Chapter 3 Terminology Flashcards
Annual financial statements
Reports covering a one-year period.
Interim financial statements
Reports covering one, three, or six months of activity.
The ___________ presumes that an organizations activity can be divided into specific time periods such as a month, a three-month quarter, a six-month interval or a year.
Time period assumption
Fiscal year
Consists of any 12 consecutive months or 52 weeks
Natural business year
This is used by companies that have seasonal variations in sales. It’s when sales are at their lowest level for the year.
Accrual basis accounting
Records revenues when services and products are delivered and records expenses when incurred (matched with revenues).
Cash basis accounting
Records revenues when cash is reached and records expenses when cash is paid.
_____ requires that revenue be recorded when goods or services are priced to customers and at an amount expected to be received from customers.
Revenue recognition principle
_______ requires that expenses be recorded in the same accounting period as the revenues that are recognized as a result of those expenses.
Expense recognition (or matching) principle
Adjusting entry
Made at the end of an accounting period and reflects a transaction or event not yet recorded.
Prepaid expense
Or deferred expense; are assets paid for in advance of receiving their benefits.
_______ are long-term tangible assets used to provide and sell products and services.
Plant assets.
Depreciation
The allocation of the costs of these assets over their expected useful lives, but it does not necessarily measure decline in market value.
Straight-line deprecation
Allocates equal amounts of the assets net cost to deprecation during its useful life.
_____ is a separate contra account and has a normal credit balance.
Accumulated depreciation.
Contra account
An account linked with another account, is has an opposite normal balance, and it is reported as a subtraction from that other accounts balance.
Unearned revenue
cash rechecked in advance of providing products and services.
Costs that are incurred in a period that are both unpaid and unrecorded are called:
Accrued expenses
Accrued revenues
Revenues earned in a period that are both unrecorded and not yet received in cash (or other assets).
Unadjusted trial balance
A list of accounts and balances before adjustments are recorded.
Adjusted trial balance
List of accounts and balances after adjusting entries have been recorded and posted to the ledger.
The _______ occurs at the end of an accounting period AFTER financial statements are completed.
Closing process.
Closing entries
Transferee the end of period balances in revenue, expense, and dividend accounts to the permanent retained earning accounts.
A _________ is a list of permanent accounts and their balances after all closing entries.
post-closing trial balance
