ACC M115 Lecture Notes - Lecture 15: Deferral, Accrual, Current Asset
Document Summary
Many large companies have monthly accruals for interest expense and other expenses as they build up, and monthly adjustments for depreciation and other consumptions of assets. After each adjustment, the accounting equation will still balance. The sum of the debits must equal the sum of the credits. Four main types of routine adjustments that need to be accounted for: expiration of assets, unearned revenues, accrual of unrecorded expenses, accrual of unrecorded revenues. Prepayments (prepaid expenses) are assets that arise because an expenditure has been made, but there is still value extending into the future. Usually classified as current assets because the future value usually continues only into the next year. As the assets are consumed in the process of earning revenue, a portion of the cost is written off in each period as an expense. Unearned revenue is future revenue where the cash has been received in advance of earning revenue.
