Adjusting Entries: Accrued Revenues quiz #1 Flashcards
Adjusting Entries: Accrued Revenues quiz #1
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What are accrued revenues in accounting?
Accrued revenues are revenues that have been earned but not yet received in cash, typically arising from credit sales where goods or services are delivered before payment is made. When is revenue recognized for accrued revenues under the accrual accounting principle?
Revenue is recognized when the company fulfills its part of the transaction, regardless of when cash is received. What type of account is 'accounts receivable' and what does it represent?
Accounts receivable is an asset account representing money owed to the company by customers who have received goods or services but have not yet paid. What is the journal entry to record accrued revenue when goods are sold on account?
Debit accounts receivable and credit revenue for the value of goods or services provided. How is the accounts receivable account affected when cash is received from a customer for a previous credit sale?
Accounts receivable is credited (decreased) by the amount received, and cash is debited (increased) by the same amount. If a customer pays only part of their outstanding balance, how is this recorded?
Cash is debited and accounts receivable is credited by the amount paid; any remaining balance in accounts receivable reflects the unpaid amount. Why is it important to recognize revenue when it is earned rather than when cash is received?
Recognizing revenue when earned ensures that financial statements accurately reflect the company's performance and comply with the revenue recognition principle. What does the term 'on account' mean in a sales transaction?
'On account' means that the customer has received goods or services but will pay for them at a later date, creating an accounts receivable for the seller. How does the balance in accounts receivable change after a customer pays their debt in full?
The balance in accounts receivable decreases by the amount paid and becomes zero if the debt is paid in full. What happens to accounts receivable if only a partial payment is received from a customer?
Accounts receivable is reduced by the amount received, and the remaining balance represents the amount still owed by the customer. What is the purpose of adjusting entries for accrued revenues?
Adjusting entries for accrued revenues ensure that revenue is recorded in the period it is earned, even if cash has not yet been received. How does the accrual accounting principle relate to accrued revenues?
The accrual accounting principle requires that revenues be recognized when earned, not when cash is received, which is the basis for recording accrued revenues. What is the impact on the balance sheet when accrued revenue is recorded?
Recording accrued revenue increases both accounts receivable (an asset) and revenue (equity) on the balance sheet. What is the impact on the income statement when accrued revenue is recognized?
Recognizing accrued revenue increases total revenues on the income statement, reflecting the earnings for the period. Why is accounts receivable considered an asset?
Accounts receivable is considered an asset because it represents future economic benefits in the form of cash to be received from customers. What is the typical sequence of journal entries for a credit sale and subsequent cash collection?
First, debit accounts receivable and credit revenue when the sale is made; later, debit cash and credit accounts receivable when payment is received. How does the revenue recognition principle affect the timing of revenue recording for credit sales?
The revenue recognition principle requires that revenue from credit sales be recorded when the goods or services are delivered, not when payment is received. What does a remaining balance in accounts receivable indicate after a partial payment?
A remaining balance in accounts receivable indicates the amount still owed by the customer for goods or services already provided. How are accrued revenues different from deferred revenues?
Accrued revenues are earned before cash is received, while deferred revenues are cash received before the related goods or services are provided. What is the effect on cash flow when accrued revenue is recognized?
Recognizing accrued revenue does not immediately affect cash flow, as cash has not yet been received. What happens if a company never receives payment for an accrued revenue?
If payment is never received, the company may eventually write off the accounts receivable as uncollectible, but this is addressed in a separate accounting process. Why are adjusting entries for accrued revenues necessary at the end of an accounting period?
Adjusting entries for accrued revenues are necessary to ensure that all earned revenues are recorded in the correct accounting period, providing accurate financial statements. What is the main purpose of the accounts receivable account in relation to accrued revenues?
The main purpose of the accounts receivable account is to track amounts owed by customers for goods or services delivered but not yet paid for, supporting the recognition of accrued revenues.
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