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Reading 22- P2

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msk2222's version from 2018-01-28 21:08

Accruals

Question Answer
Unearned revenue (or deferred revenue)company receives cash prior to earning the revenue. Each adjusting entry reduces the liability and records revenue. positive aspect is that increases in unearned revenue are an indicator of future revenues.
Unbilled revenue (or accrued revenue)company earns revenue prior to receiving cash but has not yet recognized the revenue at the end of an accounting period. In such cases, the accounting treatment involves an originating entry to record the revenue earned through the end of the accounting period and a related receivable reflecting amounts due from customers. When the company receives payment (or if goods are returned), an adjusting entry eliminates the receivable.
Prepaid expensecompany makes a cash payment prior to recognizing an expense. The accounting treatment involves an originating entry to record the payment of cash and the prepaid asset reflecting future benefits, and a subsequent adjusting entry to record the expense and eliminate the prepaid asset
Accrued expensesincurs expenses that have not yet been paid as of the end of an accounting period. Accrued expenses result in liabilities that usually require future cash payments
valuation adjustmentsonly where required by accounting standards—so that the accounting records reflect the current market value rather than the historical cost.
Some assets (e.g., trading securities)shown on the balance sheet at their current market and some historical
changes in that market valuereported in the income statement. shareholders’ equity (OCI)
ACCOUNTING SYSTEMSJournal entries and adjusting entries, General ledger and T- accounts, Trial balance and adjusted trial balance, Financial statements
USING FINANCIAL STATEMENTS IN SECURITY ANALYSISThe Use of Judgment in Accounts and Entries & Misrepresentations
memorize