Chapter 3 - The Accounting Cycle: End of the Period Flashcards
Accrual basis accounting
Record revenues when goods and services are provided to customers, and record expenses for the costs used to provide those goods and services to customers
Cash-basis accounting
Record revenues at the time cash is received and expenses at the time cash is paid
Adjusting entries
Entries at the end of the period used to update balances of revenues and expenses (and changes in their related assets and liabilities) that have occurred during the period but that we have not yet recorded
Depreciation
The process of allocating the cost of a long-term asset to expense over its useful life
Contra account
An account used to reduce the value of a related account (like for depreciating a long-term asset)
Book value
An asset’s original cost less accumulated depreciation
Accrued expenses
Occur when a company has used costs in the current period, but the company hasn’t yet paid cash for those costs
Accrued revenues
Occur when a company provides products or services but hasn’t yet received cash (an example would be accounts receivable)
Adjusted trial account/balance
A list of all accounts and their balances after we have updated account balances for adjusting entries
Classified balance sheet
Balance sheet that groups a company’s assets into current assets and long-term assets and that separates liabilities into current liabilities and long-term liabilities.
Current assets
Short term assets that can be liquidated quickly (typically one year or less)
Noncurrent assets
Long-term assets and have a useful life of more than a year
Accumulated depreciation
What kind of account is it and what is it classified under in the accounting equation?
A contra account that is classified as an asset, credit this account, NOT the original asset!
