Chapter 3 Flashcards
Accounting method that records revenue only when cash is received and expenses only when cash is paid
Cash Basis Accounting
Accounting method that records revenues when earned and expenses when incurred
Accrual Basis Accounting
Assumes that a business’ activities can be sliced into small time segments and that financial statements can be prepared for specific periods
Time Period Concept
An accounting year of any 12 consecutive months that do not necessarily coincide with the calender year
Fiscal Year
Requires companies to record revenue when it has been earned and determines the amount of revenue to record
Revenue Recognition Principle
Ensures that all expenses are recorded when they are incurred during the period and matches those expenses against the revenues of the period
Matching Principle
Entry made at the end of the accounting period that is used to record revenues to the period which they are earned and expenses to the period they occur
Adjusting Entry
Long-Lived, tangible asset used in the operation of a business
Plant Asset
Examples of Plant Assets
Land, buildings, and equipment
Process where businesses spread the allocation of a plant asset’s cost over its useful life
Depreciation
Expected value of a depreciable asset at the end of its useful life
Residual Value
Depreciation method hat allocates an equal amount of depreciation each year
Straight-Line Method
Sum of all the depreciation expense recorded to date for a depreciable asset
Accumulated Depreciation
Account that us paired with its related account in the chart of accounts and associated financial statement
Contra Account
Depreciable asset’s cost minus accumulated depreciation
Book Value
Liability created when a business collects cash from customers in advance of completing a service
Deferred Revenue
Expense that the business has incurred but has not yet paid
Accrued Expense
Revenue that has been earned but the cash has not yet been collected
Accrued Revenue
List of all the accounts with their adjusted balance
Adjusted Trail Balance
An internal document that helps summarize data for the preparation of financial statements
Worksheet
