaid expenses & unearned revenues |
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Term
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Definition
current asset
expenses paid in cash and recorded as an asset before tehy are used or consumed |
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Term
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Definition
accrued revenues- revenues earned but not yet recieved cash or recorded
accrued expenses- expenses incurred but not yet paid in cash or recorded |
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Term
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Definition
| depreciation does not report the actual change in the value of the asset |
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Term
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Definition
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Term
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Definition
the receipt of cash before revenue is earned, not practical to make daily entries as revenue is earned
* record revenues that have been earned in current period, adjust liability to what remains at end of period |
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Term
| Adjusting Prepaid Expenses |
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Definition
Before adjustment the assets are overstated and expenses are understated.
Debit Expenses
Credit Assets |
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Term
| Adjusting Unearned Revenue |
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Definition
Beofre adjustmetnt liabilities overstated, revenues understated
Debit Liabilties
Credit Revenues |
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Term
| Adjusting Accrued revenues |
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Definition
before adjustment assets understated, revenues understated.
Debit Assets
Credit Revenues |
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Term
| Adjusting Accrued expenses |
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Definition
before adjustment, expenses undestated and liabilities understated
Debit Expense
Credit Liabilties |
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Term
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Definition
| after adjusting all entries have been journalized then prepare another trial balance from ledger accounts |
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Term
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Definition
| prove the equality of debit balances and credit balances in the ledger after all adjustments made. |
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Term
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Definition
| Ending RE + Net Income - Dividends = Beggining RE |
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Term
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Definition
| COGS determined after every sale, records continuously show on hand, |
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Term
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Definition
| COGS determined at end of period |
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Term
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Definition
Buyer pays for freight cost
Ownership of goods passes to buyer at shipping point
buyer records goods in transit in inventory |
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Term
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Definition
Seller pays for freight cost
Seller has owenrship until destination
Seller records freight costs as operating expense |
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Term
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Definition
Gross Profit
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Net Sales |
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Term
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Definition
Net Income
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Net Sales |
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Term
| Single Step Income Statement |
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Definition
Total Revenues - Total Expenses
profit not realied until total revenues exceeds total expenses |
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Term
| Multiple Step Income Statement |
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Definition
| Highlights components to net income: Gross Profit, Income from operations and Net Income. |
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Term
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Definition
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Term
| Cost of Goods Sold Formula |
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Definition
| Begginig Inventory + Inventory Purchased - End Inventory |
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Term
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Definition
Last in, First Out
higher quality of earnings ratio, lower taxes |
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Term
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Definition
First in, First Out
higher phantom profits, higher net income, lower net cash for operation activites |
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Term
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Definition
| COGS / average inventory (begining + end) |
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Term
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Definition
| 365 days/ Inventory Turnover Ratio |
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