CH 3 terminology Flashcards
Accrual
recognition of revenue or expense that has risen but not been recorded during the accounting period
Accrual accounting
encompasses all the techniques accounts use to apply the matching rule
Accrued expenses
expenses that have been built up over time and are due to be paid
accrued revenues
revenue that has been earned but for which no cash has been received
accumulated depreciation accounts
cumulative depreciation of an asset up to a single point in its life
adjusted trial balance
list of all accounts and their balances
adjusted entries
a set of journal entries recorded at the end of the accounting period to have an updated and accurate balances of all the accounts
carrying value
accounting measure of value where the value of an asset or company is based on the figures in the company’s balance sheet
carrying value formulas
physical assets: original cost - accumulated depreciation
intellectual assets: original cost - amortization expense
Cash basis of accounting
accounting method where revenues and expenses are only acknowledged when the payment occurs
closing entries
journal entries made at the end of an accounting period where data is moved from temporary accounts to permanent accounts
continuity
what is the expected life of the business
contra accounts
account used to reduce the value of a related account- contra account’s balance is the opposite of the associated account
deferral
postponement of the recognition of an expense already paid or of revenue received in advance
depreciation
accounting method of allocating the cost of a tangible asset over its useful life to account for declines in value over time
earnings management
manipulation of revenues and expenses to achieve a specific outcome
expenses
decreases in a stockholder’s equity resulting from the cost of the selling goods or rendering services and the cost of the activities necessary to carry on a business, such as attracting and serving customers
fiscal year
12-month accounting period
going concern
business will continue to operate indefinitely
income summary account
income summary account
interim periods
accounting periods of less than 12-months
matching rule
expenses should be recognized in the same accounting period as the revenues to which they are related
net income
net increase in stockholder equity that results from a company’s operations (revenue - expenses)
net loss
when expenses exceed revenue
periodicity
useful to estimate the business’s net income in terms of accounting periods even if the lifetime is uncertain
permanent accounts
accounts that carry their end-of-period balances into the next accounting period
post closing trial balance
balance after all temporary accounts have been closed
prepaid expenses
expenses for things such as rent, supplies, and insurance, in advance
profit
money left over after all expenses have been paid
revenue recognition
process of determining when revenue should be recorded
revenues
increase in stockholder’s equity resulting from selling goods, rendering services or performing other business activities
temporary accounts
accounts that begin each accounting period with a zero balance, accumulate a balance during the period and are then cleared by closing entries
unearned revenues
money received by an individual or company for a service or product that has yet to be provided or delivered
cash flow yeild
ratio that compares the free cash flow per share a company is expected to earn against its market value per share
