Ch 4 Flashcards
Historical cost
Amount paid for an asset and used as basis
For recognizing it on balance sheet and
Carrying it on later balance sheets
Recognition
Process of recording an item in a financial statement as
An asset, liability, revenue, expense, etc
Current value
Amount of cash or it’s equivalent that
Could be received by selling an asset currently
Cash basis accounting
System where revenues recognized when cash received
And expenses recognized when cash paid
Accrual basis accounting
System where revenues recognized when earned
Expenses recognized when incurred
Revenues
Inflows of assets or settlements of liabilities
From delivering or producing goods or
Conducting services
Revenue recognition principle
Revenues recognized in income statement when
Realized, or realizable and earned
Note realized = exchanged for cash
Matching principle
Association of revenue of period with
Costs necessary to generate revenue
Expenses
Outflows of assets or incurrences of liabilities
For providing goods and services
Adjusting entries
Journal entries made at end of period
By company using accrual basis accounting
Salvage value
Amount company expects to receive when it sells
Asset at end of its useful life
Straight line method
Assignment of an equal amount of depreciation to each period
Contra account
Account with balance that is opposite of related account
Deferral
Cash has been paid or received but expense
Or revenue has not yet been recognized
Deferred expense, examples of?
Asset resulting from payment of cash before
incurrence of expense
Ex. Insurance policy, supplies, rent
Deferred revenue, examples of?
Liability resulting from receipt of cash
Before recognition of revenue
Ex. Deposits for rent, subscriptions, gift certificates
Accrual
Cash has not yet been paid or received
But expense has been incurred or revenue earned
Accrued liability, examples of?
Liability resulting from recognition of expense before
Payment of cash
Ex. Salaries, wages, interest, tax, rent
Accrued asset, examples of?
Asset resulting from recognition of revenue
Before receipt of cash
Ex. Interest, rent
Accounting cycle
Series of steps performed each period and
Culminating with preparation of set of financial statements
Worksheet
Device used at end of period to gather info needed
To prepare financial statements without recording and posting
Adjustment entries
Real accounts
Balance sheet accounts, permanent
and not closed at end of period
Nominal accounts
Revenue, expense, dividend, drawing accounts
Temporary and close at end of period
Closing entries
Journal entries made at end of period to return balance
In nominal accounts to 0 and transfer, income or loss and dividends to retained earnings
Interim statements
Financial statements prepared monthly, quarterly
Or at intervals less that a year
