Chapter 3: The Adjusting Process Flashcards
accrual basis of accounting
Revenues and expenses are reported in the income statement in the period in which they are earned or incurred.
accrued expenses
Expenses that have been incurred but not recorded in the accounts.
accrued revenues
Revenues that have been earned but not recorded in the accounts.
accumulated depreciation
The contra asset account credited when recording the depreciation of a capital asset.
adjusted trial balance
The trial balance prepared after all the adjusting entries have been posted.
adjusting entries
The journal entries that bring the accounts up to date at the end of the accounting period.
adjusting process
An analysis and updating of the accounts before financial statements are prepared.
amortization
The systematic periodic transfer of the cost of a depreciable asset to an expense account during its expected useful lifetime.
capital assets
Long-term or relatively permanent tangible and intangible assets such as land, equipment, machinery, buildings, and patents that are used in normal business operations.
carrying amount of the asset
The difference between the cost of a capital asset and its accumulated depreciation. Also known as net book value.
cash basis of accounting
Revenues and expenses are reported in the income statement in the period in which cash is received or paid.
contra accounts
Accounts that are offset against another account.
depreciate
Decreasing in usefulness over time for all capital assets, except land.
depreciation
The systematic periodic transfer of the cost of a depreciable asset to an expense account during its expected useful lifetime.
depreciation expense
The portion of the cost of a depreciable asset that is recorded as an expense each year of its useful lifetime.
net book value
The difference between the cost of a capital asset and its accumulated depreciation. Also known as carrying amount of the asset.
notes payable
Written promises to pay an amount and interest at an agreed-upon rate.
notes receivable
Customers written promises to pay company an amount and interest at an agreed-upon rate.
prepaid expenses
Items such as supplies that will be used in the business in the future.
revenue recognition principle
The accounting concept that supports reporting revenues when the services are provided to customers.
time period concept
The accounting concept that assumes that the economic life of the business can be divided into time periods.
unearned revenues
The liability created by receiving cash in advance of earning the revenue.
Revenues and expenses are reported in the income statement in the period in which they are earned or incurred.
accrual basis of accounting
Expenses that have been incurred but not recorded in the accounts.
accrued expenses
