Ch.3 Terms Flashcards
Accrual Basis Accounting
Accounting method that record revenue when earned and expenses when incurred.
Accrued Expense
An expense that the business has incurred but has not yet paid.
Accrued Revenue
A revenue that has been earned but not yet been collected.
Accumulated Depreciation
The sum of all the depreciation expense recorded to date for a depreciable asset.
Adjusted Trial Balance
A list of all the account with their adjusted balances.
Adjusting Entry
An entry made at the end of the accounting period that is used to record revenues to the period in which they are earned and expenses to the period in which they occur.
Book Value
A depreciable asset’s cost minus accumulated depreciation.
Cash Basis Accounting
Accounting method that records revenue only when cash is received and expenses only when cash is paid.
Contra Account
An account that is paired with and is listed immediately after its related account in the chart of accounts and associated financial statement and whose normal balance is the opposite of the normal balance of the related account.
Deferred Expenses
An asset created when a business makes advance payments of future expanses.
Deferred Revenue
A liability created when a business collects cash for customers in advance of completing service or delivering a product.
Depreciation
The process by which business spread all allocation of a plant asset’s cost over its useful life.
Fiscal Year
An accounting year of any 12 consecutive moths that may or may not coincided with the calendar year.
Matching Principle
Guides accounting for expenses, ensures that all expenses are recorded when they are incurred during the period, and matches those expenses against the revenue of the period.
Property, Plant, and Equipment (PPE)
Long-lived, tangible assets, such as land, buildings, and equipment, used in the operation of a business.
Residual Value
The expected value of the depreciable asset at the end of its useful life.
Revenue Recognition Principle
Requires companies to record revenue when (or as) the entity satisfies each performance obligation.
Straight-line Method
A depreciation method that allocated an equal amount of depreciation each year. ( Cost - Residual Value ) / Useful Life
Time Period Concept
Assumes that a business’s activities can be sliced into small time segments and that financial statements can be prepared for specific periods, such as a month, quarter, or year.
Worksheet
An internal document that helps summarize data for the preparation of financial statements.
