Week 2 lesson: Adjusting Entries

• Adjusting entries are used to update a business’s account balances
• Revenue Recognition Principle -recognize revenue when earned, regardless of when cash is received
• Expense Recognition states that whether the company has paid for expenses or not, it should record the expense in the accounting books as long as the expenses have been incurred
• Matching Principle states that expenses should match their related revenues in the same accounting period
• Depreciation Expense decreases the value of a fixed asset
• Accumulated Depreciation -  contra-asset account used to record depreciation of a fixed asset
• Book Value Cost less Accumulated Depreciation
• Formula in fabm

  
• Non cash expenses - depreciation expenses & accumulated depreciation
• Accruals refers to revenue earned but payment is not yet collected by the company, or expenses incurred but not yet paid by the company
• Accrued Expenses are expenses that have been incurred by the business but are yet to be recorded and yet to be paid
• Deferrals  involve advance payments made by the company for future expenses or advance payments of a company’s client for future services
• insurance, ● administrative; and ● rent payments

  prepayments / prepaid expenses
• Unearned income is an  income collected in advance
• Adjusted Trial Balance

  ● prepared after adjusting entries ● lists accounts with updated general ledger balances following adjustments made ● where financial statements are based from