MGMT 20000 Chapter Notes - Chapter 3: Deferral, Cash Flow, Accrual

• School: Purdue University
• Department: Management
• Course: MGMT 20000
• Professor: Frank Kane

Document Summary

Accrual-basis accounting creates riming differences between revenue recognition and cash inflows, as well as timing differences between expense recognition and cash inflows. These timing differences often cause account balances of assets, liabilities, revenues, and expenses to nit be updated during the period. Prepayments involve cash flows occurring before the revenues and expenses are recognized. Accruals involve cash flows occurring after the revenues and expenses are recognized. Prepaid expenses are when a company pays in cash to acquire an asset that is not used untila later period. In the period these assets are used, an adjusting entry is needed to. Decrease the asset"s balance to its remaining (unused) amount. Recognize an expense for the cost of asset used. Depreciation- process of allocating the cost of an asset, such as equipment over the asset"s useful life. Contra account-account with a balance that is opposite, or contra to that of its related accounts. Book value- which equals its original cost less accumulated deprecation.