AIPB Certification test guide quizzes

Trial balance - an ordered listing of all ledger accounts and their balances. Accrued expenses - 1. Expenses that have been incurred, but not yet paid for. To put it another way, an accrued expense is paid after being recorded on the books. 2. Every adjusting entry for accrued expenses debits an expense account, increasing expenses on the income statement and reducing net income, and credits a payable account, increasing liabilities on the balance sheet. 3. Failure to record an accrued expense will: Liabilities will be understated on the balance sheet; Expenses will be understated on the income statement; and, as a result, Net income will be overstated on the income statement. Cash Basis Accounting - Generally, payments received (checks, cash, credit card, etc.) are income, and payments made are expenses. Cash basis businesses can almost produce an income statement from their checkbook, presenting total payments from customers as revenue and total disbursements as expenses. Accrual Basis Accounting - This is the method required by generally accepted accounting principles (GAAP). GAAP prohibits recording an incoming payment as revenue unless you have earned it. But if you have earned the revenue, you must recognize it (record the revenue on your books) even if you have not received a single dollar of payment. ACCRUED REVENUE - 1. Uncollected revenue, that is, revenue earned but not yet received. To put it another way, receipt of cash takes place after the revenue is earned and recorded on the books. 2. Every adjusting entry for accrued revenue debits a receivable account, increasing assets on the balance sheet, and credits a revenue account, increasing revenue and net income on that period's income statement. 3. Failure to record accrued revenue will: Assets will be understated on the balance sheet; Revenues will be understated on the income statement ; and, as a result, Net income will be understated on the income statement.