Cash-basis accounting recognizes revenues when cash is received and expenses when cash is paid.

Accrual-basis accounting recognizes revenues when earned and expenses when incurred, regardless of when cash changes hands.

When the company earns the revenue by satisfying its performance obligation, not necessarily when it receives cash.

When the expense is incurred, based on the economic activity of the period, rather than simply when cash is paid.

September. The services were performed and revenue was earned in September.

No. The company has an obligation to perform services in the future. Until those services are performed, the amount is unearned revenue, a liability.

An asset representing amounts owed by customers, generally for goods or services already provided on account.

A liability created when a company receives payment before earning the related revenue.

September. The employees provided their services in September, so the expense belongs in September.

Because accrual accounting recognizes revenue when it is earned. The customer may pay later.

The payment may purchase an asset that provides future benefits, such as prepaid insurance or equipment.

A payment made before the related benefit is consumed. The unused benefit is initially recorded as an asset.

Accrual: Revenue or expense is recognized before the related cash transaction.

Deferral: Cash changes hands before the related revenue or expense is recognized.

Yes. Revenues and expenses are recognized based on economic activity. Cash receipts and payments may occur in different periods.

No. The revenue was recognized when earned. Collecting the receivable increases cash and decreases accounts receivable.

No. Borrowing increases cash and a liability. Loan proceeds are not revenue.

No. Dividends are distributions to owners, not expenses. They decrease retained earnings but do not affect net income.

Net income = revenues - expenses.

Net income measures profitability for the period, not the change in cash.

It helps users evaluate business performance by reporting revenues and expenses in the periods to which they relate, rather than relying only on cash movements.

To update accounts so the financial statements report revenues earned and expenses incurred in the correct accounting period.

At the end of the accounting period, before preparing the financial statements.

No. Adjusting entries generally recognize activity that has occurred without a current-period cash transaction in the adjustment itself.

Debit insurance expense.
Credit prepaid insurance.

The expense increases and the asset decreases.

Debit supplies expense.
Credit supplies.

Only unused supplies remain as an asset.

Debit unearned revenue.
Credit revenue.

The liability decreases because the company has fulfilled part or all of its obligation.

Debit wages expense.
Credit wages payable.

The company recognizes both the expense and the liability.

Debit accounts receivable.
Credit revenue.

The company recognizes revenue and its right to payment.

The systematic allocation of the cost of a long-lived tangible asset to expense over its useful life.

Debit depreciation expense.
Credit accumulated depreciation.

Accumulated depreciation is a contra-asset account.

Expenses and liabilities are understated. Net income and stockholders' equity are overstated.

A list of account balances prepared after adjusting entries have been posted. It is used to prepare the financial statements.

Accounts that measure activity for one period and are closed afterward: revenues, expenses, and dividends.

Accounts whose ending balances carry into the next period, including assets, liabilities, common stock, and retained earnings.

To transfer the effects of temporary accounts to retained earnings and reset temporary account balances to zero for the next period.

Their net effect transfers net income or net loss to retained earnings.

Zero. Temporary accounts begin each new accounting period with zero balances.